Planning: Importance, Elements and Principles | Function of Management (2024)

Read this article to learn about Planning in an Organisation. After reading this article you will learn about:- 1. Definition and Meaning of Planning 2. Nature and Characteristics of Planning 3. Importance 4. Elements 5. Steps 6. Principles.

Definition and Meaning of Planning:

Planning is a major and primary function of management. No organisation can operate properly without planning.

Planning is a preparatory step for action. It means systematized pre-thinking for determining a course of action to achieve some desired result.

Planning is essentially a process of deciding in advance what is to be done, when and where it is to be done, and how it is to be done, and by whom. To plan is to look ahead and chalk out the future course of operations of an enterprise.

Through planning, the manager fixes the objectives of the organisation as a whole and, in the light of this, the goals of its various departments. Then he proceeds to prepare a kind of ‘blueprint’ mapping out the ways of attaining these objectives.

Therefore, planning may be defined as follows:

Planning is the process by which the managers of an organisation set objectives, make an overall assessment of the future, and chart the courses of action with a view to achieving the organisational goals.

From this definition it follows that the planning process involves:

(i) The determination of appropriate goals and objectives,

(ii) The specification of the actions needed to reach the established objectives; and

(iii) The optimum period of time for achieving them.

Since planning is concerned with the identification of alternatives and selection of the most favourable alternative, it may rightly be described as “the most basic tool of management functions.” Thus planning is a process of deciding the business targets and charting out a rational path of attaining those targets.

Some important definitions of planning, given by the eminent authors are stated below:

According to Koontz and O’Donnell, planning is “an intellectual process, the conscious determination of courses of action, the basing of decisions on purpose, facts and considered estimates.”

George Terry writes:

“By means of planning management members try to look ahead, anticipate eventualities, prepare for contingencies, map out activities and provide an orderly sequence for achieving the objective.”

Henry Fayol views:

“The plan of action is, at one and the same time, the result envisaged, the line of action to be followed, the stages to go through, and methods to use.”

Planning and Decision Making:

Planning decides the future course of action and involves choosing it from alternatives. From this point of view, decision-making and planning move together and one depends on the other. Truly speaking, planning as a whole with its component parts is the outcome of decision-making.

So decision-making has a pervasive influence upon planning and it is a part of the planning process. Thus, decision­-making and planning have intimate relation with each other. But, decision-making has a wider connotation than planning. By this we mean to say that the application of decision-making is extended beyond the horizon of planning and, in any business, almost every position is a decisional centre. Decision-making is required not only in planning, it is also necessary in other areas of management functions such as organising, direction, co-ordination, and control.

Mention may be made here of varied operating orders and instructions which are outside of planning, but are subject to decision­ making. Again, there are many managerial functions like motivating the employees, disapproving their work or discharging them form service which call for decision-making, but these functions cannot be included within planning from the point of view of analytical study of different management processes.

Nature and Characteristics of Planning:

Planning is concerned with the establishment of objectives of an enterprise and finding out the way of realisation of those objectives. However, without setting the objectives there is nothing to organise, direct or control. Therefore, every organisation is required to specify what it wants to achieve. Planning is basically related with this aspect.

The nature and characteristics of planning may be stated as follows:

1. Intellectual Process:

Planning is an intellectual and rational process. Planning is a mental exercise involving imagination, foresight and sound judgement. It requires a mental disposition of thinking before’ acting in the light of facts rather than guess. The quality of planning depends upon the abilities of the managers who are required to collect all relevant facts, analyse and interpret them in a correct way.

How far into the future a manager can see and with how much clarity he will depend on his intellectual calibre, are chalked out through planning process. In thinking of objectives, alternative courses of action and, above all, in making decision for choosing certain alternatives, the planner goes through an intellectual process.

2. Goal-orientation:

All planning is linked up with certain goals and objectives. It follows, therefore, that every plan must contribute in some positive way to the accomplishment of group objectives. Planning has no meaning without being related to goals and objectives. It must bridge the gap between where we are and where we want to go at the minimum cost.

