Compilation of answers we got on the process of planning. This will further help you to learn about: 1. Steps Involved in Planning Process 2. Planning Process 3. 8 Steps in the Planning Process in Management 4. Steps in Planning in Principles of Management and Process of Planning for Class 12 Students.
Answer 1. Steps Involved in Planning Process: (8 + Steps Involved in Planning Process)
It is very difficult to lay down a common procedure for planning process applicable to all organizations as the nature and size varies from organization to organization.
Though there may be a few variations in the exact procedure adopted by different organizations in planning, the following are the broad steps:
Step Involve in Planning Process # 1. Identification of Opportunities:
This is the beginning of planning process, though it is not a part of it. It involves a preliminary look at possible opportunities in order to ascertain whether they could be exploited by the organization to its advantage. The purpose of identification is to enable the organization to adapt to its environment.
Step Involve in Planning Process # 2. Establishing Objectives:
Planning begins with specifying the goals of an organization and various subunits in clear terms. It is always desirable to express the goals in quantitative terms. For example, instead of saying that the objective of business is to achieve a fair rate of return on the investment, it may be stated that 15 percent return on the investment.
The time frame in which the objectives have to be achieved must also be specified. The vision and mission of the organization, the corporate values, experience, polices of other business concerns provide adequate guidance in goal setting.
Step Involve in Planning Process # 3. Establish Planning Premises:
Planning premises are the assumptions that should be made about the various elements of the environment. It is the limits or conditions under which planning will be undertaken. They provide the basic framework in which plans operate. Appropriate assumptions have to be made on various aspects of the internal and external environment of the organization.
Step Involve in Planning Process # 4. Decide the Planning Period:
Planning periods vary from organization to organization. In some cases, it is for a short period, varying from a few months to a year, while in other cases, it covers a longer period, say, more than a year. The period may extend up to 5 to 10 years. This gives raise to the two important concepts – operational planning and strategic planning. While operational plans focus on the short-term, strategic plans focus on the long-term.
Step Involve in Planning Process # 5. Develop Alternative Courses of Action:
Objectives may be achieved by different alternatives (courses of action). For example, technical know-how may be developed by in-house research, collaboration with a foreign company or by tying up with a research laboratory.
Different alternatives may be ascertained from various sources. The problem here is not in finding the different alternatives but in narrowing down to the prominent alternatives. Through preliminary examination and screening, unwanted alternatives can be eliminated.
Step Involve in Planning Process # 6. Evaluation of Alternatives:
The various alternatives may be evaluated in the light of their pros and cons to facilitate the selection of best alternative. Determine the suitability of each alternative based on the objectives laid down and the planning premises. Evaluation may be done on the basis of cost, resources, returns, technical feasibility, economic viability and the impact on the society. The help of quantitative techniques may also be resorted to for the evaluation of alternatives.
Step Involve in Planning Process # 7. Selection of Best Alternative:
Once evaluation is over, the best and appropriate alternative is to be selected. The alternative selected should be most optimal under given circumstances.
Step Involve in Planning Process # 8. Formulation of Derivative Plans:
To make the selected plan operational, it has to be split into departmental plans. Plans for the various operational units within the departments have to be formulated. They are called derivative plans or secondary plans. Basic plans cannot be executed properly unless supported by secondary plans. For instance, achieving a return of 10 percent on the investment may be the enterprise’s plan. To achieve this, how much sales would be effected, how much is to be produced and how much raw materials are to be procured are the points to be decided. This involves production, marketing and purchase plans.
Step Involve in Planning Process # 9. Review the Plan Periodically:
Success of the plan is measured by the results. Therefore, provision for adequate follow-up should be included in the planning. Review of plans at regular intervals is essential which helps in taking corrective action, if necessary.
Answer 2. Process of Planning: (with stages)
To prepare a good plan it is necessary to give due importance to certain prerequisites that make or mar a plan. Without these even a good plan is not going to succeed. These preconditions are support of top management, commitment of people assigned to the task of implementation, flexibility in plans etc. Once the company has assured that these conditions are taken care of, following a process to prepare the plan will ensure that all-important aspects are considered and nothing important is skipped.
Planning involves the following Stages:
Planning Process Stage # 1. Analyzing the Environment:
Since planning is oriented to achieve the best results within the environmental constraints the first step is to assess the environment by going for SWOT analysis. SWOT is Strengths, Weaknesses, Opportunities and Threats analysis. Strengths and weaknesses lie with the company and opportunities and threats are present in the environment.
A firm is required to know about these and find the best match of its resources with environment. For example, a company may find that it is having surplus staff and feels it lo be a weakness but its people may be very talented and if it can use them for giving services to outsiders, a weakness is converted to strength.
The external business environment affects the plans of a firm to a large extent, along with internal environment of the firm. These are called planning premises that are assumptions about the environment in which plan is carried out. Forecasts about economy, industry and firm fall in this category, these are available through economy and industry surveys and market researches carried by companies.
