Chapter 11 - Planning
B-Com Part 2 Management Notes
http://karachiboardnotes.blogspot.com/Chapter 11 - Planning
* Planning
* Various Steps of Planning
* Various elements of good planning
* Environment
* Internal Environment
Q.1. Define Planning and discuss its main characteristics.
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Discuss the advantages, limitation and principles of Planning.
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What is planning? Outline the steps in planning process.
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What is the concept of planning as an element of Management process? Discuss its nature and role in a modern business organisation.
Meaning and Definition of Planning
Planning is thinking in advance or before doing something. All kinds of organisation do planning. Planning helps us in looking into the future. Planning establishes goals or objectives and identifies the ways to achieve them. A plan is a predetermined course of action to be taken in future.
George Steiner
Planning is a process that begins with objectives, defines strategies, policies and detailed plans to achieve them.
Peter Drucker
Planning is the continuous process of making present entrepreneurial (risk taking) decisions systematically and with best possible knowledge of their futurity.
Nature of Characteristics of Planning
There are a number of features or characteristics of planning that indicate towards its nature. These may be outlined as follows:
1. Goal-Oriented
Planning is goal-oriented in the sense that plans are prepared and implemented to achieve certain objectives.
2. Basic to all Managerial Functions
Planning is a function that is the foundation of management process. Planning logically precedes all other function of management, such as organizing, staffing etc because without plan there is nothing to organize nothing to control. Every managerial action has to be properly planned.
3. Pervasive
Planning is a function of all managers, although the nature and extent of planning will vary with their authority and level in the organisation hierarchy. Managers at higher levels spend more time and effort on planning than do lower level managers.
4. Interdependent Process
Planning affects and is affected by the programmes of different departments in so far as these programmes constitute an integrated effort.
5. Future Oriented
Planning is forward looking and it prepares an enterprise for future.
6. Forecasting Integral to Planning
These essence of planning is forecasting. Plans are synthesis of various forecasts. Thus, planning is inextricably (inseparably bound up with planning).
7. Continuous Process
Planning is an ongoing process. Old plans have to be revised and new plans have to be prepared in case the environment undergoes a change. It shows the dynamic nature of planning.
8. Intellectual Process
Planning is a mental or conceptual exercise. It therefore involves rational decision making, requires imagination, foresight and sound judgement and involves thinking before doing thinking on the basis of facts and information.
9. Integrating Process
Planning is essential for the enterprise as a whole. Newman and others have drawn our attention towards this feature of planning, without planning, an enterprise will soon disintegrate the pattern of its actions would be as random as that made by leaves scampering (running quickly in short steps) before an autumn wind and its employees would be as confused as ants in an upturned anthill. If there are no plans action will be a random activity in the organisation instead there will be chaos.
10. Planning and Control are Inseparable
Unplanned action cannot be controlled, without controlled, planned actions cannot be executed. Plans furnish standards of control, In fact Planning is meaningful without control and control is aimless without planning. Planning is measuring rod of efficiency.
11. Choice among Alternative Courses of Action
The need for planning arises due to several ways available for an action. If there is only one way-out left, there is no need for planning.
12. Flexible Process
The principle of navigational change (i.e. change according to changes in environment) applies to planning. In other words, effective planning requires continual checking on events and forecasts and the redrawing of plans to maintain a course towards desired goals. Thus, plans have to be adaptable to changing circumstances.
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Q.2. Describe in detail the various steps of Planning.
Planning Process
The process of planning involves the following steps:
1. Analyzing Environment
At the outset, the internal and external environment is analyzed in order to identify company's strengths and weaknesses (in internal environment) and opportunities and threats (existing int the external environment). This is also known as SWOT (strengths, weaknesses, opportunities and threats) analysis.
2. Establishing Objectives Or Goals
In the light of the environmental scanning (study), clear or probable opportunities that can be availed are identified. In order to avail them, objectives or goals are clearly defined in specific term along with priorities in all the key areas of operations. Major problems associated with such objectives are also identified and defines, so that there may be special emphasis on their planned solutions.
3. Seeking Necessary Information
All relevant facts and data are collected from internal and external sources. For example, availability of supplies, physical and human resources of the company, finances at disposal, relevant government policy, general economic conditions and relevant specific market situation. Then such investigated and collected information and factors are analyzed. Such information analysis is used in two ways - first, to make necessary modifications in objectives or goals and secondly to take help from them in premising (considering) assumptions.
