Approaches to the Study

UNIT 3 FUNDAMENTALS OF PLANNING of Management

Structure
3.0 Objectives
3.1 Introduction
3.2 What is Planning?
3.3 Nature and characteristics of Planning
3.4 Importance of Planning
3.5 Limitations of planning
3.6 The Process of Planning
3.7 Forecasting as an Element of Planning
3.8 Types of Planning
3.9 Principles of Planning
3.10 Let Us Sum Up
3.11 Key Words
3.12 Answer to Check Your Progress
3.13 Questions for Practice

3.0 OBJECTIVES
After studying this unit, you should be able to:
explain the meaning, nature and importance of the managerial function of
planning
gain familiarity with the various steps of the planning process
describe the major types of planning - such as Strategic Planning,
Tactical planning, Long-range Planning and Short-range Planning
enumerate and explain the principles on which Planning is based.

3.1 INTRODUCTION
In Unit 10 you have been introduced to the key functions of management.
Planning is one of the critical functions of managers, which is closely related
to the other functions. Indeed planning is always recognised as a key function
of managers at all levels in the organisation. Of late, there has been a vigorous
surge of interest in planning all over the world – especially corporate, long-
range and strategic planning.
In this Unit, you will learn the fundamentals of planning – its meaning, nature,
characteristics, importance and limitations. You will also learn the elements and
steps in the planning process, and the role of forecasting in planning. You will
further learn the concepts of strategic planning, tactical planning, long-range
planning, short-range planning and the essential principles of planning.

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Management Concept-I
3.2 WHAT IS PLANNING?
Most of us are fairly familiar with the meaning of ‘Planning’ in our everyday
life. We do often decide in advance about the things to be done on a busy
working day. Parents make advance decision on the education of their
children. As students, you may think in advance how to go ahead with the
preparation for your examination, how to make use of your time in the best
possible manner and so on. Laymen understand planning as some systematic
way of deciding about and doing things in a purposeful manner.
However, in the context of formal organisations and their management, the
concept of planning has a specific connotation. It means deciding in advance
what is to be done in the future for a specific period and then taking the necessary
steps to do the things decided upon. It means looking ahead into the future and
trying to anticipate what it is likely to be, how it will affect the organisation, what
direction the organisation should take, and how to cope with the future events.
Planning also implies determination of courses of action from among alternatives
to achieve the goals of the organisation, both in the immediate future and in the
long run. The very notion of planning brings to mind such images as neat, orderly
and disciplined approach to work, goal-oriented behaviour, thinking about and
arranging things in advance, careful allocation of scarce resources, and so on. In
short, planning may be defined as the process of setting future objectives and
deciding on the ways and means of achieving them.

3.3 NATURE AND CHARACTERISTICS

OF PLANNING
The managerial function of planning has certain unique characteristics of its own,
which distinguish it from the other managerial functions. It also shares a few
characteristics with other managerial functions. All the characteristics together
reflect the nature of the planning function. They are discussed as below:
i) Primacy of Planning: Planning precedes all other managerial functions.
The process of management begins with planning. Planning provides the
basis for the subsequent functions of organising, staffing, directing and
controlling, though all the functions are highly interrelated and are
equally important. Planning is the prime function from which the other
functions get the necessary base.
ii) Planning as a process: Planning is a process involving a few stages or
steps. It is a sub-process of the process of management. The planning
process begins with identification of mission and goals of the organisation
and ends with making arrangement for implementation of plans.
iii) Pervasiveness of planning: Planning is a pervasive function of managers
at all levels of the managerial hierarchy, right from the chief executive
down to the first line supervisor. However, the content and quality of the
function differ from level to level. The time developed to planning also
differs. Typically, the chief executive and other, top level managers
concentrate on corporate-wide planning function. Their decision on
planning have far-reaching effects on the organisation. Managers at middle
36 and lower levels have more limited planning functions.
 Planning is also pervasive across the various organisational function Fundamentals of Planning
areas. In a manufacturing enterprise, for example, we come across such
activities as production planning, materials requirements planning,
manpower planning, financial planning, and so on.
iv) Future orientation: Planning is invariably future-oriented. Henri Fayol
defined planning as the process of looking ahead (thinking ahead) and
making provision to tackle future events and situations. The concern for
future makes sense to the extent that planning is intended to cope with
uncertainties and unknowns which unfold themselves as one march into
the future.
It is needless to state that planning cannot be anything other than future-
oriented: one does not plan for the past and the present. Of course, while
planning for the future, managers consider the relevant events and
situations of the past and the present within and outside the organisation.
v) Information base: Planning is backed by information. Without information
planning exists in a vacuum. Information on the past trends, current
conditions and future possibilities are essential for planning. Information
needed to diagnose planning issues and problems, to develop alternative
courses of action to evaluate them and to make final choice of plans.
vi) Rationality: Planning is a rational managerial activity. It implies that
planning is a purposeful and conscious managerial function. It is backed
by adequate information, knowledge and understanding. Managers who
are planners are somewhat objective and unemotional in their approach
to planning. They make planning decisions with some awareness of their
consequences.
vii) Formal and informal nature: Planning has both formal and informal
elements. Formal planning refers to a systematic and rigorous process of
arriving at planning decision through investigation and analysis of the
various factors. Formal planning is more explicit, and open; responsibility
for various aspects of planning is pinpointed among managers. Plans are put
into writing and are communicated through the organisational channels of
communication to the various managerial levels.
Informal planning is done by managers through an intuitive process.
Managers carry plans in their heads in the form of specific but flexible
intentions and communicate them to others through word of mouth.
Informal planning may also be viewed as a trial and error, fragmented,
intermittent process as against a systematic step-by-step and logical
process of formal planning.
viii) Intellectual process: Planning is an intellectual process and requires
certain conceptual skills. It requires abilities to think both in abstract and
concrete terms, to visualize and look ahead into the future and to form
ideas and images of future expectations and desires. Planning also calls
for intellectual abilities to anticipate opportunities and threats in the
environment, to diagnose problems, develop alternative courses of
action, and analyse them for choosing the right course.
ix) Pragmatic, action-orientation: Although planning is an intellectual
thinking activity, it is primarily pragmatic and action–oriented. Planning 37
Management Concept-I precedes action and is often described as action laid out in advance. To
think before acting and to decide before doing are part of the discipline
and culture of planning. The focus is on actionability of plans, i.e., their
quality of being implementable. Planning is also reality-oriented.
x) Planning as a form of decision making: Planning involves problems
solving and decision making. It is a process of identification of issues
and problems needing decision, collection of relevant information,
evaluation of alternative courses and choices of the most appropriate
alternative. Decisions are made on organisational objectives, strategies,
policies, programmes, procedures and other plans. They are all choices
from alternatives. They also involve mobilisation, allocation and
commitment of resources and efforts in specific ways.
xi) Planning premises: Planning is based on certain assumption and
estimates about the future behaviours of events and situations in the
environment. These are formally known as ‘planning premises’ which
are derived through the process of forecasting. Without such
assumptions planning becomes an empty speculative exercise. Managers
make promises or assumptions about the future events for purposes of
planning in order to have a sense of security and certainty in the midst of
grave uncertainties and complexities of the environment.