3. Primary Function:

Planning is said to be the most basic and primary function of management. It occupies first place and precedes all other functions of management which are designed to attain the goals set under planning. This is so because the manager decides upon the policies, procedures, programmes, projects, etc. before proceeding with the work. The other functions of management—organising, direction, co-ordination and control—can be performed only after the manager has formulated the necessary planning.

4. Pervasiveness:

Planning pervades all managerial activities. It is the job of all managers in all types of organisation. It is undertaken at all segments and levels of the organisation—from the general manager to the foreman. Whatever be the nature of activity, management starts with planning. The character and breadth of planning will, of course, vary from one job to another—depending on the level of management.

5. Uniformity:

There may be separate plans prepared in different levels in the organisation, but all the sub-plans must be united with the general plan so as to make up a comprehensive plan for operation at a time. So, uniformity must be there in all levels of planning to match the general plan.

6. Continuity:

To keep the enterprise as a going concern without any break, it is essential that planning must be a continuous process. So, the first plan must follow the second plan and the second plan the third and so on in never-ending series in quick succession.

7. Flexibility:

Plans should not be made rigid. It should be as flexible as possible to accommodate all possible changes in the enterprise with a view to coping with the changing conditions in the market. In fact, planning is a dynamic activity.

8. Simplicity:

The language of the work schedule or programme in the planning should be simple so that each and every part of it may easily be understood by the employees at different levels, specially at the lower level.

9. Precision:

Precision is the soul of planning. This gives the planning exact, definite, and accurate meaning in its scope and content. Any mistake or error in planning is sure to upset other functions of management and, thus, precision is of utmost importance in every kind of planning.

10. Feasibility:

Planning is neither poetry nor philosophy. It is based on facts and experience, and thereby realistic in nature. It represents a programme which is possible to execute with more or less existing resources.

11. Choice among Alternative Courses:

Planning involves selection of suitable course of action from several alternatives. If there is only one way of doing something there is no need of planning. Planning has to find out several alternatives, estimate the feasibility and profitability of the different alternatives, and to choose the best one out of them.

12. Efficiency:

Planning is directed towards efficiency. A plan is a course of action that shows promise of optimizing return at the minimum expense of inputs. In planning, the manager evaluates the alternatives on the basis of efficiency. A good plan should not only attain optimum relationship between output and input but should also bring the greatest satisfaction to those who are responsible for its implementation.

13. Inter-dependence:

The different departments may formulate different plans and programmes for their integration in the overall planning. But sectional plans cannot but be inter-dependent. For example, production planning depends upon sales planning—and vice versa.

Again, planning for purchase of raw materials, employment of labour, etc. cannot be an isolated act apart from sales planning and production planning. Planning is a structured process and different plans constitute a hierarchy. Different plans are inter-dependent and inter-related. Every lower-level plan serves as a means towards the end of higher plans.

14. Forecasting:

Above all, no planning can proceed without forecasting—which means assessing the future and making provision for it. Planning is the synthesis of various forecasts—short-term or long-term, special or otherwise. They all merge into a single programme and act as a guide for the whole concern.

Importance of Planning:

Planning is the key to success of an organisation. In fact, most of the company’s achievements can be attributed to careful planning. Planning is a function of every manager at every level in an enterprise. Every manager is required to plan first for systematic and orderly performance of his assigned duties.

It is within the planning function that goals are determined, decision-making takes place, forecasts are made and strategies are initiated. Thus, planning has assumed great importance in all types of organisation—business or non-business, private or public sector, small or large.

As a managerial function, planning is important for the following reasons:

1. Providing Basis of Decision:

The first and most important reason for planning lies in the fact that it provides a basis on which decisions are made. It is an immense need for the managers of an enterprise to fix up their minds as to what they want to accomplish and then plan the use of time, resources, and efforts towards the achievement of their objectives.

2. Focusing Attention on Objectives:

Planning concentrates attention on the objectives of an enterprise. The first function of planning is to spell out its objectives. The objectives are defined in more concrete, precise and meaningful terms. As a result of such attention, it becomes possible for the planners to determine the policies, procedures, programmes and the rules for an orderly advance towards the ultimate goals desired to be achieved.