4. Premising Or Establishing the Planning Premises
In order to develop consistent and coordinated plans, it is necessary that planning is based upon carefully considered assumptions and predictions. Such assumptions and predictions are known as planning premises. The assumptions under which plans are supposed to operate should be clearly brought out. Such presumptions and forecasts are prepared for various areas, such as sales, prices, wages, taxes, changes in fashions and habits, purchasing power, standards of living, population competitors and so on.
5. Identifying and Developing Alternative Courses of Action
After establishing objectives or goals and taking other related steps, feasible alternative programmes or courses of action are seached out. Impossible or highly difficult propositions are left out.
6. Evaluating the Alternatives
Probable consequences of each alternative course of action in terms of its pros and cons (e.g. costs, benefits, risks, etc) are assessed and than relative importance of each of them is found out by looking at their overall individual strengths and limitations especially in the light of the present objectives and the environment of the company.
7. Choosing the Most Appropriate Alternative Or Course of Action
After weighing the pros and cons of each of the alternative courses of action and realizing their individual relative importance, the most appropriate alternative in the light of the overall consideration is selected to be followed. In other words, the alternative which appears to be most feasible and conducive to the accomplishment of company's predetermined objectives, is chosen as a final plan of action - as strategy.
8. Preparing the Derivative Plans
Derivative plans involve short range, operating plans that are useful in day-to-day operation and provide a working basis for such operations. Such plants are developed in the form of schedules, budgets, programmes, procedures, methods, rules, policies etc. The derivative plans are prepared in different departments and their timing and sequence are also specified. Such plans are prepared in concrete terms showing specific results to be attained within specified time limit and by utilizing the allocated resources. An integrative mechanism has also to be provided for effecting coordination between and among different derivative plans being executed by different departments.
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Q.3. Discuss the various elements of good planning.
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Discuss briefly the various types of plans.
Elements of Good Planning
Managerial planning comprises various types of plans, which are also known as elements of good planning. Some of the important types of plans may be discussed as follows, which must be included in a sound planning system.
1. Objectives
Objectives may be defined as the targets people seek to achieve over different time periods. Objectives gives direction to human behaviour and effort. Hence, an essential task of management it to formulate, classify and communicate organizational objectives. Managers are required to set both general and specific objectives. Survival, growth and development are general objectives of a business enterprise. The specific objectives include the goals set for various departments, divisions, groups and individuals. The general objectives are long term in nature, where as the specific objectives are short range, though the short range objectives are and should be a part of long term objectives. Departmental objectives must be consistent with the conductive to the overall, corporate objectives.
2. Policies
A policy is a general statement that guides thinking, action and decision making of managers for the successful achievement of organizational objectives. Policies define the limits within which decision are to be made. This ensures consistent and unified performance and exercise of discretion by managers. Top management generally frames the policies. However, a manager at any other level may lay down policies within the limits of his authority and also within boundaries set by policies of his seniors. A policy is not static and may be modified or reviewed in the light of changes the environment. A policy may be verbal, written or implied. A well defined policy helps the manager to delegate authority without undue fear, because the policy lays down the limits for decisions by the subordinates.
3. Procedures
A procedure prescribes the sequence of steps that must be completed in order to achieve a specific purpose. A procedure is a guide to action rather than to thinking. It details the exact manner in which a certain activity must be accomplished. Its essence is chronological sequence of required actions or steps. A procedure is generally established for repetitive activity so that same steps are followed each time when that activity is performed. The procedures do not allow much latitude in managerial decision making because they lay down a definite way of doing certain things. Procedures are designed to execute policies and achieve objectives. Procedures are used in all major functional areas. Purchase procedure, materials issue procedure, costumer's order executing procedure, accounting procedure, grievance handling procedure, etc, are some of the examples of usual procedures.
4. Rules
Like a procedure, a rule is a guide to action. But it does not lay down any sequence of steps as in the case of a procedure. A role tells us whether a definite action will be taken or will not be taken in case of a given situation. Examples of rules are: (i) Customer's complaint must be replied within one day (under customer satisfaction policy), (ii) No smoking in the factory (under safety policy). Thus, a rule is prescribed course of action or conduct that must be followed. As such, a rule does not leave any scope for discretion on the part of the subordinates. Rules are definite and rigid because there must be no deviation from the stated action, except in very exceptional cases.