xii) Dynamism: Planning is a dynamic process. It is process of making the

organisation selectively move and change in tune with relevant changes
in the external environment. It is a process of building flexibility and
adaptability into the functioning of the organisation. It is a process of
making continuous assessment and reassessment of the goals, resources,
direction opportunities and problems of the organisation and converting
them to serve its needs.
xiii) Levels of planning: Planning is often divided into a few levels on the
basis of their scope, significance and time span. On the basis of scope,
there are two levels: (1) corporate planning covering the entire
organisation, and (2) sub-corporate or functional planning carried on
within the various functional units or divisions. On the basis of
significance, we may divide planning into strategic planning and tactical
or operational planning. On the basis of time span, there are two levels:
1) Long-range planning covering periods of more than one year in
general, and
2) Short-range planning covering a period of one year or less.
The division of planning into various levels facilitates analysis of the
dimensions and critical elements of planning. Even so, planning is
an integrated function. Thus, different levels of planning should be
balanced and coordinated so that they support one another.
xiv) Types of plans: The process of planning produces several types of ‘plans’
which may be viewed as a series or hierarchy of decisions and ‘action
packages’. They include: objectives or goals, strategies, policies,
programmes budgets, schedules, procedures, methods, rules and so on.
38 Some of the plans such as objectives and budgets serve as integral elements
 of the planning process while others such as policies, procedures, rules Fundamentals of Planning
and methods serve as facilitating tools for smooth planning. All the
plans are categorised into two broad groups; (i) single use plans, and (ii)
standing plans. Single use plans are those which are designed to meet
specific, non-repetitive and unique situations, while standing plans are
those which are fairly stable and are meant to handle a wide range of
repetitive situations over a period of time.

3.4 IMPORTANCE OF PLANNING

The importance of the planning function should have been clear after all that
you have read about it till now. We may outline the importance of planning
function as follows:
i) Provides directions: Planning provides a clear sense of directions to the
activities of the organisation and to the job behaviour of managers and
others. It strengthens their confidence in understanding where the
organisation is heading and what for, how best to make the organisation
move along the chosen path, and when should they take what measures to
achieve the goals of the organisation.
ii) Provides opportunity to analyse alternative courses of action: Another
source of importance of planning is that it permits managers to examine and
analyse alternative course of action with a better understanding of their
likely consequences. If managers have an enhanced awareness of the
possible future effects of alternative courses of action, for making a decision
or for taking any action, they will be able to exercise judgment and proceed
cautiously to choose the most feasible and favorable course of action.