For example, a firm may appoint additional distributors for its products hoping that its demand will pick fast because its demand comes from rural areas and government has predicted bumper crop in view of predictions of good rainfall. But if rainfall is not up to expectations it will affect agricultural production and subsequently will disturb firm’s plans of greater demand.
Internal environment of the firm can be equally important premise that affects realization of its goals. For example, if a firm reorganizes its work in the hope that newer technologies will be used to carry on the job and it will help in meeting its objectives easily. But fails to invest required money in the technology for some unavoidable reasons not only its reorganization efforts will go waste but goals also will seem far.
Planning Process Stage # 2. Setting Objectives:
Objectives are targets that a firm intends to achieve in a given time period with given resources in the specified environment. For example, A firm can say that it will increase its sales by 20 per cent in next financial year if economy grows at present rate, competitors do not make any serious move and it invests 2,00,000 rupees.
These objectives have many preconditions yet provide a guideline to a firm to make directed efforts. Objectives can be quantitative and qualitative. Quantitative objectives are concrete in nature and are mathematically defined like 5 percent more market share, 20 percent more profits etc. Qualitative objectives are not defined mathematically but are very important for the success of an organization.
These objectives can be image of the firm, good quality of manpower, goodwill with supplier’s etc. An organization sets for itself a fair combination of both types of objectives to achieve a balanced growth.
Planning Process Stage # 3. Develop Alternate Action Paths to Achieve the Targets:
Actions needed to be taken to achieve the targets have to be specified properly. Same objectives can be achieved in a number of ways. These alternate plans help a firm to take the best possible action. For example, if the firm wants that its human resources should be best in the industry then it has to spell out what it is doing to improve its people.
Whether it wants to get best people from the industry or it wants to train its own people or use a combination of both. All the Inputs that the firm intends to put and related modalities have to specify to finest details that makes comparison of various options easy and leaves no doubts at the implementation stage.
If wants to have training program for its employees than the time, duration, contents of the training have to be decided. If wants to get best people from the industry than it should know how it would go about it and how much it will cost.
Planning Process Stage # 4. Selecting the Most Suitable Action Path:
Selected path is the route that the company finds most appropriate for itself in view of its strengths and weaknesses. It needs not to be best option. For example, the firm may find that getting people from other companies will help it in quickly improving the quality of its workforce but it may be so expensive that firm may not spare the required resources for it. So it settles for second best option of training its people and that becomes its plan.
Though the planning process-ends as soon as the plan is prepared but the difficulties that plans may encounter at the time of implementation have to be paid due attention at this stage to make plans more practical and effective. A plan may be very good but if it ignores ground realities it may not yield desired results.
A thoroughly prepared plan provides a very effective tool to control its subsequent activities of organizing, directing and control.
Answer 3. 8 Steps in the Planning Process in Management:
Process means carrying out an activity through a series of events.
The following steps are involved in the planning process:
Step 1. Identification of Goals:
As planning involves framing goals, identification of goals is the first step in the process of planning. Objectives should be framed for the organisation as a whole, different departments and for different levels of each department. These objectives should be clearly communicated to all the organisational members so that plans can be effectively implemented. If objectives are clearly identified, managers can allocate scarce organisational resources over different functional areas effectively.
Step 2. Analysis of Present Situation:
Organisational environment consists of factors internal and external to the organisation. In order to make effective plans, managers need information about various environmental factors. Information about internal environment (departments and their sub-units) can be collected from past records, statistical data and financial statements. Information about external environment (competitors, customers, government) can be collected through financial journals, economic surveys, RBI bulletins, research reports etc.
Managers analyse complete information and make plans that suit the environmental changes.
Step 3. Identification of Barriers to Planning:
Barriers or limitations to planning are identified and overcome so that plans are error-free, as much as possible.
Step 4. Development of Planning Premises:
Planning process is based upon estimates of future. Though based on past information, plans are made to achieve goals in future. They are, therefore, based on future estimates.
The estimates about future markets, supply of labour, impact of changing technology on production processes, consumer preferences, political and economic environment are the planning premises on which business plans are developed. The process of planning is based upon estimates of future events. Though past provides guide for making plans in present, plans are made to achieve goals in future.
Unless, therefore, plans forecast future events and activities, they will not be effective. The forecast or assumptions about future which provide the basis for planning are known as planning premises. Planning premises are “the anticipated environment in which plans are expected to operate. They include assumptions or forecasts of the future and known conditions that will affect the operation of plans.”
Since planning premises forecast environmental factors which directly affect organisational plans, these premises reduce the chances of failure of plans under different sets of assumptions about future. Future cannot disturb the plans if planning premises are rationally developed. Planning will be reliable if forecasts are accurate. A premise
that new technology will be cost-effective and result in low prices and high sales will promote the company to adopt that technology.