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5. Strategy
Strategy is a pattern or plan that involves matching organisation competences (i.e. internal resources and skills) with the opportunities and risks created by environmental change, in ways that will be both effective and efficient over the time such resources will be deployed. Effective formal strategies contain three elements: (i) the most important goals, (ii) the most significant policies, (iii) the major programmes. Strategy deals with unpredictable and unknowable. It is developed around a few key concepts and thrusts. A well-formulated strategy helps to marshal and allocate and organisation's resources into a unique and viable posture in relation to the strengths and weaknesses of the organisation, the anticipated changes in the environment and the contingent moves of the opponents. Generally when we walk of organizational strategy, it refers organisation's top level strategy. However, strategies exist at other levels also.
6. Programmes
A programme lays down the principal steps for accomplishing a mission and sets an approximate time for carrying out each step. George Terry says, A programme can be defined as a comprehensive plan that includes future use of different resources in an integrated pattern and establishes a sequence of required actions and time schedules for each in order to achieve stated objectives. Programmes outline the actions to be taken by whom and where. A programme is made up of objectives, policies, procedures, task assignment, budgets, schedules etc. Examples of programmes are, building programme, expansion programme, moral improvement programme, acquisition of the new line of business programme, training programme, development of a new product programme, advertising programme and so on. Programmes may be measure or minor, primary or derivative and long-term, medium term or short term.
7. Projects
Often a single step in a programme is set up as a project. In fact a project is simply a cluster of activities that is relatively separate and clear cut. Thus, projects have some features of a programme but are usually parts of some programmes. Building a hospital, designing a new package, building a new plant, are some examples of projects. The chief virtue of a project lies in identifying a nice, neat work package within a bewildering array of objectives, alternatives and activities.
8. Budgets
A budget is a statement or a plan of expected results expressed in numerical terms, such as man hours, units of production, machine hours, amount of expenditure or any other quantitatively measurable term. Then it may be expressed in time, money, materials or other quantitative units. Budget is prepared prior to a definite period of time of the policy to be pursued during that period for a purpose of a given objective. It introduces the idea of definiteness in planning. A budget is an important control device also because it provides standards against which actual performance may be measured. Examples of budgets are, production budget, sales budget, material budget, cash budget, capital expenditure budget, expenses budget and so on.
9. Schedules
A schedule is an operational plan, timetable of work that specified time-periods (with beginning and completion time points) within which activity or activities are to be accomplished. In order to keep the schedule realistic and flexible, minimum and maximum time-periods may be specified. Three main elements are involved in planning a schedules, (i) identification of activities or tasks, (ii) determination of their sequence, (iii) specification of starting and finishing dates for each activity as well as for teh sequence as a whole. Scheduling is the process of establishing a time sequence for the work to be done. Schedules translate programmes into actions. Scheduling is necessary in all organisations with a view to providing for an even flow of operations and to ensure completing of each task at the right time. While planning schedule, the avialability of resources, processing time and the delivery commitments should be kept in view. Due allowance should be made for delays created by factors beyond the control of management as well as for non-productive time.
10. Forecasts
Planning presupposes forecasting as the former is defined as deciding what is to be done in future. Henri Fayol has described a plan as the synthesis of various forecasts - annual, long-term, short-term, special etc. The targets cannot be fixed with any degree of precision unless forecasts are made. Forecasts are estimates of future events, providing parameters to planning. Forecasts do not involve any kind of commitment of organizational resources. Planning without forecasts is not possible. In fact, forecasts are predictions or estimates of the changes in the environment, which may effect the business plans. A manager has to make forecasts keeping in view the planning premises. There are various types of forecasts, such as economic, technological, political, social and so on. However, sales forecast is the basis of most planning.
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Q.4. What is environment? What is environment analysis and diagnosis? Explain the importance of environment analysis and diagnosis.
OR
Explain the term "environment" and discuss why environment analysis and diagnosis is necessary in strategic management.
Environment
Organisations are not island in themselves they function neither in isolation nor in vacuum. They are part of a society and exist in association with their environment, i.e., certain facts surrounding various situations. Organisation's profitability is not determined by what the products look like, nor whether it embodies high or low technology; it is rather determined by the environment within which it operates. Thus, organisations are affected by environment. If an organisation is to remain successful and prosperous, it must regularly adapt to its environment, which is uncertain and changing. Failure adequately adapt to the environment may be a mojor cause of organisation's failure. However, organisations also affect the environment.
Although William Starbuck has identified some 20 different uses of the work environment in order to perform an efficient and effective environmental analysis the environment of an organisation is generally divided into two distinct levels; external or general and internal or specific environment.