3. Minimising Uncertainty and Risk:

The future is uncertain. Planning helps the managers in taking care of future uncertainties and thus minimizes business risk. It anticipates future events and sets the course of action to control these events to one’s advantage. With the help of planning, an enterprise can predict future events and make due provision for them. This, no doubt, eliminates or reduces the possibility or jumping into uncertainties.

4. Adapting with Changes:

Business planning has become imperative due to the fact that an enterprise operates in a changing and dynamic environment. The aspects of this changing environment include changes in technology, government policies, the nature of competition, social norms and attitudes etc. As the planning proceeds step by step, it foresees the changes likely to come and accordingly prepares its programme by necessary adjustments and adaptation.

5. Securing Economy:

Planning focuses on efficiency and economy in operation. A plan is a course of action that can take the organisation to its objectives at the minimum cost. Planning prevents wastage of resources by choosing the best course of action from many alternatives. It aims at smooth flow of work. All these steps in planning lead automatically to economy.

6. Helping in Co-ordination:

Planning leads to achieve a coordinated structure of operations. It provides a unifying framework. Sound planning inter-relates all the activities and resources of an organisation. Well-considered overall plans harmonies inter-departmental activities. Thus, various departments work in accordance with the overall plan, and co­ordination is achieved.

7. Making Control Effective:

The managerial function of controlling is concerned with a comparison between the planned performance and the actual performance of the subordinates and departments of the organisation. Thus, control is exercised in the context of planning action as the standards against which actual results are to be compared are set up through planning. So planning provides the basis for control. Thus, planning and control are inseparable.

8. Increasing Organisational Effectiveness:

Planning ensures organisational effectiveness in several ways. It states the objectives of the organization in the context of given resources; provides for proper utilisation of resources to the best advantage, gives necessary competitive strength for continuous growth and steady progress by foreseeing what the competitors are likely to do and evolving its strategies accordingly.

The process of planning generates the purposeful and orderly setting up of activities to be carried on. It defines the boundaries within which the business should operate. This enables the businessman to concentrate upon those matters which are actually relevant and vital to business success.

Elements of Planning:

Planning as a managerial process consists of the following elements or components:

1. Objectives:

The important task of planning is to determine the objectives of the enterprise. Objectives are the goals towards which all managerial activities are aimed at. All planning work must spell out in clear terms the objectives to be realised from the proposed business activities. When planning action is taken, these objectives are made more concrete and meaningful. For example, if the organisational objective is profit earning, planning activity will specify how much profit is to be earned looking into all facilitating and constraining factors.

2. Forecasting:

It is the analysis and interpretation of future in relation to the activities and working of an enterprise. Business forecasting refers to analysing the statistical data and other economic, political and market information for the purpose of reducing the risks involved in making business decisions and long range plans. Forecasting provides a logical basis for anticipating the shape of the future business transactions and their requirements as to man and material.

3. Policies:

Planning also requires laying down of policies for the easy realisation of the -objectives of business. Policies are statements or principles that guide and direct different managers at various levels in making decisions. Policies provide the necessary basis for executive operation. They set forth overall boundaries within which the decision-makers are expected to operate while making decisions. Policies act as guidelines for taking administrative decisions.

In a big enterprise, various policies are formulated for guiding and directing the subordinates in different areas of management. They may be production policy, sales policy, financial policy, personnel policy etc. But these different policies are co-ordinated and integrated in such a way that they ensure easy realisation of the ultimate objectives of business. Policies should be consistent and must not be changed frequently.

4. Procedures:

The manner in which each work has to be done is indicated by the procedures laid down. Procedures outline a series of tasks for a specified course of action. There may be some confusion between policies and procedures. Policies provide guidelines to thinking and action, but procedures are definite and specific steps to thinking and action. For example, the policy may be the recruitment of personnel from all parts of the country; but procedures may be to advertise and invite applications, to take interviews and offer appointment to the selected personnel.