Step 5. Development of Alternative Courses of Action:
After managers determine the goals to be achieved, they devise ways to achieve them. They make alternative plans of action since there can be no best way of doing things. All possible alternatives of achieving the objectives are developed by managers.
For example, a business wants to grow its operations. It makes alternative plans for entering into new lines of business, expand the same line of business in new markets, cater to existing customers by offering discounts, etc.
Step 6. Evaluation of Different Courses of Action:
Once the alternative courses of action are developed, managers select the most appropriate plan which can be achieved with the available resources within the internal and external environmental constraints. Each course of action has costs and benefits. Managers carry out cost-benefit analysis (comparison of costs and revenues) and the plan which gives maximum returns is adopted.
They adopt a plan which is flexible (which can be modified according to situation) and acceptable to organisational members (this will help in effective implementation of the plan).
Step 7. Selection of a Course of Action:
When the best course of action is determined, it is finally selected by managers. Every plan is supported by sub-plans known as derivative plans.
The main plan of marketing engineering goods may be supported by sub-plans for marketing heavy and light engineering goods.
Derivative plans help in effective implementation of main plans.
A production plan, for example, has derivative plans to manage purchases, production planning and control, manufacturing etc. A personnel plan can have derivative plans for appointment, training, placement and promotion of workers.
Step 8. Feedback:
Feedback means response. When plans are implemented, managers receive information about the success or failure of plans. If there are deviations in actual performance against planned performance, managers remove these deviations or make fresh plans. Plans are continuously revised as the environment in which they operate is a set of changing, dynamic factors.
Answer 4. Steps in Planning in Principles of Management: (5 + Steps )
Planning is a continuous process. Planning is an organisations plan for the total business or any part of the business including the departments or any part of it. For example, organisations plan for diversification or introduction of a new product, entry into a foreign market, introduction of new technology etc.
The steps in planning include:
1. Being Aware of Opportunities and Strengths:
Business firms analyse both internal environment and external environment. Analysis of the internal environment reveals organisation’s strengths and weaknesses. Analysis of an external environment includes the factors which are characterised as technological, economic, political, international and natural.
Analysis of these factors reveals the opportunities offered by the external environment and threats posed by the external environment. Thus the business firms should be aware of the opportunities and strengths.
For example, increase in middle income group is an opportunity for consumer goods industry. Business firms can plan to match the organisation’s strengths with the environmental opportunities, thus knowing the opportunities and strengths is the first step of planning.
2. Establishing Objectives and Goals:
Business firms have to formulate objectives. Objectives are the ends towards which activity is aimed. They also represent ends towards which organising, staffing, directing and controlling are aimed at. The organisations formulate objectives not only for the entire enterprise but also for each department, unit and sub-unit. The departmental objectives are related to the enterprise objectives and strategically contribute to achieve them.
Objectives provide direction to the organisational plans. Organisational objectives control the departmental objectives and the sub units’ objectives. Managers and subordinates formulate the objectives in collaboration by exchanging their ideas and views.
3. Developing Premises:
The next step is getting acceptance from the employees regarding the planning premises like forecast, policies etc. Managers also get the acceptance of others regarding the assumption of the environment. All the managers involved in planning should have a common understanding about the planning premises. Forecast is an important planning premise.
Forecasting premises include:
a. What will be the population?
b. What new markets will emerge?
c. What will be the new products?
d. What will be the supply of the competitors?
e. What will be the new technologies?
f. What will be the future prices?
g. What will be the salary levels of employees?
h. What will be the new trends in financial markets? and
i. What political factors will affect the business?
These premises are more important, critical and strategic for formulating and finalizing plans.
4. Determining Alternative Courses:
The managers have to develop alternative courses. There would be several ways to achieve the predetermined objectives.
The objective of profit maximisation can be achieved through the following alternative courses:
a. Through forward linkage of the business
b. Through backward linkage of the business
c. Through expansion of the capacity
d. Through diversification
e. Through joint ventures and
f. Through mergers and acquisitions.
Thus, managers have to develop alternative courses.
5. Evaluating Alternative Courses:
Managers have to evaluate the alternative course. Each alternative course has to be analysed in terms of its strengths and weaknesses. In addition, each alternative should also be analysed in terms of the opportunities for implementation of the course of action and the threats or challenges posed by the environment in implementing the course of action. Thus, each alternative course of action has to be evaluated in terms of strength, weakness, opportunity and threat (SWOT) analysis.
6. Selecting a Course:
After evaluating the alternative courses based on the SWOT analysis, a manager has to rank them based on relative strengths and opportunities of each alternative. The alternative with highest strengths and opportunities and with the lowest threats and weaknesses would be ranked as number one while the last rank would be assigned to the alternative course with relatively lowest strengths and opportunities and highest threats and weaknesses. Then the manager selects the alternative for which rank number one is assigned.
7. Formulating Derivative Plans:
Managers have to prepare derivative plans after finalising the main and the basic plan. These plans are essential to support and achieve the basic plan.