iii) Reduces uncertainties: Planning forces managers to shake off their

inertia and insular outlook; it induces them to look beyond those noses,
beyond today and tomorrow, and beyond immediate concerns. It
encourages them to probe and cut through complexities and uncertainties
of the environment and to gain control over the elements of change.
iv) Minimises impulsive and arbitrary decisions: Planning tends to
minimise the incidence of impulsive and arbitrary decisions and ad hoc
actions; it obviates exclusive dependence on the mercies of luck and
chance elements; it reduces the probability of major errors and failures in
managerial actions. It injects a measure of discipline in managerial
thinking and organisational action. It improves the capability of the
organisation of assume calculated risks. It increases the freedom and
flexibility of managers within well-defined limits.
v) King-pin function: As stated earlier, planning is a prime managerial
function which provides the basis for the other managerial functions. The
organisational structure of task and authority roles is built around
organisational plans. The functions of motivation, supervision, leadership
and communication are addressed to implementation of plans and
achievement of organisational objectives. Managerial control is
meaningless without managerial planning. Thus, Planning is the king-pin
function around which other functions are designed.
39
Management Concept-I vi) Resource Allocation: Planning is a means of judicious allocation of
strategic and scarce resource of the organisation in the best possible manner
for achieving strategic goals of the organisation. The strategic resources
include funds, highly competent executives, technological talent, good
contacts with government, exclusive dealer network and so on. If the
organisation enjoys a distinct advantage in possession of such resources, a
careful planning is essential to allocate them into those lines which would
strengthen the overall competitive position of the organisation.

vii) Resource use efficiency: For an ongoing organisation, planning

contributes towards a more efficient functioning of the various work
units. There is better utilisation of the organisations existing assets,
resources and capabilities. It prompts managers to close gaps, to plug
loopholes, to rectify deficiencies, to reduce wastage and leakages of
funds, materials, human efforts and skill so as to bring about an overall
improvement in resource use efficiency.
viii) Adaptive responses: Planning tends to improve the ability of the
organisation to effectively adapt and adjust its activities and directions in
response to the changes taking place in the external environment. An
adaptive behaviour on the part of the organisation is essential for its survival
as an independent entity. For a business organisation, for example, adaptive
behaviour is critical in technology, markets, products and so on.

ix) Anticipative action: While adaptation is a behaviour in reaction and

response to some changes in the outside world, it is not enough in some
situation. In recognition of this fact, planning stimulates management to
act, to take bold initiatives, to anticipate crises and threats and to ward
them off, to perceive and seize opportunities ahead of other competitors,
and to gain a competitive lead over others. For the purpose, some
enterprises establish environmental scanning mechanism as part of their
planning systems. Thereby such enterprises are able to direct and control
change, instead of being directed and controlled by the pervasive external
forces of change.
x) Integration: Planning is an important process to bring about effective
integration of the diverse decisions and activities of the managers not
only at a point of time but also over a period of time. It is by reference to
the framework provided by planning that managers make major decisions
on organisational activities in an internally consistent manner.

Check Your Progress A

1) Which of the following statements are True and which are False?
i) Among other things, Planning implies determination of concern
of action from among alternatives.
ii) Planning follows all other managerial functions.
iii) Planning cannot be future-oriented as the future is always uncertain.
iv) Planning has both formal and informal elements.
v) Planning reduces the probability of major errors in management.

40
 Fundamentals of Planning
2) Fill in the blanks:
i) Planning is the process of setting ……………………….objectives.
ii) .................................and ………………………….of planning
function differ from level to level of management hierarchy.
iii) Informal planning is done through the …………………………..
process.
iv) As planning requires certain conceptual analytical skills, it is
regarded as an…………………….. process.
v) Assumptions and estimates about the future events are known as
planning……………………………….
vi) Plans which are drawn to meet specific, unique situations are
known as……………………………..
vii) Planning is a means of judicious ……………………….of resources.
viii) Planning stimulates management to take ………………………..

3.5 LIMITATIONS OF PLANNING

You have learnt the nature and importance of planning. Let us now discuss its
limitations.
i) Based on certain assumptions: Planning is based on certain assumption
or premises derived from forecasts about the likely behaviour or relevant
future events and variables. If such assumptions or premises turn out to
be wide off the mark, the very basis of plans gets affected. Afterall,
forcasting is not an exact science.
ii) Incomplete information: The information needed for planning is often
incomplete. It may not be available in time and its reliability tends to be
doubtful. In several situation, managers are forced to make planning
decisions on the basis of partial knowledge because of time lags and
credibility gaps in information.