Thus, procedures mean definite steps in a chronological sequence within the area chalked out by the policies. In other words, procedures are the methods by means of which policies are enforced. Different procedures are adopted in different areas of business activities. There may be production procedure, sales procedure, purchase procedure, personnel procedure etc.

Production procedure involves manufacturing and assembling of parts; sales procedure relates to advertising, offering quotations, securing and execution of orders; purchase procedure indicates inviting tenders, selecting quotations, placing orders, storing the goods in go-down and supplying them against requisition to different departments and personnel procedure is the recruitment, selection and placement of workers to different jobs.

5. Rules:

A rule specifies necessary course of action in a particular situation. It acts as a guide and is essentially in the nature of a decision made by the management authority. This decision signifies that a definite action must be taken in respect of a specific situation. The rules prescribe a definite and rigid course of action to be followed in different business activities without any scope for deviation or discretion.

Any deviation of rule entails penalty. Rule is related to parts of a procedure. Thus, a rule may be incorporated in respect of purchase procedure that all purchases must be made after inviting tenders. Similarly, in respect of sales procedure, rule may be enforced that all orders should be confirmed the very next day.

6. Programmes:

Programmes are precise plans of action followed in proper sequence in accordance with the objectives, policies and procedures. Programmes, thus, lead to a concrete course of inter-related actions for the accomplishment of a purpose. Thus, a company may have a programme for the establishment of schools, colleges and hospitals near about its premises along with its expanding business activities.

Programmes must be closely integrated with the objectives. Programming involves dividing into steps the activities necessary to achieve the objectives, determining the sequence between different steps, fixing up performance responsibility for each step, determining the requirements of resources, time, finance etc. and assigning definite duties to each part.

7. Budgets:

Budget means an estimate of men, money, materials and equipment in numerical terms required for implementation of plans and programmes. Thus, planning and budgeting are inter-linked. Budget indicates the size of the programme and involves income and outgo, input and output. It also serves as a very important control device by measuring the performance in relation to the set goals. There may be several departmental budgets which are again integrated into the master budget.

8. Projects:

A project is a single-use plan which is a part of a general programme. It is part of the job that needs to be done in connection with the general programme. So a single step in a programme is set up as a project. Generally, in planning a project, a special task force is also envisaged.

It is a scheme for investing resources which can be analysed and appraised reasonably and independently. A project involves basically the investment of funds, the benefits from which can be accrued in future. Examples of such investment may be outlays on land, building, machinery, research and development, etc. depending upon the situation.

9. Strategies:

Strategies are the devices formulated and adopted from the competitive standpoint as well as from the point of view of the employees, customers, suppliers and government. Strategies thus may be internal and external. Whether internal or external, the success of the plans demands that it should be strategy-oriented.

The best strategy of planning from the competitive standpoint is to be fully informed somehow about the planning ‘secrets’ of the competitors and to prepare its own plan accordingly. Strategies act as reserve forces to overcome resistances and reactions according to circ*mstances. They are applied as and when required.

Steps in Planning:

A plan is essentially today’s design for tomorrow’s action and an outline of the steps to be taken in future. A good plan must be simple, balanced and flexible, and make utmost use of the existing resources. It must be based on clearly defined objectives.

For preparation of such a plan, a definite process involving the following steps has to be followed:

1. Perception of the Opportunities:

The manager must first identify the opportunity that calls for planning and action. This is very important for the planning process because it leads to formulation of plans by providing clue as to whether opportunities exist for taking up particular plans.

Perception of opportunities includes a preliminary look at possible opportunities and the ability to see them clearly and completely, an understanding of why the organisation wants to solve the uncertainties and a vision what it expects to gain. This provides an opportunity to set the objectives in real sense.

2. Establishment of the Objectives:

The next step in the planning process lies in the setting up of objectives to be achieved by the enterprise in the clearest possible terms keeping in view its strength and limitation. Objectives specify the results expected in measurable terms and indicate the end points of what is to be done; where the primary emphasis is to be placed, and what is to be accomplished by various types of plans. Enterprises start with a general objective.