8. Budgeting:
The final step is converting the plans and derivative plans into budgets. The budgets provide clear direction in numerical terms. They also provide clear programmes to be achieved. These budgets include capital budgets, financial budgets, material budgets, production budgets, sales budgets, human resource budgets etc.
Answer 5. Steps in Planning: (6 + Steps)
To understand the practical application and outcomes of planning, one should study the feasibility of possible course of actions at every stage or step of planning.
The steps in planning are detailed below:
1. Setting Objectives:
The first step under planning is to establish objectives for the entire business and then for each of the subordinate work unit (production, administration, finance, legal, IT, etc.). These objectives have to be set for the long-term as well as the short-term. To set objectives during planning, one must also understand the conceptual meaning of two concepts – outcomes and goals along with objectives.
Outcomes state what needs to be planned, whereas a goal directly supports a stated outcome and objective is a measurable component that is directly supportive of an outcome and a goal. The linkages between these three components set the basis for formulating a certain plan. The outcomes, goals and objectives for a plan broadly aim at identifying and allocating a business’ relevant resources (raw materials, capital, labour, etc.) in accordance to the requirements of the market or internal working of a business.
2. Considering Planning Premises:
A premise is a statement or a proposition based on certain assumptions about the business environment in which the plan has to be carried out. The assumptions considered to develop a premise are further based on information gathered from the previous two steps.
Accordingly, forecasting methods are considered while formulating planning premises for determining the market conditions, possible volume (or value) of sales, potential prices of products/services, existing or possible technical developments, possible costs, wage rates, tax rates, competition, social or political environment, etc. A thoroughly developed premise will make planning easy to understand and the business will be well-coordinated during the planning process.
3. Identifying Alternatives:
The next step involves identifying alternative course of actions or a sequence of activities that will be required to attain the required objective. A preliminary examination of all these activities could be fruitful to discover prior to implementing the plans. Alternative course of actions can include options depicting comparative costs and benefits, possible opportunities or risks associated with the activities planned for achieving organisational goals and objectives. Accordingly, the alternatives are described thoroughly, that can enable well-informed decision-making.
4. Comparing Alternatives:
The alternatives identified from the previous step needs to be examined for their strengths and weaknesses by weighing them in light of premises and goals. Some factors that can be considered during the planning process to identify their strengths and weaknesses are costs, possible profits, productivity, quality, competitors’ practices that are legitimate in the market or for customers, etc.
5. Choosing an Alternative:
This step involves carefully choosing the right plan to achieve the stated goals and objectives of a business. The selection of a plan will be based on thorough analysis conducted by the managers of the business and can also go through iterative meetings and discussions. Usually, more than one plan is chosen with the other plan placed as reserve. If the first plan fails due to some uncontrollable event, the reserved plan can be considered as back up.
6. Implement the Plan:
After selecting a suitable plan, suitable human and physical resources are allocated for effective implementation of the plan. The sequential order of the work and relevant people required or responsible for undertaking prescribed activities in the plan are decided. Subsequently, the plan is defined by quantifying them as budgets for undertaking the plan that measures incomes, expenditures, resultant profits or surplus along with cash flows and capital requirements.
7. Follow-Up Action:
Planning process continues with following up on the implemented plan to review its progress. This step is undertaken to ensure that all actions mentioned in the plans successfully cater to the organisational goals and objectives. This step also confirms whether there are any changes needed in the assumptions made during the earlier steps in planning. Also, if the planning is done well, then the assumptions, resources and budgets considered for the selected plan can become the basis for adding various plans and setting important standards through which planning process can be compared and measured on a continuous basis.
Answer 6. Steps in the Planning Process: (for Class 12 Students)
Planning is an endless process. The process is constantly modified to suit changes in environmental conditions and changes in objectives and opportunities for the firm. As organizations differ in terms of their size and Complexity, no single planning, procedure is applicable to all organizations.
Steps in the Planning Process # 1. Analyzing Opportunities:
Managers should be aware of the opportunities in the external environment, as well as those within the organization. They should understand the firm’s strengths and weaknesses and the ways in which they can utilize the firm’s strengths to make the most of an opportunity.
A thorough understanding of the opportunities available outside the business enterprise enables managers to set realistic objectives. Once managers perceive the presence of an opportunity which can be exploited, the other steps of the planning process can be undertaken.
Steps in the Planning Process # 2. Establishing Objectives:
The second step is to establish objectives for the entire organization and for every work unit within the organization. Objectives specify the results expected from a particular course of action and define the areas that should receive special attention. In addition, objectives specify what should be achieved by the network of strategies, policies, procedures, rules, budgets and programs.
Organizational objectives provide direction to the major plans. These plans help the various departments of an organization prepare their objectives in line with the organizational objectives. Thus, there exists a hierarchy of objectives in an organization.