iii) Lack of control: Managers have little knowledge and less control over
several elements of external environment. There is often no way to bring
external situation under the discipline of planning. Several external
events tend to influence organisational activities and plans in random
and perverse ways, as for example natural calamities, sudden strikes,
government policy changes, and so on.
iv) Difficult to change with the changing environment: Planning, under
conditions of rapid changes in the external environment tends to be a
tough job; plans would become quickly outdated and irrelevant even
before they are implemented. Though flexible plans would be of some
help under such conditions, there are also limits on injecting flexibility
into organisational plans.
v) Fluid process: Planning is essentially a ‘fluid’ process in the sense that it is
always in a state of flux. This is because of the march of the times and
41
Management Concept-I subtle changes which characterise the future as it unfolds. Future is
always a moving target. It is not easy to visualise an integrated
composite view of the past, present and future for planning purposes.
vi) Delay in action: Since planning means thinking and deciding before
doing things, it is likely to delay action. For one thing, thinking and
deciding are somewhat slow intellectual exercises. Many managers may
not have the time or taste for such exercises. For another, managers
attach more importance to action and that too timely action wherein lies
much activism and dynamism.
vii) Rigidity: The plans produced through the planning process tend to introduce
rigidity into the functioning of the organisation. Managers are likely to insist
on strict compliance with pre-determined pans. This may sometimes mean
foregoing new opportunities and better options. A faithful conformity with
plans would stifle initiatives beyond the established ways and routines.
viii) Plans might remain on paper: At the other extreme it is also likely that
plans remain on paper as some sacred documents worthy to be respected
and preserved and not followed or implemented. They may be far
removed from realities such that managers regard them as
‘untouchables’. Alternatively, managers may be too busy in struggling
with crises to find time for going along planned courses.
ix) Difficult to implement at unit level: It may be easy to formulate broad
plans at the corporate level. Problems are likely to arise when managers
try to prepare more detailed plans in physical and financial terms at
functional and unit levels for purposes of implementations. The detailed
plans, if and when prepared, may not reflect the intents of the broad
plans in a consistent manner.

3.6 THE PROCESS OF PLANNING

We have stated earlier that planning is a process consisting of certain steps or
series of sequential activities. There is no generally accepted or standard
format of the planning process. Different authors have their own ways of
conceptualising the planning process. Let us discuss one of the conceptual
schemes of the process of planning.
i) Planning to plan: Planning does not just occur on its own or with the
issue of an order from the chief executive. It has to be properly and
carefully decided upon and planned. The management of the
organisation has to inject a culture of planning at all the levels of
management by highlighting the imperatives and virtues of planning as
also the philosophies and techniques embedded in it. It has to educate the
managers in various departments by arranging training programmes and
conferences on the methodology of planning so as to improve their
competence to plan. The required planning system has to be designed
and activated. This is especially so with regard to a new organisation.
ii) Appraisal of internal situation: In this step, top management in collaboration
with other managers, have to make an analyses of the current state of affairs
with the organisation – its existing plans, processes, activities,
42
 performance levels, achievements and problems. It is essential to review Fundamentals of Planning
in detail the specific strengths and weaknesses of the organisation in its
sphere of operations. For example, products and services it supplies,
financial position, manpower and managerial resources, competitive
position, profitability levels, market image, manufacturing and other
facilities, R&D advantages, capital structure, and so on. Management
has also to make forecasts and projections of the likely future positions
and trends of the organisations activities in all the above areas.
iii) Appraisal of the external environment: Top management of the
organisation is vitally concerned with the analysis of external
environmental conditions for planning purposes. This facilitates them in
understanding the elements and events in the world outside the organisation
which effect its present and future functioning. Appraisal of environmental
trends in economic, social, technological and other means of relevance for
the organisation is to be continuous process. Not only the present but also
the likely future trends have to be appraised though systematic scanning and
forecasting mechanisms. This will enable the organisation to identify the
present and future opportunities and threats in the various external elements
with which the organisation is directly concerned.
iv) Definition of key areas and issues for planning: The appraisal of internal and
external environmental conditions gives to the management an idea about what
tentative planning the organisation needs. Managers have to ask themselves
whether, in the light of external appraisal, the existing businesses, products,
markets, processes and practices are relevant, and which aspects of them have
to be retained, strengthened, refined and modified. The analysis also may
reveal the need for new directions to strengthen the competitive position of the
organisation, and to bring about a better alignment between the organisation
and the external environment. It may also unearth the possibilities of going into
new businesses, new technologies, new products and new markets. An
important outcome of the above appraisal is identification of possible measures
necessary to cope with environmental opportunities and threats, which are
likely to help or hinder, as the case may be, the performance and progress of
the organisation.

v) Development of alternative plans for evaluation and choice: In this

stage, manager have to apply their creative and innovative skills to generate
alternative plans-mission, objectives, strategies, policies and programmes
– on the basis of assessment of planning needs. They are generally of
corporate-wide and long–range in character, ranging from 5 to10 years
ahead, depending on circumstances. Devlopment of alternative plans
calls for an intensive thinking and search on the part of managers. For
example, a business enterprise has several options to increase its
economic power and profitability —— by increasing the sales of its
existing products in the existing markets, by exploring new markets, by
going in for new products, by acquiring outside enterprises and so on.
The objective of improving its economic power could be achieved by
one or a combination of some of the above alternative strategies.
An important part of this stage is the evaluation of alternative plans by
reference to their comparative merits and demerits whereupon choices have
43
Management Concept-I to be made from among the alternative on the basis of certain
predetermined selection criteria.
The choices are the decision of managers which will chart the long-
range directions of the organisation for a specified period of time.
vi) Formulation of medium range and short-range plans: The long-range
set of organisational plans provides the basis for formulation of more
specific medium–range and short-range plans. Medium– range plans have a
time span of more than one year but up to three years in general. Short-
range plans are progressively more specific than long-range plans. Short-
range plans are called operational plans and the process of formulating them
is called ‘Operational Planning’. Medium-range plans and short-range plans
are generally formulated in such functional management areas like
manufacturing, marketing, purchase, personnel finance, R&D and so on.
They are further ‘de-composed’ into more detailed sectional and unit plans
valid for basic units of operations in the organisation.
vii) Arrangements for implementation of plans: Effective implementation of
plans and decision is the crux of the planning process. Since plans are
implemented by managers and others at various levels of the organisation, it
is essential for top management to enlist their co-operation, participation
and commitment for the purpose. Authority and accountability have to be
pinpointed specifically among the various managers for implementation of
plans, for acquiring and allocation of resources and tasks, for making day-
to-day decision and taking initiatives and for activating the communication
system in the organisation.

