Planning Process

The planning process is the sequence of logical steps a manager follows to decide what to do and how to do it. It is not a single decision but a structured activity that moves from broad goals to specific actions. The textbook lays out seven clear steps.

(i) Setting Objectives

The first and most important step is to set objectives. Every organisation must have objectives — these specify what the organisation wants to achieve. Objectives can be set for the entire organisation and then for each department or unit within it. For example, an objective for the whole company might be "increase sales by 20%". Once that is fixed, each department must draw up its own plan showing how it will contribute to that overall goal.

Objectives must be stated clearly for all departments, units, and employees. They give direction to everyone. Departments and units then set their own objectives within the broad framework of the organisation's philosophy. These objectives must percolate down to each unit and to employees at all levels. Managers must contribute ideas and participate in the objective-setting process. They must also understand how their own actions contribute to achieving the objectives. When the end result is clear, it becomes much easier to work towards the goal.

(ii) Developing Premises

Planning is concerned with the future, which is uncertain. Every planner has to make assumptions about what might happen in the future. These assumptions are called premises. They form the base material upon which plans are drawn. The base material may come from forecasts, existing plans, or past information about policies.

The premises or assumptions must be the same for everyone involved in planning. All managers should be familiar with and use the same assumptions. For example, forecasting is an important technique for gathering information. Forecasts can be made about demand for a product, policy changes, interest rates, prices of capital goods, tax rates, and so on. Accurate forecasts are essential for successful plans.

(iii) Identifying Alternative Courses of Action

Once objectives are set and assumptions are made, the next step is to act upon them. There may be many ways to achieve the objectives. All the alternative courses of action should be identified. The course of action taken could be either routine or innovative. An innovative course may be adopted by involving more people and sharing their ideas. If the project is important, more alternatives should be generated and thoroughly discussed among members of the organisation.

(iv) Evaluating Alternative Courses

The next step is to weigh the pros and cons of each alternative. Each course will have many variables that have to be weighed against each other. The positive and negative aspects of each proposal need to be evaluated in the light of the objective to be achieved.

In financial plans, for example, the risk-return trade-off is very common — the more risky the investment, the higher the returns it is likely to give. To evaluate such proposals, detailed calculations of earnings, earnings per share, interest, taxes, and dividends are made, and decisions are taken. Accurate forecasts in conditions of certainty or uncertainty become vital assumptions for these proposals. Alternatives are evaluated in the light of their feasibility and consequences.

(v) Selecting an Alternative

This is the real point of decision making. The best plan has to be adopted and implemented. The ideal plan would be the most feasible, profitable, and with the least negative consequences. However, most plans may not always be subjected to a mathematical analysis. In such cases, subjectivity and the manager's experience, judgement, and at times intuition play an important part in selecting the most viable alternative. Sometimes, a combination of plans may be selected instead of one best course. The manager will have to apply permutations and combinations and select the best possible course of action. …