Objectives must be stated clearly and must be established for all key areas where performance affects the well-being of the organization. They should be specified in measurable terms like costs, targets or quality specifications.
Steps in the Planning Process # 3. Determining Planning Premises:
After establishing organizational objectives, the next step is determining planning premises. Planning premises are assumptions about the environment in which the plan is to be carried out. They lay down the boundary or limitations within which plans are to be implemented.
Planning premises include both external and internal premises. External premises include social, economic, political and technological factors; competitor’s plans and actions; government policies etc. Internal premises include an organization’s policies resources, ability to withstand environmental pressure, etc. Plans are formulated taking actions into account both external and internal premises. Since the future is highly unpredictable, it is not possible to make assumptions about every aspect of the environment in which a plan has to be carried out.
Premises should therefore be confined to those assumptions that are strategic or critical to a plan. According to the principle of planning premises, “The more thoroughly individuals charged with planning understand and agree to utilize consistent planning premises, the more coordinated enterprise planning will be.” In other words, the planners must understand and agree upon the planning premises to develop well-coordinated plans for the enterprise.
Steps in the Planning Process # 4. Identifying Alternatives:
Various alternatives courses of action can be identified after establishing organizational objectives and planning premises. A particular objective can be achieved through various actions. For instance, if expansion is an organization’s objective, it can be achieved by expansion in the same field, or diversification, or amalgamation, or by introducing a new product variant in the market and so on.
Thus, there are many ways of achieving the same goal. A common problem at this stage is selecting the most promising alternatives for further analysis. The planner must examine these alternatives and decide on the best one through careful analysis. These alternatives lay the foundation for the next step in planning.
Steps in the Planning Process # 5. Evaluating Available Alternatives:
After identifying alternative courses of action and examining their advantages and disadvantages, the next step is to evaluate the alternatives keeping in mind the goals of the organization and the available resources. Each alternative may have some positive and negative aspects. For instance, one alternative may be highly profitable but may require heavy investment and may have a long gestation period; another one may be less profitable but may also involve less risk.
Since the future is uncertain, the planner can never be sure of the outcome of any alternative. Thus, many variables and limitations have to be considered when evaluating alternative courses of action. The use of planning and decision-making techniques, such as operations research, helps in the evaluation of alternatives.
Steps in the Planning Process # 6. Selecting the Most Appropriate Alternative:
After carefully evaluating the alternative courses of action, the most appropriate one is selected. At this point, a decision is made about all course of action to be taken. Sometimes, after evaluating a few alternative courses of action, a planner may choose more than a single alternative, as two or more alternatives may seem advisable.
Another reason for choosing more than one alternative plan is that the planning premises may change (since the future is unpredictable). In such a case, the planner must be ready with an alternative plan (normally called a contingency plan) that can suit the changed situation.
Steps in the Planning Process # 7. Implementing the Plan:
This involves putting the plan into action. In order to implement the actions stated in the plan, managers have to make a series of decisions. A manager can implement the plan of a firm through the use of authority, persuasion of policy. Authority is a legitimate form of power that comes with the position and is not associated with a person. It is often sufficient to implement relatively simple plans that do not cause a significant change in the status quo.
But a complex and comprehensive plan cannot be implemented through authority alone. Persuasion is another tool used by managers for implementing their plans. It is the process of selling a plan to those who must implement it, by communicating relevant information so that all individuals can understand all the implications.
Steps in the Planning Process # 8. Reviewing the Plan:
Once a plan has been implemented, it should be reviewed. This helps manager to evaluate the plan and also identify deviations from the established course of action. This helps manager to take the necessary corrective measures. A periodic review of plans enables an organization to update them in the light of changes in the business environment.
Answer 7. Planning Process Steps:
Planning is important because:
(1) It provides direction.
(2) It provides a unifying framework,
(3) It helps to reveal future opportunities, problems and threats, and
(4) It provides performance standards.
(5) It leads to success,
(6) It helps to manage change,
(7) It is necessary for effective control.
The planning process is concerned with making current decisions to allocate our resources in such a manner that we can achieve future objectives. Planning is a combination of information-handling and decision-making systems. We have information inputs, outputs and a feed-back loop.
Principal steps in the planning process are:
1. Analysis of External Environment—opportunities & threats.
2. Analysis of Internal Environment—strengths and weaknesses.
3. Discovering Mission or Purpose—central concept.
4. Forming Long-term Objectives or Ends.
5. Forecasting the Environment of Plans in operation.
6. Developing Corporate Strategies.
7. Formulating Strategic Plans and Policies.
8. Preparing Functional Plans of Production, Marketing, Finance, Personnel, etc.
9. Setting Action Programmes with schedules, budgets standards, etc.
10. Operating Control-Feedback loop of measuring and evaluating actual results and making corrections, if necessary, to ensure achievement of set goals and standards.