From this are developed subordinate goals that contribute to the attainment of the general objective. These, in turn, are supported by the specific objectives for the departments. In this process a hierarchy of objectives is created. The plans at each level of the organisation are made for the attainment of the appropriate objectives in the hierarchy. This hierarchy can be built up by coordinating the plans of different departments.

3. Building the Planning Premises:

After determination of the organisational goals, it is necessary to establish planning premises, that is, the conditions under which planning activities will be undertaken. This involves collection of facts and figures necessary for planning the future course of the enterprise. ‘Planning Premises’ are planning assumptions relating to the expected environmental and internal conditions.

So, planning premises are of two types—external and internal. External premises include total factors in the environment like social, political, technological, competitors’ plans and actions, government policies, etc. Internal factors include the organisation’s policies, resources of various types, and the ability of the organisation to withstand the environmental pressure. The plans are formulated in the light of both external and internal factors.

4. Identifying the Alternatives:

The next step in planning process is to search for various alternative courses of action based on the organisational objectives and planning premises. A particular objective can be achieved through various actions. For example, if an organisation has set its objective to grow further, it can be achieved in several ways like expanding the field of business or product line, joining with other organisations, or taking over another organisation, and so on. Within each category, there may be several alternatives.

Since all alternatives cannot be considered for further analysis, it is necessary for the planner to reduce in preliminary examination the number of alternatives that do not meet the minimum preliminary criteria. Preliminary criteria can be defined in several ways— minimum investment required, matching with the present business of the organisation, control by the government, etc.

5. Evaluation of the Alternatives:

Various alternative courses that are considered feasible in terms of preliminary criteria have to be taken for detailed evaluation. Alternative courses of action can be evaluated against the criteria of cost, risks, benefit and organisational facilities. The strong and weak points of every alternative should be analysed carefully.

Since there are so many complex variables connected with each goal and each possible plan, the process of comparative evaluation is extremely difficult. For example, one alternative may be the most profitable but requires heavy investment; another may be less profitable but also involves less risk.

Moreover, there is no certainty about the outcome of any alternative course because it is related with future which is not certain. Ultimately, the choice will depend upon what is determined as the most critical factor from the point of view of the objectives of the enterprise.

6. Choice of the Course of Action:

After the evaluation of various alternatives, the most appropriate one is selected as the plan. Sometimes evaluation shows that more than one alternative are equally good. In such a case, the manager may choose more than one alternative at the same time. There is another reason for choosing more than one alternative. Alternative course of action may be required to be undertaken in future in changed situations. So, the planner must also be ready with alternative—normally known as contingency plan— that can help coping up with the changed situation.

7. Formulation of Supporting or Derivative Plans:

After the best alternative is decided upon, the next step is to derive various plans for different departments or sections of the organisation to support the main plan. In an organisation, there can be various derivative plans like planning for buying raw materials and equipment, developing new product, recruiting and training the personnel, etc.

These derivative plans are formulated out of the main plan and so they support it. The break-down of the master plan into departmental and sectional plans provides a realistic picture of the actions to be taken in future.

8. Establishing the Sequence of Activities:

After formulating the basic and derivative plans, the sequence of activities is determined so that the plans are put into action. Based on the plans at various levels, it can be decided who will do what and at what time. Budgets for various periods can be prepared to make plans more concrete for implementation.

9. Securing Participation:

Plans must be communicated in greater details to the subordinates to increase their understanding of the proposed action and for enlisting their co-operations in the execution of plans. It will, thus, add to the quality of planning through the knowledge of additional facts, new visions and revealing situations.

10. Providing for Future Evaluation:

For ensuring that the selected plans are proceeding with the right lines, it is of paramount importance to devise a system of continuous evaluation and appraisal of the plan. It will help in detecting the shortcomings and pitfalls of the plans and taking remedial actions well in time. All the steps in the process of planning must be linked and co-ordinated with each other. For successful implementation of a plan, it must be communicated to all levels of the organisation.