External or general environment is a set of those factor that affect and organisation from outside is boundaries. The external environment contains elements that have broad and long-term implications for managing the organisation. Such environment has both direct action and indirect action elements. Direct action element of external environment include various stakeholders lie shareholders, customer, suppliers, competitors, employees, community (or society), special interest groups, government and international issues. They are also designated as economic environment or task environment. Indirect action elements of external environment include political-legal socio-cultural and technological components.
Internal or specific or organizational environment is a set of those factors that affect an organisation from inside its boundaries. It contains elements that exist within the organisation and normally have immediate and specific implications for managing organisation. Broadly speaking, internal environment includes organizational objectives, organizational resources, organizational structures, processes and techniques. Organizational resources include, financial and physical or material resources and human technological capabilities. Organisation structures, processes and techniques include; marketing, production, finance and accounting. From a more specifically management viewpoint, internal environment includes planning, organizing, staffing, directing and controlling.
Environment Analysis
Organisations are open system of management that constantly interacts with their environment. Environmental analysis is the study of organizational environment to identify and indicate those environmental factors that can significantly influence organizational operations and managers strategic decision making. It is thinking about the unthinkable, and it is seeing new insights rather than extrapolation. Environmental analysis is the discerning (seeing and understanding well) of those aspects of the environment, which shall have the greatest influence on the organisation's ability to achieve its objectives. Such a discerning is made within and with the help of a framework provided by the knowledge of the organisation's goals and the existing strategy of the organisation.
Environment Diagnosis
Environment diagnosis is an exercise attempted to identify the factors of causes in the environment that affect the function of an organisation and use such identification as a base for developing plans or strategic to improve or maximize the dynamism and effectiveness of the organisation. Environment analysis is a tool of environmental diagnosis.
Environmental Diagnosis Analysis and Diagnosis
The purpose of environment analysis and diagnosis is to identify the ways in which changes in various organizational factors may directly and indirectly influence the organisation and management. Managers commonly perform environment analysis in order to understand different activities and happenings inside and outside their organisation and thereby increase the chances of framing sound and effective organisations and managerial strategies by coping with the probable demands of the environment.
Environmental analysis is required due to its needs and importance for the following reasons:
1. Environmental factors are primary impact makers on corporate strategy of organisations.
2. Such analysis helps in anticipating opportunities and to plan alternative responses to those opportunities.
3. It helps in determining threats and developing an early warning system to prevent threats to the organisation or to determine the risks that may be faced by organisation in its future operations.
4. It helps to identify those adjustments or adaptations, which are required for greater accomplishment of organizational objectives.
5. It is sort of SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis which helps in deciding about the rights course of action for managerial to successfully negotiate with the prevalent circumstances around the organisation in order to ensure its survival, growth and development.
6. Environmental information strengthens the planning process and strategy formulation.
Environmental analysis is well accepted and recognized as an essential ingredients of strategic management. It may, however be noted that the behaviour of the environment may be predictable, partially predictable or unpredictable. Further, the predictable or partially predictable behaviour may be controllable, partially controllable or uncontrollable. Moreover the environment may be homogeneous or diversified and stable or changing.
Environmental Influences on Organisation and Management
Environmental factors affect an organisation in two ways (i) they set the limits or constraints over its functioning, (ii) they provide opportunity and challenges. The factors themselves act as limits, which are sometimes visisble and at other moments, invisible. The environment provides opportunities by way of markets for new products, etc and challenges in the form of competitors etc. We daily find in newspaper headlines about government's new regulations, competitors, new schemes, consumer revolts, anti pollution activities of the community, trade union, strikes and so on. To deal with these groups is an integral part of all manager's job. Such a job becomes more important the higher a manager rises in managerial hierarchy.
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Q.5. What is internal environment? How managers can match this internal environment with the external environment of their organisation?
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Explain the important techniques by means of which proper organizational strategy may be systematically developed to match the internal environment with the external environment.
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Explain the meaning of internal environment. What are the tools available to managers for matching the internal environment with the external environment?
The Internal Environment
The part or level of an organisation's total environment that exists inside the organisation and usually has immediate and specific implications for managing the organisation is called the internal environment. It consists of those factors inside an organisation that affect the management of the organisation. In broad terms, the aspects included in the internal environment are, objectives, resources and facilities (human and physical), informal organisation (or group), other divisions or units of the organisation, unions, marketing and accounting. It may be notes that employees and unions of an organisation have such a nature as they are to be included both in external and in internal environment. From a more specifically management viewpoint, internal environment includes the state of planning, organizing, staffing, directing and controlling with the organisation.
