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PLANNING
BUSINESS MANAGEMENT
UNIT-2
Syllabus
Planning – Meaning – Nature – Importance –
Advantages and Limitations – Process of Planning –
Types of Plans – MBO – Forecasting – Decision
Making.
KEY WORDS: Planning Premises, Plan, Strategy,
Polices, Management by Objective, Forecasting

learning objectives
1. Explain the importance of planning
2. Explain Process of Planning and Types of
Plans
3. List and explain the steps in a basic planning
process
4. Discuss various ways to make plans effective
5. Describe the barriers to planning
6. Explain MBO – Forecasting – Decision
Making.

What is Planning ?
Meaning of Planning
Planning is the process of setting objectives, formulating various courses of
action in order to achieve them, and selecting the best possible alternative
from the various courses of action available in order to ensure completion of
organizational goals.
Definitions
“Planning is the thinking process, the organised foresight, the vision based on
fact and experience that is required for intelligent action.” — Afford and Beatt
“Planning is deciding in advance what is to be done. When a manager plans,
he projects a course of action for further attempting to achieve a consistent
coordinate structure of operations aimed at the desired results.” — Theo
Haimann
“Planning aims at bridging the gap between where we are and where we
want to go”.

4
What is Planning?
• Deciding in advance what to do, how to do it ,
when to do it and who has to do it.
• Planning is the pre-selection of objectives and
outlines the action before starting any business.
• Planning is decision making in advance.
• Planning is the process by which managers
establish goals and define the methods by which
these goals are to be attained. Planning involves
selecting missions and objectives and the actions to
achieve them; it requires decision making, which is
choosing from among alternative future courses of
action.

Planning:
Develop Objectives
SMART
• Specific
• Measurable
• Attainable
• Realistic
• Time-limited

Nature and Characteristics of planning
1. Intellectual Process
2. Goal-orientation
3. Primary Function
4. Pervasiveness
5. Uniformity
6. Continuity
7. Flexibility
8. Simplicity
9. Precision
10. Feasibility
11. Choice among Alternative Courses
12. Efficiency
13. Inter-dependence
14. Forecasting:

Importance of Planning
1. Planning provides direction. Once the goals of all employees and
departments are set they are properly guided in the required direction.
2. Planning reduces the risk of uncertainty. A good plan cannot eliminate
uncertainties of future. However it can reduce unnecessary risks.
3. Planning reduces overlapping and wasteful activities. Every person and
department is assigned an objective and direction which rules out
possible confusion.
4. Planning involves innovative ideas. Planning is all about thinking in a
unique and improved way so it involves innovation.
5. Planning helps in decision making. Decision making involves choosing
the best among the identified options.
6. Planning sets standards for controlling. Controlling only tries to meet the
objectives set at the stage of planning.

Advantages of Planning
1. Planning facilitates management by objectives.
2. Planning helps in focusing the attention of employees on the
objectives or goals of enterprise.
3. Without planning an organization has no guide.
4. Planning compels manager to prepare a Blue-print of the courses of
action to be followed for accomplishment of objectives
5. Planning minimizes uncertainties.
6. Planning facilitates co-ordination.
7. Planning improves employee’s moral.
8. Planning helps in achieving economies.
9. Planning facilitates controlling.
10. Planning provides competitive edge.
11. Planning encourages innovations.

Limitations of Planning
(A) Internal Limitations
1. Planning leads to rigidity.
2. Planning may not work in a dynamic environment.
3. Planning reduces creativity..
4. Planning is a time-consuming process.
5. Planning does not guarantee success.
6. False sense of security
B) External Limitations
They are those limitations of planning which arises due to external
factors over which an organization has no control.
1. Changes in Government policies way leads to failure of planning.
2. Natural calamities such as flood, earthquake etc. also adversely affect
the success of planning.
3. Changes in the strategies of competitors also leads to failure of
planning many times
4. Regular technological changes may affect planning.
5. Changes in the Economic and Social Conditions also reduces the
effectiveness of planning.