1. External Environment Analysis:
Environmental analysis provides description of environmental conditions which influence the corporate business operations. It reveals business opportunities as well as threats or risks the external environment covers technology, market (customers, competition, prices, etc.), and socio-economic climate (employee skill, availability of personnel, wages and salary, social aspirations and expectations, etc.) and the political conditions within which corporate plans will have to operate.
These factors in external environment are dynamic and relatively uncontrollable as well as unpredictable with accuracy. The enterprise has to adapt its plans, policies and strategies according to changing trends in the external environment.
2. Internal Environment Analysis:
The internal environment covers the relatively controllable corporate resources (human power, technology, knowledge, facilities, finance etc.) that are used to produce goods and services. Resources audit gives us precise idea about our strengths as well as weaknesses. It points out our limitations and constraints.
Every company formulates its business on the basis of accurate stock of strengths of the company as a whole.
We have to consider some relevant questions:
i. Our reputation for quality, delivery, service, and quotation to probable buyers or prospects, etc.
ii. Can we make quick decisions? Can we identify customer needs before our rivals? Do we have aggressive or defensive competition?
iii. Do we have complete information on our customers’ problems and to what extent could we help them to solve them? Can our salesmen solve our customers’ problems to their satisfaction.
iv. Are our salesman having full knowledge about goods handled and about technique of salesmanship? Are they recognised as assets even by our customers? Do they really know their customers?
v. Do we have up-to-date plant, equipment and work environment?
vi. Do we have competent and loyal workers and managers? Is their morale high?
vii. Do we have effective communication network and sound co-ordination of all organisational activities,
viii. Is our managerial leadership effective? And so on. We should have the most realistic picture of our assets and capabilities of all our resources.
While making searching inquiries to identify our .strengths in all vital areas, our constructive approach can reveal our deficiencies and pinpoint our weaknesses particularly in relation to competition.
In fact, location of assets and liabilities should be done simultaneously on two sets of sheets one for strengths and the other for weaknesses. In this way we can form a balance sheet of our assets and liabilities. In this manner we will know where we stand in the market place through a searching and objective self-analysis.
3. Corporate Mission:
On the basis of background of external and internal environment analysis, top management will define the central concept of the enterprise by formulating a statement of fundamental socio-economic objective.
The mission or creed statement indicates precise answers to certain basic questions:
i. What is our business? It is determined not by the company but by the customer.
ii. What will our business be? Answer to this question will fill in unmet customer needs.
iii. What should our business be?
iv. Who is our customer?
v. What does he buy?
vi. What does he look for when he buys the product?
vii. What are our social responsibilities, and so on.
A company is an economic and social institution leading a purposeful life in the business world. It must accept its responsibilities to the environment as a corporate citizen. A mission or purpose provides the best climate for successful business planning for sustained growth and enduring life-cycle for the business enterprise. The defined mission reflects management philosophy and beliefs. It gives Arm direction and makes corporate activities meaningful.
4. Determination of Objectives:
On the basis of our statistical data and adequate knowledge about internal and external environment and on the basis of our balance sheet of assets and liabilities, we can easily take the first step in actual business planning the setting of hierarchy of objectives. It is quite clear that our objectives should attempt to overcome our weaknesses and they should take maximum advantage of our strengths.
Basic objectives should relate to the overall business and other sub-objectives to each specific function. We can formulate the mission, the main purpose, multiple fundamental objectives and basic policies. These will provide the scope and direction for the company’s business. We can set out financial goals, e.g., return on investment, profit, ratio of profit to sales, volume of sales, etc.
5. Forecasting Planning Premises:
Once the objectives are determined, we have to forecast the planning premises or assumptions indicating the environment of our plans. Forecasting attempts to predict some future event or condition. It offers the best available basis for the management expectations of the future. It enables the management to understand the implications for alternative courses of action.
Forecasting may not be foolproof or accurate. But without it you are just shooting in the dark. In order to plan, a manager will have to get forecasts of such things as economic conditions, consumer demand and preferences, degree of competition, new product developments, social and political changes, etc. Your plans are based on these assumptions or premises.
Economic forecasting is necessary because the sales of any product or service is related to the level of economic activity, and sales forecast is the foundation of all business plans. For example, the capital expenditure budget is drawn on the basis of sales estimates, which in turn depends on the outlook for the national economy.
Economic forecasting may be based on three approaches:
i. Gross National Product (GNP),
ii. Some leading economic indicators, etc., number of business failures, and new orders for durable goods,
iii. Econometric models.
Once the economic forecast has been made, we can develop our sales forecast which then becomes the foundation of all other forecasts necessary in our planning process.
Forecasting is a systematic attempt to probe the future by inference from known facts relating to the past and the present. Intelligent forecasting is essential for variable planning premises or assumptions.
Planning premises are assumptions and predictions about the future. They act as probable environment of plans in operation. They provide a framework for planning and act as a basis of action in the business world full of uncertainties. Effective planning is based on knowledge and accurate choice of planning premises assumptions regarding future happenings.
