Chapter 8: Planning

8.1 Meaning and Nature of Planning

Every business commits money, material and effort today for results that arrive months or even years later. A manufacturer orders raw material in June for goods that will be sold in December; a company recruits and trains staff long before the work reaches them. The commitment is made now, but the conditions that will decide whether it pays off — demand, prices, competition, government policy — lie in a future that nobody can see. That gap between a decision and its result is where a business is most exposed. Planning is the device management uses to close that gap. It is the work of deciding in advance what is to be done, how it is to be done, when it is to be done and who is to do it, so that the organisation moves towards a chosen result rather than towards whatever result circumstances happen to produce. Every other function of management — organising, staffing, directing and controlling — is carried out within the framework that planning lays down. This chapter deals with the meaning, features, importance and limitations of planning, with the steps by which a plan is prepared, and with the types of plans a business uses.

Figure

Fig. 8.0-1 — Planning The Year Ahead Photograph of a management team seated around a table with charts and a wall calendar, discussing targets for the coming year.

A business cannot wait for the future to arrive before acting on it. Material has to be bought, workers engaged and money committed long before the goods are ready and the customer pays. Every one of those commitments is a decision taken today about a result expected tomorrow, and the only sensible way to take such a decision is to think the future through before it happens.

Plan And Planning

A plan is a course of action decided upon in advance. It is a settled statement of what an organisation intends to do at some future point, and it exists on paper before anything is done on the ground.

Planning is the process by which a plan is arrived at. It covers deciding the objectives to be achieved during a given period, working out the different courses of action by which those objectives could be reached, and selecting the course that suits the organisation best. A plan is therefore the product; planning is the work that produces it.

Because the whole exercise is completed before any action is taken, planning is described as thinking before doing. It calls for foresight, imagination and sound judgement, since the manager is working not with facts already in hand but with estimates of conditions that have not yet arisen.

Definition

Planning Planning is deciding in advance what is to be done. It involves the selection of objectives, policies, procedures and programmes from among the available alternatives. — M.E. Hurley

The Questions A Plan Settles

A plan is of use only when it settles four questions: what is to be done, how it is to be done, when it is to be done and where it is to be done. To these a working plan adds a fifth — who is to do it. Until all five are answered, the intention remains a wish rather than a plan, because nobody can be held to it and no resources can be released against it.

Figure

Fig. 8.1-1 — Preparing A Plan Photograph of a manager at a desk working on a written plan, with charts and a laptop alongside.

Planning Is A Matter Of Choice

Planning is essentially a process of choosing. An objective can usually be reached by more than one route, and each route carries its own cost, its own timing and its own risk. The manager has to set the alternatives side by side, weigh them and commit to one. Where only a single course of action exists, no planning is called for, because there is nothing to choose between.

For this reason planning is regarded as decision-making. The decision is taken in advance and it is taken deliberately, on the basis of collected facts and considered estimates, rather than left to be settled by circumstances as they arise.

Business Example

Four Routes To The Same Target A trader who decides to raise sales may advertise more widely, reduce the selling price, offer longer credit or improve after-sales service. Each route leads to the same objective at a different cost and with a different risk, so the trader must compare them before committing money to any one of them.

Planning As The Primary Function

Planning stands first among the functions of management, and the other functions are built on it. An organisation structure can be designed only once it is known what work has to be done. Staff can be recruited only after the posts have been decided. Direction has meaning only when there is a target to move towards, and control is possible only when there is a plan against which actual performance can be measured.

Since organising, staffing, directing and controlling are all carried out within the framework that planning lays down, planning is called the primary or basic function of management. It is also the point at which the objectives of the organisation are fixed, and an objective that is never fixed can never be achieved.

8.2 Features of Planning

The definitions of planning point to a set of characteristics that every plan, in every kind of organisation, shares. These features explain both why planning has to be done and why it has to be done first.

Business Example

Planning On A Forecast Seed and fertiliser companies in India draw up their sales plans for the season on the strength of monsoon and crop forecasts. The forecast is not the plan; it is the estimate of future conditions on which the plan is built, and a wrong forecast will carry the plan down with it.

Planning is goal-oriented — every plan is drawn up to reach a stated objective, and a plan that does not carry the organisation nearer to that objective is wasted effort. Planning cannot even begin until the objectives are fixed, because the objective is what the alternatives are judged against.
Planning is forward-looking — planning deals with a period that has not yet arrived, so the conditions of that period have to be anticipated before they can be planned for. Scientific anticipation of future events is called forecasting, and it supplies the base on which every plan rests. A manufacturer settles next year’s production only after forecasting next year’s demand.
Planning is an intellectual process — it is a mental exercise carried out before any physical work begins. Sound plans call for judgement, foresight and imagination, but they are not guesswork; they are built by logical and systematic thinking on the basis of goals, facts and considered estimates. Both creativity and analysis are required, one to identify the opportunities and the other to test them.
Planning is the primary function — it precedes organising, staffing, directing and controlling, and all four are performed within the framework of the plans already drawn. Since planning specifies both the objectives and the way to reach them, it supplies the foundation on which every later managerial action stands.
Planning is pervasive — it is required in every kind of organisation and at every level of management, because no level can act without deciding in advance what it will do. Only the scope differs: top management plans for the organisation as a whole, middle management prepares departmental plans, and supervisors formulate day-to-day operating plans.
Planning is a continuous process — plans are prepared for a definite period, and when that period ends a fresh plan has to be prepared for the next. A plan may also have to be revised within its period, because it rests on assumptions about the future and those assumptions do not always hold. Planning is therefore a never-ending exercise rather than a single act.
Planning involves choice — an objective can usually be reached by more than one route, and planning is the work of comparing those routes and selecting one. Where a single course of action is the only one available, there is nothing to choose between and no occasion to plan.
Planning aims at efficiency — the course selected is the one that reaches the objective at the lowest possible cost and with the best use of the resources available. A plan is worthless if the cost of preparing and running it exceeds the gain expected from it, so efficiency is the test a plan must finally satisfy.

