Planning In Management – How Important Is It?
Planning In Management
Planning can simply be defined as an act concerned with examining the future and drawing up a course (Plan) of action.
The higher up the hierarchy of management, the more attention is paid to planning, particularly in setting out goals and strategies for long period ahead. Managers lower in the hierarchy usually deal with sections of the total plans and are concerned with shorter period of time.
Planning must be flexible to deal with a changing environment.
PRINCIPLES OF PLANNING
i) Plans should be based on clearly defined objectives and make use of all available information
ii) Plans should consider factors in the environment which will help or hinder the organization in reaching its goal.
iii) They should take account of the existing organization and provide for control, so performance can be checked with established standards.
iv) They should be precise, practicable and simple to understand if circumstances necessitate change, this can be effected without disrupting the plan.
v) Must be cost effective. Must be worked out within given cost, return and risk limitation as well as the limits of available or obtainable resources.
TYPES OF PLAN
This involves deciding upon the major goals of an organization and what policies will be used to achieve them. It involves a longer time period and relies more on long term forecasts. It occurs at more senior levels in the organization and take into consideration environmental factors e.g. political and technological changes.
EXAMPLES OF STRATEGIC DECISION ON
i) What products will the firm produce
ii) How the firm will finance its operations
iii) Whether to aim for the top or bottom end of market
iv) Pricing policies
v) Whether to recognize particular trade union
Concerns the implementation of strategic decision, it involves deciding upon how resources will be used to help the organisation achieve its strategic goals. It relies more on past records and involves shorter time periods.
It involves the forward planning of existing operations in existing markets with existing customers and facilities. By virtue of the definition of strategic plans the/operational plan must pin-off from these, even though in practice the decision to continue in that particular area of operation may be implicit rather than explicity take at the start of each planning cycle.
Corporate planning is a systematic approach to clarifying corporate objectives making strategic decisions and checking progress towards the objectives. Corporate objectives are objectives for the organizations as a whole, not for parts of it. Strategic decisions are decision which affect or are intended to affect the organisatiosn as a whole over long periods of time.
In addition to its plans, every company practicing corporate planning needs defined policies and procedures some will derive from specific plans others will attempt to bring order into the apparent chaos in the many area of a modern business; which are relatively unchanging and which do not justify and other form of planning. Further plans may after established policy and procedure at any time.
STRATEGIC PLANNING AND CORPORATE PLANNING
DISTINCTION BETWEEN PLAN, POLICY AND PROCEDURE
An example of the derivation of policy and procedure from a plan may help to illustrate the relationship.
1) PLAN: To reduce traveling expenditure by employees by 10% in the following year by controlling class of travel, reducing frequency of travel scrutinising expenses claims more rigidly and ensuring that all journey are appropriately authorized.
2) POLICY: All employees of the company are to travel second class on the railways unless the journey is of more than three hours (schedule) duration.
3) PROCEDURE: A defined system by which the policy is implemented and controlled – ticket-booking rules expenses claims forms and way of obtaining reimbursement, system of authorization of expense claims.
In any modern business, there are hundreds of policies and procedures which must be applied if the organization is to function at all.
CORPORATE/STRATEGIC PLANNING – AN OVERVIEW
Corporate strategy is the foregoing of company missions, setting objectives for the organisation in the light of external and internal forces, formulating specific policies and strategies to achieve objectives and assuring their proper implementation so that the basic purposes and objectives of the organizations will be achieved.
Strategic planning clearly embraces strategy and policy formulation and the development of set of plans, all of which require the completion of a number of prior processes (elements) such as
1. Setting of corporate/strategic objective
2. Establishment of the corporate performance me sure required
3. Internal appraisal
4. External appraisal
5. Forecasting future performance based in the first phase on the result of 3 and 4
6. Analyzing of the gap between 2 and 5
7. Identification and evaluation of strategic to reduce the performance gap or in other words to meet the strategic objectives
8. Choice of strategic
9. Preparation of final corporate plan
SETTING CORPORATE OBJECTIVE
Organisations possess both economic and non-economic objectives. The non-economic social objectives may be partially derived from the expectation of the internal and external interests or stake holders. There is a general consensus that some degree of profitability is a prime, if not the prime objective of a business organisation.
The specification of a particular figure for return on capital in say five years time or of a particular growth rate from the current level is no easy exercise. Shareholders or their advisor finance managers have individual expectations which reflect their attitude to risk, their loyalties to the business, and their knowledge of rates of return (and risks) for alternative investments.
The organisation, therefore, must assess what the minimum level or return acceptable to shareholders is and what the ‘satisfactory’ level is
Corporate Objectives can be classified into three types:
1) Aims – purpose (primary objectives
This is the reason why the organizations was first formed or why it now exists
2) Aims – ethos (secondary objectives)
This is how the organizations behave towards its employees and all other people or groups of people with whom it interacts. This includes customers, the state, the local community etc.