Process of Planning (or)
Steps in Planning
1. Setting objective: The first step in planning is setting objective as they
specify what the organization wants to achieve.
2. Developing premises: Assumptions made for future are called premises.
Premises must be same for all i.e. they should be using the same
assumptions.
3. Identifying alternative course of action: once the objective are set,
assumptions are made the next step is to find out alternative courses of
action.
4. Evaluating alternative courses: The positive and negative aspects of each
proposal are evaluated in the light of objective.
5. Setting an alternative: The ideal plan would be the most feasible,
profitable and with least negative consequences.
6. Implement the plan: Required resources are acquired to put the plan
into action.
7. Follow up action: plans are monitored to ensure that objective is
achieved.

Types of Plans
(i) Objectives - Objectives are the ends towards which the activities are directed.
(ii) Strategy A strategy is a comprehensive plan to achieve the organisational
objectives.
(iii) Policies Policies are general statements that guide thinking or channelise
energies towards a particular direction.
(iv) Procedures Procedures are required steps established in advance to handle
future conditions. The procedure can be defined as the exact manner in which an
activity has to be accomplished.
(v) Method Methods provide the prescribed ways or manner in which a task has
to be performed considering the objective.
(vi) Rule Rules are specific statements that inform what is to be done. They do
not allow for any flexibility .
(vii) Programme - Programme are detailed statements about a project which
outlines the objectives, policies, procedures, rules.
(viii) Budget A budget is a statement of expected results expressed in numerical
terms.
•

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Types of Plans
• Long range Vs Short range - Short-term planning evaluates your progress in the
present and creates an action plan to improve performance daily. However, long-term
planning is a comprehensive framework that comprises of goals to be met within a
four- to five-year period.
Strategic Vs Operational -A strategic plan outlines your mission, vision, and high-level
goals for the next three to five years. ... An operational plan (also known as a
work plan) is an outline of what your department will focus on for the near future—
usually the upcoming year.
Corporate Vs Functional -Corporate strategy is your company's big-picture goals. If
you're large enough to have separate departments, each department should have a
business strategy based on the corporate goals. The functional strategy is a detailed
plan for moving toward the company goals.

What is Management by Objective ?
• The process of setting objectives in the organization to give a
sense of direction to the employees is called as Management
by Objectives.
• It refers to the process of setting goals for the employees so
that they know what they are supposed to do at the
workplace.
• Management by Objectives defines roles and responsibilities
for the employees and help them chalk out their future
course of action in the organization.
• Management by objectives guides the employees to deliver
their level best and achieve the targets within the stipulated
time frame.

Management by Objective
The essence of Peter Drucker’s basic principle: Management By Objectives
is to determine joint objectives and to provide feedback on the results.
Setting challenging but attainable objectives promotes motivation
and empowerment of employees.
1. Objectives are determined with the employees;
2. Objectives are formulated at both quantitative and qualitative levels;
3. Objectives must be challenging and motivating;
4. Daily feedback on the state of affairs at the level of coaching and
development instead of static management reports;
5. Rewards (recognition, appreciation and/or performance-related pay) for
achieving the intended objectives is a requirement;
6. The basic principle is growth and development not punishments.

Need for Management by Objectives
(MBO)
1. The Management by Objectives process helps the employees to
understand their duties at the workplace.
2. KRAs are designed for each employee as per their interest, specialization
and educational qualification.
3. The employees are clear as to what is expected out of them.
4. Management by Objectives process leads to satisfied employees. It
avoids job mismatch and unnecessary confusions later on.
5. Employees in their own way contribute to the achievement of the goals
and objectives of the organization
6. Management by Objectives ensures effective communication amongst
the employees. It leads to a positive ambience at the workplace.
7. Management by Objectives leads to well defined hierarchies at the
workplace. It ensures transparency at all levels.
8. The MBO Process leads to highly motivated and committed employees.
9. The MBO Process sets a benchmark for every employee.