Please note that planning premises are not planning. Planning premises point out the internal and external environment in which our plans will operate. They supply relevant facts and information relating to the future and. therefore, they are vital for success in planning.
Important planning premises deal with other things being equal in our laws of economics. But in a dynamic world, they are not equal or constant. They are assumed to be constant while plans are under implementation.
Examples of planning premises are:
i. Political stability,
ii. Price levels,
iii. Government economic and fiscal policies and controls,
iv. Technological environment,
v. Population, national income, national productivity and employment,
vi. General economic conditions,
vii. Sociological factors,
viii. Consumer behaviour and attitudes,
ix. Public attitude and behaviour, etc.
Forecasting, i.e. future estimates, is based on planning premises. It may be done by extrapolation, economic forecasting, marketing research, econometrics, etc.
There are three limitations on quantitative forecasting techniques:
i. When the data is scarce, they are useless, e.g., a new product has no sales history and hence, time series forecasting or causal forecasting is useless.
ii. They assume that historical trends will continue into the future. But trends have a habit of changing, often suddenly.
iii. Both time series and causal forecasting techniques ignore unexpected occurrences and unforeseeable events.
In reality these unexpected events e.g., the fuel shortage and the energy crisis, have affected many industries in all countries profoundly since 1974. The qualitative forecasting techniques, e.g., marketing research, are useful when historical data is scarce and we are interested in identifying unexpected future opportunities and threats.
6. Developing Strategies:
Objectives give us specific ideas for the direction of the organisation efforts. The real problem is how to find the best way or means to implement these ideas and achieve the stated objectives. Finding the best way to go there (where we want to be) is called strategy development.
Corporate strategy is difficult to define. Objectives answer the question- What the business is going to be? Strategy answers the question- How best can the business achieve what it has decided to achieve? A strategy describes the appropriate way in which corporate objectives can be achieved. It is the magic wand for action.
Strategy is more than knowledge. It is application of knowledge to practical life, the development of an original idea in accordance with continually changing circumstances. It is the art of action under the pressure of the most difficult conditions.
Corporate strategies are designed in such a way that they match (fit with) the –
i. Future environmental opportunities,
ii. Top management values,
iii. Desired socio-economic performance and above all they match the capabilities of corporate resources.
Strategy as a weapon of competition shows how the company should achieve its objectives in its competitive environment. The correct strategy will establish the proper relationship between the company’s capabilities and problems, and its opportunities in the company’s environment. The search for correct, inter-relationship is at the heart of strategy formulation.
The process of formulating strategy has been described as the balancing of four categories of decisions.
1. Market Opportunity:
The process of ascertaining what a company might do, i.e. alternative objectives in view of environmental opportunities and risks or threats.
2. Corporate Competence and Resources:
The process of deciding what it can do in view of the capabilities, powers and limitations.
3. Personal Values and Aspirations:
The process of deciding what it wants to do in view of the risks the managers (decision-makers) wish to take and their personal values ideals, etc.
4. Social Responsibility:
Finally strategic choice has an ethical aspect- What the company should do in view of its social responsibilities (to offer reasonable satisfaction to all stakeholders such as customers, employees, owners, community and government).
A strategy has three elements-
i. Basic goals or objectives of an organisation,
ii. Courses of action to follow, and
iii. Allocation of resources-human and economic-to implement these courses of action or plans.
Let us have the concrete example of a strategy as described by a chief executive of a big company.
Illustration:
“We are going to put out the best, most reliable process measuring equipment needed by the chemical and allied industries. We are not going to pioneer new products as that is risky arid expensive. Instead after someone else has introduced a new product, we will either license it or design our own. In bringing out our product we shall stress reliability of performance and ease of maintenance. Our long reputation has been to sponsor a product that engineers and manufacturing people can trust and rely on. We will continue to expand our dealer system (for distribution) throughout the nation and in due course through the world after careful selection of local representatives (dealers) and we will back them up with regional centres of maintenance in order to offer prompt and high quality service after sale. Our growth will be steady and stable at 15-20 per cent a year. We could grow faster since the market opportunity is ample but stable growth is our objective and we we will be able to finance our normal growth entirely through internal resources (self-financing through retained earnings) and we will be able to select and train adequately new employees distributors and our maintenance staff to build customer faith and goodwill in our reliability and reputation. We firmly believe that customer is our business and he is the centre of our business plans. Above all, we must be good citizens and fulfil our responsibility to the communities in which we live. We will support good works and charity and bear our fair share of taxes. We will actively participate in the promotion of civic improvement, health, education and good government.”
The key to the development of strategy is the internal and external environment trends. A good strategy establishes the most profitable and favourable relationships between the organisation and its total environment. Then only our organisation can move speedily toward the stated objectives.
The search for suitable strategy is made by critically assessing the planning premises or assumptions regarding the future trends of economic, technological, social and political forces. Strategy involve the processes of selecting the areas demanding special attention in order of importance first things given first attention and so on.