3.7 FORECASTING AS AN ELEMENT

OF PLANNING
We have stated earlier that forecasting is an essential element of the planning
process. The term forecasting refers to the process of making systematic but
tentative appraisal of future conditions and events for a specified period of time
– whether for a few months or, a few years ahead. It is a process of predicting
relevant future situations which are likely to affect the activities of the
organisation. It is an attempt to look ahead and make tentative estimates and
projections of the behavior of relevant variables in the environment.
Since planning is future–oriented, forecasting is a basic ingredient of the
planning process. Forecasting provides vital clues to managers on what the
future problems and prospects are likely to be for the organisation. By means
of forecasting, managers generate information on several dimensions and
aspects of the environment –economic, social technological and political –
which are directly relevant to the functioning and fortunes of the organisation
and which directly influence the planning and other decision, initiatives and
responses of managers. Forecasting is necessary to enable managers to get
important inputs for planning and make informed judgment about the likely
impact of the external forces on the organisations present and the future
courses of action. Organisational plans are based on proper and reliable
information generated by managers through forecasting and other means.
44
For a business enterprise, for example, several aspects of future trends should Fundamentals of Planning
be understood through forecasting. They include: future sales trends of the
products and series of the enterprise, based on an assessment of future
demand, supply cost and competitive conditions, likely levels and trends of
profitability, future technological changes, general economic and industry
trends, likely emergence of new products, new processes and new markets,
probable changes in population characteristics, their levels of income, life
styles and buying patterns and so on.

The individual enterprises may be able to get part of the above information on
the basis of forecasts made but other agencies –say government, trade
associations, academic and research organisation, consultancy firms and so
on. But forecasts on internal variables like sales, profits, markets share, cost
trends etc. have to be made by the enterprise itself.
Forecasting and Premising: For purposes of formulating plans, managers have
to convert the appraisals, estimates and projections about the future events into
certain meaningful assumptions, which are known as planning ‘Premises’. This
conversion process is called premising which is an essential follow–up action
after forecasting. Planning premises form the foundation of organisational plans.
They are in the nature of informed guesses of managers with respect to specific
future trends. A few examples of planning premises are given below:
a) The enterprise will maintain its competitive strength over the next four
years.
b) There will be revolutionary developments in TV technology during the
next five years.
c) There will be future liberalization in the economic and industrial policies
of government with respect to big business enterprises.
Planning premises are categorised in various ways. External premises relate
to general economic and business condition, social, political technological and
other trends. Internal Premises are confined to the enterprise’s activities – as
for example, cash flow, cost of products and services, profitability and so on.
Tangible premises are qualitative, as sales volume of Rs.50 crores, for
example. Intangible Premises are qualitative, as for instance the competence
and character of managerial personnel in the organisation. Controllable
Premises are those which are manageable by the enterprises (example:
advertising expenditure). Uncontrollable Premises relate to acts of god or
man about which little can be done by the industrial enterprise (example: A
big fire in the plant, government policies etc.)
Forecasts and planning premises are different from plans. The former outline
what the future is likely to be. The latter underline what the enterprise should
do in future. Further, forecasts and planning premises do not reduce the
complexity and uncertainty of the behaviour of future events and in going
ahead with confidence to cope with them.
It is true that forecasting is most unlikely to be perfect and that it is in fact a
hazardous exercise especially in a situation of rapidly changing external
conditions. Forecasts are only approximations and estimates. Future events may
not behave exactly according to forecasts and premises made by managers. But
45
Management Concept-I still forecasting before formulating plans is an inescapable exercise. Without
intelligent and systematic forecasting organisational plans would be mere
expectation and pious wishes.
Check Your Progress B
1) Fill in the blanks :
i) The information needed for planning is often ……………………
and may not be ………………………………
ii) One of the limitations of planning is that it is essentially a
……………… process.
iii) Appraisal of the external …………………is an essential
requirements in the planning process.
iv) Forecasting provides vital ……………………..to manager
about the future problems and prospects.
v) The estimated sales of the future is an example of ………………
…………….. premises for the managers of a company.
2) Which of the following statements are True and false?
i) Planning leads to delayed action as it involves prior thinking.
ii) Development of alternative plans is most essential for planning
at the functional level.
iii) Forecasting and premising for planning are one and the same thing.
iv) Planning premises and forecasting reduce the uncertainties and
complexities of the future.
v) Medium–range plans have a duration of more than one year

3.8 TYPES OF PLANNING

Planning may be categorised into several types on the basis of certain
variables. Here we will divide the function of planning into four categories on
the basis of two variables –degree of comprehensiveness and time span. On
the basis of degree of comprehensiveness, planning is divided into strategic
planning and tactical planning. On the bases of time span, we may divide
planning into long-range planning and short- range planning. Let us have a
brief idea of the four types of planning.