Management By Objectives steps
Peter Drucker has developed five steps to put
Management By Objectives into practice:
1. Determine or revise the organizational objectives
2. Translating the organizational objectives to
employees
3. Stimulate the participation of employees in the
determining of the objectives
4. Monitoring of progress
5. Evaluate and reward achievements

Weaknesses of MBO
With all its advantages, a system of MBO has a
number of weaknesses most of which are due
to shortcomings in applying MBO concepts.
They are:
1. Failure to teach the philosophy of MBO
2. Failure to give guidelines to goal setters
3. Difficulty in setting goals
4. Emphasis on short run goals
5. Danger of Inflexibility

What is Forecasting?
Louis Allen defines forecasting as,
“A systematic attempt to probe the future by inference from
known facts.”
1. Forecasting is a process of predicting or estimating the future based on
past and present data.
2. Forecasting can be broadly considered as a method or a technique for
estimating many future aspects of a business or other operation.
3. Planning for the future is a critical aspect of managing any organization,
and small business enterprises are no exception.
4. Forecasting provides information about the potential future events and
their consequences for the organization. It may not reduce the
complications and uncertainty of the future. However, it increases the
confidence of the management to make important decisions.

Role of Forecasting:
Forecasting is needed for planning process
because it devises the future course of action.
... It defines the probability of happening of
future events. Therefore, the happening of
future events can be precise only to a certain
extent.
1. It helps the managers in the following ways:
2. Basis of Planning:
3. Promotion of Organization:
4. Success in Organisation:

The Forecasting Process
Steps in Forecasting:
The process of forecasting generally involves the
following steps:
1. Developing the Basis
2. Estimation of Future Operations
3. Regulation of Forecasts
4. Review of the Forecasting Process

Techniques of Forecasting:
There are various methods of forecasting. However, no
method can be suggested as universally applicable. In fact,
most of the forecasts are done by combining various
methods.
1. Historical Analogy Method
2. Survey Method
3. Opinion Poll
4. Business Barometers
5. Time Series Analysis
6. Regression Analysis
7. Input-Output Analysis
8. Delphi Method
9. Executive Opinion

Key differences between Planning and
Forecasting

Decision Making
• Decision-making is an integral part of modern management.
Essentially, Rational or sound decision making is taken as
primary function of management.
Definition of Decision Making
• According to the Oxford Advanced Learner’s Dictionary the
term decision making means - The process of deciding about
something important, especially in a group of people or in
an organization.
• Trewatha & Newport defines decision making process as
follows:, “Decision-making involves the selection of a course
of action from among two or more possible alternatives in
order to arrive at a solution for a given problem”.

Nature of Decision Making
The following are the nature of decision-making
➢Goal-Oriented Process
➢Selection Process
➢Continuous Process
➢Art as Well as Science
➢Responsibilities of Managers
➢Positive as Well as Negative
➢Future Course of Action

Steps in Decision Making
Step 1: Identify the decision
Step 2: Gather relevant information
Step 3: Identify the alternatives
Step 4: Weigh the evidence
Step 5: Choose among alternatives
Step 6: Take action
Step 7: Review your decision & its consequences

Peter Drucker’s rational steps in
decision making:
– Define the Problem
– Analyze the Problem
– Develop Alternative Solutions
– Decide on the Best Solution
– Convert decisions into Effective Actions

Types of Decisions
• Structured problems: straightforward, familiar, and
easily defined problems
• Programmed decisions: repetitive decisions that can
be handled by a routine approach
Types of Programmed Decisions
• Procedure: a series of sequential steps used to
respond to a well-structured problem
• Rule : an explicit statement that tells managers what
can or cannot be done
• Policy: a guideline for making decisions

Decision-Making Conditions
• Certainty: a situation in which a manager can make
accurate decisions because all outcomes are known
• Risk: a situation in which the decision maker is able to
estimate the likelihood of certain outcomes
• Uncertainty: a situation in which a decision maker
has neither certainty nor reasonable probability
estimates available

Curdiff and Still:
keys to rational decision-making:
Mentions three keys to rational decision-making:
(i) Conceptualization,
(ii) Information,
(iii) Prediction.
Rational decisions require:
(a) Intelligence,
(b) Insight, and
(c) Lot of experience.

Guidelines for Effective Decision Making:
The following guidelines may be followed for effective
decision making:
1. Define the goals.
2. Ensure that the decision will contribute to the goal.
3. Adopt a diagnostic approach to decision making.
4. Involve subordinates in decision making process.
5. Ensure successful implementation of the decision.
6. Evaluate the results, and
7. Be flexible and revise the decision which does not yield the
desired results.

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