3) Means – how the organizations proposes to achieve its objectives.
Suppose for example that a company has five objectives
1) to lead the industry in technical developments
2) to provide shareholders with a satisfactory return
3) to provide comfortable working conditions for employees
4) to contribute generously to worthy community projects in the locality of the factories
5) to increase the company’s share of world markets.
This list of five items contains the following different categories of “objective”
– there is one statement of purpose (item 2)
– there are two statement of ethos (items 3 & 4)
all of these (i.e. item 2, 3 &4) are corporate objectives.
– There are two statements concerning strategy (items 1&5) and these are corporate means rather than corporate aims.
REQUIRED CORPORATE PERFORMANCE MEASURE
Once the overall objectives have been defined, a further set of objectives or sub-objective (or goals or targets) must be specified in such a way that they represent mutually agreed and are appropriately positioned such that their attainment guarantees the achievement of the objective/strategy.
Acceptable corporate performance measure should satisfy three criteria.
3. Participants satisfaction
The internal appraisal, sometimes called a position audit, is essentially a survey of the organisation current state and the resources it possesses. The purpose of the internal appraisal is to undertake the analysis of the strengths and weaknesses of the organisation. This is usually the result of a project undertaken by a team of mixed disciplined staff e.g. a member from each of the main functional areas.
The internal appraisal highlights areas within the company which are strong and which might therefore be exploited more fully, and weaknesses where more “defensive” planning might be required to protect the company from poor results.
An external appraisal is required to identify profit making opportunities which can be exploited by the company’s strengths and to anticipate environmental threats (a declining economy, competitors actions governmental legislation, individual interest etc) against which the company must protect itself.
The external factors which need to be investigated at a local, national and international level is represented in the diagram below.
FORECAST OF FUTURE PERFORMANCE
Given the information emerging from the internal and external appraisals, the organisation should prepare forecast of future performance based on a passive forward projection over the planning time horizon. This will give a set of corporate performance measure-return on capital employed, productivity etc which can be directly compared with those derived from strategic objective. Inevitably, there will be a difference between the two sets of figures which is called performance gap, the analysis of which represents the next page in the process.
PERFORMANCE GAP ANALYSIS
The performance gap is the difference between (a) the target profit (according to the overall corporate objectives) of the company and (b) the profit in the forecast. This gap represents the task facing the company over the mere continuation of the existing business. It indicated how much extra profit has to be yielded from decisions and the commitments that will be made over the next few years.
IDENTIFICATION AND EVALUATION OF POSSIBLE STRATEGIES
Strategy formulation is all about enjoying synergy. Synergy is the process by which the effect of putting two parts together is greater than the sum of their individual parts. “the two-plus-two equals-five effects”
The greater the effect of synergy a firm can manage through its selection of products and markets the more flexible will be its competitive position. This can then be used to advantage for:
a) Increasing market share through price reductions
b) Making larger investment in research and development than the competitor
c) Increasing return on investment, thereby increasing the firms capital base.
The various types of synergy may be categorized as
a) Sales synergy
b) Operating synergy
c) Investment synergy
d) Management synergy and start up synergy
The strategies which can be formulated include
1) Marketing strategies
2) Diversification strategies
3) Merger and acquisition strategy
4) Development strategies and
5) Organisation strategies
The evaluation of alternative strategies should include a thorough review of each synergy’s contribution to closing the gap, personal satisfaction for individual and groups and social contributions.
While it is possible to evaluate the strategies quantitatively, the use of qualitatively techniques may be as important in considering the consistency with other stages with other strategies.
CHOICE OF STRATEGIES
Given that several strategies have been evaluated, top management must chose between these before the final corporate plan can be drafted.
FINAL CORPORATE PLAN
The ultimately choosen strategy or set of strategies determines the final corporate plan which is essentially a statement, in both qualitative and quantitative terms as to how the organization will met its strategic objective. As such the corporate plan will comprise.
a) A general strategy (policy statement for the whole organisation)
b) Individual plans for the major functional areas (Marketing production, personnel or manpower) and for central service function such as research and development and computing
c) Financial statements of profitability, cash flow, balance sheets incorporating whenever appropriate the capital expenditure plan figure
THE PLANNING HORIZON
“Stumbling block” to successful planning centres around the critical decision as to how far ahead the company should be preparing its plans. There is little point in planning beyond the furthest point in planning beyond the furthest point one can reasonably foresee with any certainty. Therefore business which is operating in an unstable environment (e.g. material shortage) or an uncertain situation (e.g marketing a new product) should plan for only a few month whilst those in stable condition may plan for a decade or more ahead.
The furthermost point that can be reasonable foreseen by an organization is known as the “planning horizon”
Planning In Management – How Important Is It?