Strategic Planning: The term strategic planning refers to the process of

determining the integrated organisation —— wide courses of action to achieve
the major objective of the organisation. The term has a military origin where it
is used to describe the process of formulation of military campaigns to achieve
military goals of defending the home territory and defeating the enemy forces.
In military parlance, strategic planning covers such aspects as how to attack the
enemy and from how many fronts, the size and combination of ground forces,
air forces and naval forces, the amount or resources to be developed, the timing
of the various moves, the areas to be fortified and defended and so on. The term
acquired great significance in non–military situations also. We often hear of
strategies to achieve the goals of Five Year Plans at the national and regional
46
levels, strategies for solving rural drinking water problems, strategies to reduce Fundamentals of Planning
the growth rate of population and so on. In the context of business enterprises,
strategic planning consists of formulation of strategies which are in the
nature of critical and intelligent courses of action to gain upper hand over
competitive and other complex external forces in the environment. It
involves tentative chalking out of the major measure and moves necessary to
perceive and exploit opportunities and to tackle threat and constraints, in the light
of distinctive strengths and inevitable weaknesses of the enterprises.

The kinds of questions that top management of the enterprise asks itself and
finds answer in strategic planning include: what are the most significant
market and other opportunities and in what way they are relevant to the
enterprise? What are the kinds and complexities of external problems, threats
and constraints forced by the enterprise? How should the enterprise take
advantage of relevant opportunities and to tackle the threats and constraints
(as for example: price cuts, aggressive advertising campaigns, introduction of
new or improved products, and so on initiated by rival enterprises) in order to
achieve the objectives. In what specific areas and businesses did the enterprise
concentrate its efforts to gain or retain its competitive dominance? Into what
new businesses should the enterprise extend its activities?

Strategic planning is a means of improving the enterprises' competitive

position in relation to other existing and potential rivals in the industry. It is
an attempt to design an action plan on how, where and when the strategic
resources of the enterprise (investment funds, customer goodwill, and loyalty,
distribution network, R&D facilities and so on) have to be developed, and the
combination sequence and timing of various major decision and initiatives
necessary to achieve the enterprise goals of growth, diversification, high
profitability, competitive power, good market share and so on.
Tactical Planning: Tactical planning refers to the process of formulating more
specific, functional, sub- plans to implement the strategies of the enterprise.
Tactical planning is more limited in its scope and consists of detailed decisions
and actions initiated at lower managerial levels to exploit situations as and when
they arise and to cope with local, operational problems. It is sub–corporate wide
in nature. Tactical plans take the form of small, successive steps or moves taken
in a concerted manner. Tactical decision are concerned with what and how
activities are to be carried out, what performance criteria are to be established,
how scare resources are to be utilised efficiently and so on.

Tactical planning is carried out on the basis of more information under less risky
conditions and in a more structured manner than strategic planning. Tactical
planning provides the basis for detailed specification of various activities to be
carried out by the enterprise in a coordinated and time-bound basis.

To take an example, a major objective set by the top management of an enterprise

manufacturing industrial goods is rapid growth by doubling the sales volume within
a period of next four years. To achieve this objective, one of the strategies
formulated by the enterprise is diversification into manufacture of consumer goods.
To implement this strategy the enterprise formulated specific polices on ‘make or
buy,’ internal growth vs acquisitions or mergers, foreign collaboration and so on.
Within the framework of the above strategy and policies, tactical
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 plans and decision on such aspects as size of operations, product types, sizes,
quality ranges customer services, distribution channels and so on are designed.

The distinction between strategic planning and tactical planning is one of

scope and impact. In many cases, the two types of planning become
indistinguishable. They are however, inter-dependent.
Long-range Planning: The term ‘long-range planning’ refers to the process
of formulating the long-range objectives of an organisation and of determining
the ways and means of achieving such objectives. The term ‘long-range’
indicates the extent of future time horizon, the fairly long period of time
which can be visualized and verbalized into tentative objectives by the
organisation. The duration and limit of long-range differs from enterprise to
enterprise and from situations to situation. For some enterprises, 3 to 5 years
is a fairly long time horizon, while for others, 25 to 30 years and even beyond
is the relevant planning time frame. The long-range planning period is
determined keeping in view the nature of the enterprise's business, its size and
growth rate, the extent of variability of the environment, the time required for
converting major decision into tangible results and so on.
Long-range planning provides a frame work for determination of such critical
goals as the desired growth rate of the enterprise's assets or sales and profitability,
new activities in the future, major new investments, areas of development, and
disinvestment, and so on. As Peter Drucker stated, every enterprise should ask
itself these and similar questions in the context of complex and dynamic nature of
external environment. Business and other organisations cannot expect that their
present business, product lines and activities, technology, profit levels and
markets will continue to remain relevant in the future. Long–range planning is
intended to induce such awareness and to enable managers to make current major
decision with a fairly good sense of future outlook.