Matching the Internal Environment with the External Environment
It is clear from the above discussion that on organisation (internal environment) must be suited to its external environment. The management develops its organizational strategies through an environment analysis. On the basis of the results of such environmental analysis, proper organisational strategy may be systematically developed by means of the following special tools and techniques.
1. Critical Questions Analysis (CQA)
Several contemporary management writers suggest that an appropriate organizational strategy is a process of answering some critical or basic question as follows:
(a) What are the purposes and objectives or goals of the organisation?'
The answer to this question unfolds the desination where the organisation wants to go. Appropriate strategy must reflect organizational purpose and objectives in order to minimize inconsistencies in strategy.
(b) Where is the organisation currently heading?
The answer to this question tell about the state of achievement of organizational goals and also whether the level of present progress is satisfactory or not. Managers come to now the gaps in their performance. In fact, this question focuses on where the organisation is actually going - whether on desired path or in wrong direction.
(c) What is the present environment in which the organisation exists and what changes are expected in it in relevant future?
The answer to this question brings out the special features of the current environment and its future trends. However, it may be noted that this question focuses on factors both inside and outside the organisation. For example, lack of technically qualified personnel in the organisation and a sudden arrival of latest computerized technology in the market are the factors that exist respectively in the internal and the external environment.
(d) What steps are essential to better accomplish the objective in future?
In fact, the answer to this question focuses on the requirements of the actual strategy of the organisation in order to remove all inconsistencies and gaps in the currently adopted strategy. However, it may be noted that correct answer to this question depends on the opportunity provided to the managers to reflect on he previous three questions.
Thus, managers can have appropriate strategy to match internal environment with external environment only if they have a clear understanding of three things, (i) Where the organisation intends to go, (ii) Where the organisation is currently going, (iii) What is the environment in which it exists and is expected to exist.
2. SWOT analysis
Strategic thinking tends to focus on analysis of the strengths and weaknesses of the firm and opportunities and threats of the external environment. Only after completing a comprehensive appraisal of the internal and external situations (strengths, weaknesses, opportunities and threats) of the firm, managers could consider the viable strategic options. Such options could only be broadly classified as, for instance, growth (to increase the amount of business), diversification (to reallocate resources to new attractive products in order to exploit new market segments), harvest (to maximize the short term cash flow from the business), retrenchment (to strengthen or protect the amount of business being currently generated) and divestiture (to eliminate an organisation segment, commonly known as Strategic Business Unit (SBU), that is not generating a satisfactory amount of business and that has little hope of doing so in the near future). Good strategic option (selected out of the aforesaid strategic options) should build on strengths and exploit opportunities.
The logic of this analysis indicates that as each firm will be facing a differnet set of opportunities and threats (Os and Ts), and each will have differing strength and weaknesses (Ss and Ws), the strategies that result will be unique to the firm. However, a precaution has to be taken in selecting the managers who conduct the SWOT analysis, because if it is given to inexperienced hands, then it may tend to generate long lists of points and the longer the list, the cloudier will be the emerging strategic picture.
It may be noted that they may be two ways to superior performance of the organisation (i) either the organisation should become the lowest-cost producer in its industry, (ii) it should differentiate its products or services in such respects as are valued by the customers so high that they will pay a premium price to get and enjoy such edging benefits. Thus, organizations can choose to apply either of these two general strategies.
3. Business Portfolio Analysis
Under this type of analysis, sound and unsound business activities are separately identified in relation to market share of business and the growth of markets in which business exists. Sound activities are then continued, supported and emphasized, while unsound activities are discarded, discontinued and de-emphasized.
4. Competitor Analysis
Managers should know quite a lot about their competitors because it is essential to stay in competition in order to capture a lion's share of the market. Organisations should devote the time and effort required to gain a deep understanding of their competitors. If they know their enemy, it will help them to anticipate the strategic moves that the rivals might make. For purposes of making a systematic examination of the competitors and their strategies the following steps are required to be taken:
(i). To examine the existing and potential (future) competitors by close scrutiny of the needs that organisation's products or services are satisfying.
(ii). To examine the competitor's current activities, capabilities, drives, expected moves and vulnerabilities (weaknesses).
(iii). To concentrate on four main areas with a view to establishing a comprehensive profile of the competitors their future goals, assumptions, current strategy and capabilites.
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