Like a magnifying glass, strategy puts into the limelight critical activities requiring concentration and special efforts. It acts as a bridge between our objectives and our action plans or programmes. Usually, we use two or three strategies simultaneously. A company may choose first to concentrate on, for example, share in the market, or product quality, or price or aftersales service and so on. The factor critical to its market success will be given top priority.
If your company is merely a market follower, the customers in reality force the strategy on the company. But if you aim at capturing leadership in market share, price, quality, service, innovation, etc., you must have your own strategy.
Strategy determination adopts the rational decision-making process:
i. Alternative opportunities to achieve the objectives are listed.
ii. These are compared and evaluated on the basis of marginal analysis (MC = MR) and/or on the basis of cost- benefit analysis.
iii. Top Management then picks up two or three strategies in order of priority. In this manner we have development of corporate strategies.
7. Strategic or Long-Range Plans:
Strategic planning process is concerned with broad matters that vitally affect the development of any enterprise. It is the process of determining the mission and basic objectives of an enterprise and policies and the strategies relating to acquiring, using and disposing of resources.
In order to accomplish these objectives, policies provide guidelines to action, while strategies provide the preferred means to organise and use resources.
The strategic plan covers:
(1) Mission,
(2) Strategy to accomplish the mission or purpose,
(3) Specific objectives and goals of strategies,
(4) Means for reporting progress towards goal,
(5) Internal and external conditions favouring the enterprise to achieve its goals.
On the basis of basic policies and strategies, top management will now formulate comprehensive business plans for the entire corporation. These plans give a broad outline describing the characteristics and accomplishment to be achieved by the enterprise.
They deal with:
(1) Company mission,
(2) Long- range objectives,
(3) Basic policies and
(4) Corporate strategies to accomplish the objectives.
Strategic planning embraces all the major aspects of company development, e.g., the long- term growth of production, sales, new marketing methods, and diversification. Mergers, major capital investments, technological innovations, personnel requirements, etc.
8. Formulation of Supporting Functional or Tactical Plans:
Once our long-range or strategic plans are ready we can now proceed to formulate business plans for each area such as production, finance, marketing, personnel, research and development, etc.
These departments will formulate their goals which are sub-objectives of corporate objectives or means to achieve corporate Objectives. Our action plans are based on these goals. Functional objectives are related to measurable goals such as profit, volume of sales market share, etc. Similarly, specific strategies and policies will be developed in each functional area of business. Each specific strategy will try to secure optimum use of external and internal forces and contribute to corporate objectives.
9. Functional Work Programme (Action Programme):
The functional or departmental work programme is a detailed programme or time-bound action plan to achieve specific goals through most suitable strategy or alternative course of action. We will have a scheduled programme with logical steps in proper sequence and each individual will be assigned precise responsibility to take action. The programme may also have realistic dates for starting and finishing the assigned tasks.
There are three ingredients of an action plan:
i. The time limit, of performance,
ii. The allocation of tasks to individual employees and
iii. The time-table or schedule of work so that the functional objective is accomplished within the predetermined period.
In an action plan we have the list of elements of action arranged in proper sequence. Each element or subdivision is assigned to a certain employee and he is told about the starting date and the finishing date of the assigned work. For example, our action programme is introduction of a new product.
We may have the following work programme in the proper sequence:
i. Product planning and development,
ii. Test Marketing,
iii. Costing,
iv. Pricing,
v. Advertising, sales promotion, and related literature.
vi. Packaging,
vii. Choice of channels of distribution and
viii. Publicity.
For each activity we shall have dates on initiation and completion so that the new product can be introduced in the market as per schedule, i.e. within a certain period.
10. Control Mechanism:
Under the systems approach, one feature of a system is generation of information when the system is being processed. Information acts as input and also
planning process as output constantly. Feedback Information loop gives information about results of implementing the plan.
These actual results are compared with some standards or desired performance levels. If deviations are noted, the controller takes corrective actions. If essential, we may have replanning also. In this way control assures accomplishment of objectives originally stated.
The master plan of a company expresses the relationship between the company and its competitive environment.
There are three basic components of the master plan:
(1) Formulation of economic and social mission (kind of business and basic performance objectives),
(2) Competitive strategy (right product-market approach combination to achieve the mission),
(3) Goals in the various functional areas and the programme of action to implement the competitive strategy.
These plus the reappraised components will complete the forward planning. Reappraisal phase reflects the need to modify the plan as and when needed.
The business plan both at the company level as well as at the departmental level involving steps has been employed most effectively by a company or by a division of a big corporation which is a single operational centre. In a large divisionalised company, one division is just like one company or a unit of business and in each division we have all functional departments such as production, finance, marketing and personnel.
Our business plan described above can be adopted by a medium sized company with functional organisation or even by a large national corporation with a number of divisions, each division having a complete set of all major departments.