Short-range Planning: The term ‘short-range planning' refers to the process of

formulating short-range objectives and of deciding on the courses of action or
plans, to achieve them. Short-range planning is done for a time span of one year
or less. In general, it is carried out within the framework of long-range planning,
and for achieving long-range objectives, in a step–by-step manner. A short-range
plan is an attempt to breakdown a long-range plan into compact and actionable
programmes. Short-range planning is more action-oriented, more detailed,
specific and quantitative. For example, if the long-range goal of an enterprise is
to increase its sales volume by 50% during the course of next five years, it has to
formulate its short-range plan for the next one year to bring about an increase of
say 20% in its sales turnover. It has to formulate a detailed budget of short-range
goals, targets of performance, activities, and resource requirements in a time-
bound manner. Short-range planning provides the basis for a coordinated
performance of activities, allocation of resources, assignment of tasks and design
of appropriate plane, implementation and programme evaluation system. Long-
range plans are implemented in this manner by programming, budgeting and
scheduling efforts and activities needed to achieve organisations goals.

It may be noted that tactical planning and short-range planning are also referred
to as Operational Planning, because they represent planning of detailed
operations at the lower levels of management at middle and supervisory levels.
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 Fundamentals of Planning
3.9 PRINCIPLES OF PLANNING
Since planning is a function of management, it must be based on certain
principles to serve as guidelines for undertaking the function in right earnest.
We may outline the principles of planning as below.
1) Principle of top management interest: The chief executive of the
organisation must show genuine interest in planning, submit himself to
the discipline of planning and must inspire his team to do the same.
2) Principle of long-range view: Every managers must plan decisions after
a full analysis and understanding of their long-term future effects, and
after objectively considering all the available facts.
3) Principle of contribution to objective: Planning should be purposeful.
It should directly contribute to the achievement of organisational
objectives or desired ends.
4) Princeple of primacy of planning: As stated earlier, planning holds the
prime position in the process of management. It is logically regarded as
the first function of managers from which all other function flow.
5) Principle of flexibility: The principle suggest that flexibility in planning
helps the organisation to cope with rapid and unforeseen changes in the
external events. This can be achieved without abandoning the pre-
determined plans or without inviting adverse consequences even if drastic.
6) Principle of navigation change: This principle is related to the principle of
flexibility. It indicates that a regular process of monitoring the course of
external events is to be combined with a review and revision of plans in
order to achieve desired goals just as a navigator negotiates his ship's way by
making changes in his route in response to behaviour of the water mass.
7) Principle of commitment: This principle helps in the determination of
the planning period. Planning should cover a period of time necessary to
fulfil the commitments involved in a decision. For example, if a student
makes a decision to join a three years B.Com Course, his planning period
is three years.
8) Principle of the limiting factor: A limiting factor is one which stands in
the way of achieving the desired objective. Managers should pay due
attention to tackle those limiting factor which hinder the smooth progress
in achievement of objectives.
Check Your Progress C
1) Which of the following statements are True and which are False?
i) Strategic Planning consists of formulation of strategies for the
organisation as a whole.
ii) Tactical planning is carried out under more risky condition than
strategic planning.
iii) Operational planning includes both long-range and short-range
planning.
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Management Concept-I
iv) The principle of flexibility of planning suggests that plans should
be changed as frequently as possible.
v) The principle of commitment helps in the determination of the
planning period.
2) Fill in the blanks:
i) Strategic and tactical planning are defined on the basis of
……………………….
ii) Courses of action planned to gain upper hand over competitive and
other external forces are known as ………………………………….
iii) Tactical planning involves a more …………………………………
approach than strategic planning.
iv) Long-range planning provides a ………………………………..
for determining critical goals.
v) Any factor which stands in the way of achieving desired goals may
be called a ……………………………………..factor.

3.10 LET US SUMUP

Planning is the process of setting future objectives and deciding on the ways
and means of achieving them. It means deciding in advance what is to be done
in the future for a specific period and then taking the necessary steps to do the
things decided upon.
Planning precede all other managerial functions. It is a sub-process of the process
of management. It pervades all levels and all branches of management. Planning
is invariably future-oriented but is backed by information relating to the past
trends, current conditions and future possibilities. It is a purposeful conscious
managerial function. It has both formal and informal elements. At the same time,
planning is an intellectual process and requires certain analytical and conceptual
skills. Even then, it is primarily a pragmatic and action-oriented function.
Planning involves problem solving and decision–making. It is based on certain
assumptions and is a dynamic process.