Basic Principles of Planning:

Planning requires scientific thinking and it should spell out in clear terms the definition of the purpose, analyse the problem and make a careful and diligent search for all the facts bearing upon it. The task of planning will be well-accomplished if some fundamental principles are followed in the process.

The important principles may be stated as follows:

1. Principle of Commitment:

This means that certain resources must be committed or pledged for the purpose of planning. Planning is not an easy task. So, necessary help is to be taken from experts. The enterprise must be ready to exhaust the available resources for the achievement of a plan.

2. Principle of the Limiting Factor:

A plan involves varied factors of different importance. This principle implies that more emphasis has to be put on that factor which is scarce or limited in supply or extremely costly. This will help in selecting the most favourable alternative.

3. Principle of Reflective Thinking:

Planning, being an intellectual activity is based on rational considerations. These involve reflective thinking which signifies problem-solving thought process—a process by which past experiences are superimposed on the facts of the present situation and possible future trends. None can be a planner whose mind is not active, who does not possess any deliberate power and whose sense of judgement is not strong.

4. Principle of Flexibility:

Though a plan is prepared after reflective thinking, this does not mean that no departure can be made in the course of its operation. The plan should be so prepared that there is sufficient scope for changing it from time to time. Changes must necessarily be effected in the plan for taking into account new developments that may take place in the course of the operation of the plan.

5. Principle of Contribution to Enterprise Objectives:

A major plan is prepared and it is supported by many derivative plans. But all plans must contribute in a positive way towards the achievement of the enterprise objectives.

6. Principle of Efficiency:

A plan should be made efficient to attain the objectives of the enterprise at the minimum cost and least effort. It must also achieve better results with the minimum of unexpected happenings. Therefore, it is to be seen that what is expected is likely to be achieved.

7. Principle of Selection of Alternatives:

Planning is basically a problem of choosing. The essence of planning is the choice among alternative courses of action. There is no need for planning if there is only one way for doing something. In choosing from alternatives, the best alternative will be that which contributes most efficiently and effectively to the accomplishment of a desired goal.

8. Principle of Planning Premises:

A plan is prepared against some foundations or backgrounds known as ‘Planning Premises’. There must be complete agreement among the managers in respect of planning premises over which the structure of plan is to be framed.

9. Principle of Timing and Sequence of Operations:

Timing and sequence of operations determine the starting and finishing time for each piece of work according to some definite schedule and give practical and concrete shape and form to work performance.

10. Principle of Securing Participation:

To secure participation of the employees with whole-hearted co-operation in execution of the plan, it is necessary that the plan must be communicated and explained to them for their full understanding. This understanding provides the basis for additional knowledge about new facts and matters to the employees. This is needed for improvement in the quality of planning. It also ensures an obligation of the personnel of the enterprise to execute the plan by individual and joint participation.

11. Principle of Pervasiveness:

Though major planning function is entrusted to the top management, it is not restricted to the top level only. It is a function of every manager at every level in the organisation.

12. Principle of Strategic Planning:

Strategic planning is essential where there is competition. It is prepared in the light of what the competitors are intending to do. Planners must take into account the strategies of the rival organisations, otherwise the planning projection may land them in trouble.

13. Principle of Innovation:

A good system of planning should be responsive to the opportunities for innovation. Innovation consists in creating something new for increasing satisfaction of the consumers. This may also be stated as an important strategy of business. Innovation is a necessity for its sustaining growth in this dynamic world. Innovation is achieved through research and development and planning is required to provide such scope.

14. Principle of Follow-up:

In the course of execution of a plan, certain obstacles may crop up in midway and planning may require revision, alteration or correction. This is why there must be a follow-up system in the planning process itself. This allows timely changes in the planning and makes it more effective.

However, to plan any kind of work, the following facts demand utmost attention:

(i) The nature, quality and quantity of work to be done, the best way of doing it, the time available for its accomplishment, how to do it, when it is to be done and who are to do it.

(ii) Adequate knowledge about the capacity of the force available through observations and experiments and from established standards.

(iii) The priority to be given in succession for the accomplishment of different tasks through careful analysis.