Planning may be divided into certain levels on the basis of scope,

significance, and time span, e.g. corporate planning and functional planning;
strategic planning and tactical planning; long-range planning and short-range
planning. All types of plans may be broadly categorised into two groups.
Single use plans and Standing plans.
The importance of planning functions stems from the following benefits of
planning. Planning provides a clear sense of direction to the activities of the
organisation and the job behaviour of managers and others. It permits managers
to examine alternative courses of action with a better understanding of their likely
consequences. Planning forces managers to shake of their inertia and induces
them to look beyond the immediate concerns. It minimizes the incidence of
impulsive and arbitrary decisions and ad hoc actions. Planning provides the basis
for all other managerial functions. It is a means of judicious allocation of
50 strategic and scarce recourses of the organisation, and also brings about an over
all improvement in the efficiency of resource use. Further, planning improves Fundamentals of Planning
the ability of the organisation to adopt effectively and adjust its activities in
response to changes in the external environment. It stimulates management to
take bold initiatives to anticipate crises or threats and to prevent them and to
perceive and seize opportunities ahead of competitors. It is also an integrative
process at a point of time as well as over a period of time.
The limitations of planning arise out of the following elements. The assumptions
and forecasts which form the basis of planning may be wide off the mark.
Information requird may not be reliable or may not be available in time. Changes
in external environment are often beyond the knowledge and control of
management, particularly in the case of rapid changes. Further, planning is
always in a state of flux, due to the continuous and subtle changes taking place in
the environment. Besides, planning may delay action as it involves prior thinking
and deciding. Often the plan formulated introduces rigidity in the functions of
managers. On the other hand, plans may be far removed from reality and thus
become difficult to implement, particularly with respect to detailed plans.

The process of planning involves: Planning to plan, appraisal of internal

conditions and external environment, defining key areas and issues for planning,
development of alternative plans for evaluation and choice, formulation of
medium-range and short-range plans and implementation of plans.

Forecasting is an essential element of the planning process. It provides vital

clues to managers through the generation of information on several
dimensions of economic, social and technological environment. It also
provides estimates and projections about the future events.

The appraisals, estimates and projections provided by forecasting are

converted into meaningful assumptions known as planning premises. The
premises may be of different categories: external, internal, tangible,
intangible, controllable and uncontrollable.

Planning may be divided into four categories on the basis of degree of

comprehensiveness and time span. These are: Strategic Planning, Tactical
Planning, Long-range Planning and Short-range Planning. Tactical and Short-
range planning are also referred to as Operational planning.
As a function of management, planning is best carried out on the basis of
certain principles viz., of top management interest, long-range view,
contribution to objectives, primacy of planning, flexibility, navigational
change, commitment, and limiting factor.

3.11 KEY WORDS

Forecasting: Estimating the future behavior of variables affecting the
business unit.
Long-range Planning: Formulating the long-run objectives and determining
the ways and means of achieving those objectives.
Objectives: Goals or purposes towards which business activities and
operations are directed. 51
Management Concept-I Operational Planning: Planning of detailed operations at the middle and
supervisory levels of management.
Planning: The process of setting future objectives and deciding on the ways
and means of achieving them.
Policies: Guidelines for decision-making and action.

Strategic Planning: The process of planning which involves product, market

decisions in the light of environmental changes and internal resources.
Strategy: Courses of action to gain upperhand over competitive and other
environmental forces.
Tactical Planning: The process of formulating specific, functional sub-plans
to implement the strategic plan.

3.12 ANSWERS TO CHECK YOUR PROGRESS

A) 1) i) True ii) False iii) False iv) True v) True

2) i) future ii) content, quality iii) intuitive iv) intellectual v) premises

vi) single use plans vii) allocation viii) bold initiative

B) 1) i) incomplete , reliable ii) fluid iii) environment iv) clues v) tangible

2) i) True ii) False iii) False iv) False v) True

C) 1) i) True ii) False iii) False iv) False v) True

2) i) comprehensiveness ii) strategies iii) structured iv) framework

v) limiting

3.13 QUESTIONS FOR PRACTICE

1) Define the concept of planning and explain its salient characteristics.
2) Comment on the following statements :
a) Planning is a pervasive process.
b) Planning is a useless exercise in a situation of rapidly changing
environment.
c) Planning and decision making are two sides of the same coin.
3) Do you think that planning is a guarantee for organisational success? Give
reasons.
4) Is there any need for planning a plan? Explain.
5) The limitations of planning are too serious to make planning a credible
function. Do you agree? Why?
6) What is the difference between strategic and long –range planning?
7) Discuss the process of planning.
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8) Why is forecasting so important for planning? Fundamentals of Planning

9) What are planning premises? How are they relevant to planning?

10) Explain the principles of planning.
11) 'Long-range planning is concerned with making today‘s decision with a
better sense of futurity'.Comment.
12) What is the role of top management in the planning process?

Note: These questions will help you to understand the unit better. Try to
write answer for them. But do not send your answers to the University.
These are for your practice only.

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