What The Features Show

Taken together, these features explain the position planning holds in management. It is purposeful because it is tied to objectives, uncertain in its material because it deals with the future, and demanding in its method because that uncertainty has to be reduced by facts rather than by hope. It is also unavoidable — every level of every organisation plans, whether it does so carefully or carelessly, and the difference between the two shows in the results.

8.3 Importance of Planning

An organisation always stands at some distance from where it wants to be. It has a present position — its present sales, its present costs, its present share of the market — and it has a future position that it has chosen for itself. Between the two lies a gap that will not close on its own. Planning is the means by which the gap is bridged, as shown in FC 8.1.

Flowchart

FC 8.1 — Planning As A Bridge Between Present And Future Present position: where the business is now → planning: how the gap is to be bridged → future position: where the business wants to be

Because it does this work, and because it comes before every other managerial function, planning is of vital importance to a business. Poor planning is one of the commonest causes of business failure, and sound planning offers the following advantages.

Planning provides direction — the objectives are fixed before the plan is drawn, so managers know what the organisation is working towards and can judge which activities carry it forward. Effort and resources are pointed at a common end instead of being spread over actions that lead nowhere.
Planning makes activities meaningful — once goals are clearly defined, every employee can see how the work of a particular department, and of a particular post, contributes to the result the organisation is seeking. Work that is understood in this way is done more willingly than work whose purpose is unknown.
Planning brings order in place of confusion — by stating in advance how the work is to be carried out, a plan removes aimless and ad hoc action. Duplication of effort between departments is avoided, useless activity is cut out, and the organisation functions in an orderly way.
Planning reduces the risk of uncertainty — a business operates in surroundings it does not control, and planning obliges managers to look ahead, anticipate the changes that are likely and prepare a response to them in advance. The risk itself is not removed, but the organisation is not taken unprepared when the risk materialises.
Planning improves economy of operations — the plan selects the best of the available courses of action and settles how resources are to be used on it. Waste, idle capacity and unnecessary expenditure are reduced, costs fall, and the enterprise becomes stronger against its competitors.
Planning provides the basis for control — control means comparing actual performance with a standard, and it is the plan that supplies the standard. Where nothing was planned there is nothing to compare against, deviations cannot be identified and corrective action cannot be taken. Control without planning is therefore impossible.
Planning promotes innovation — preparing a plan requires managers to look for new and better ways of reaching an objective rather than repeating what was done last year. Fresh ideas about products, markets and methods come up while alternatives are being examined, and these lead to the growth of the business.
Planning facilitates decision-making — under a plan the targets are laid down in advance, and a manager faced with a choice can test each alternative against those targets. Decisions are then taken on reasoning rather than on impulse, and hasty or random action is avoided.
Planning helps in coordination — common targets and programmes bind the work of different departments together. When the production budget is prepared from the sales budget, manufacturing and marketing move at the same pace; without a common plan the two may work at cross purposes.

Business Example

Planned Years In Advance A metro rail network is built in phases, each phase planned several years before the first train runs on it — the route, the land, the finance and the sequence of construction all settled in advance. Work of this size and cost cannot be undertaken at all except on the strength of a detailed plan.

Case Snippet

Case 8.1 — Two Firms, One Festival Season Dhruv Garments estimates festival season demand in June, places its fabric orders in July and fixes a weekly production target for each of the three months that follow. Rachna Apparels, in the same market, buys fabric only as orders come in. In October, Rachna Apparels is unable to obtain fabric at short notice and fails to deliver on time, while Dhruv Garments meets its commitments. Q. State the benefit of planning obtained by Dhruv Garments and give one reason why Rachna Apparels could not obtain it.

8.4 Limitations of Planning

Planning is necessary, but it is not free of difficulty. Some of its limitations are built into the exercise itself — it deals with a future that can only be estimated — while others arise from the techniques used and from the people who prepare the plans. These limitations do not argue against planning; they mark the point beyond which a plan cannot be relied upon.

Planning is a costly process — money, time and effort go into forecasting, collecting information, examining alternatives and, in large undertakings, into the fees of experts brought in to advise. The cost is incurred before any return is earned, and a plan is worth preparing only when the benefit expected from it exceeds what it costs to prepare.
Planning is time-consuming — information has to be collected, analysed and interpreted before a course of action can be settled, and this takes time the business may not have. In an emergency, when a decision must be taken on the spot, the existing plan may have to be set aside altogether, and delay caused by planning can cost the firm a profitable opportunity.
Planning leads to rigidity — once a plan is formulated, managers and employees tend to hold to it even after conditions have changed, because departing from an approved plan invites criticism. Attention shifts from achieving the goal to observing the programme, and the organisation loses the freedom to respond to what is actually happening.
Planning may restrict creativity — plans are usually drawn at the top level and passed down for execution, so managers at the middle and lower levels are expected to work along lines that have already been settled. Where everything is predetermined and deviation is not welcomed, initiative and fresh thinking at those levels are discouraged.
Planning suffers from lack of accuracy — a plan rests on forecasts, and a forecast is an estimate, not a fact. The longer the period covered, the less accurate the estimate is likely to be; bias on the part of the planner, unreliable data and errors of judgement reduce accuracy further. Blind reliance on such a plan can be dangerous.
Planning may create a false sense of security — a detailed plan can leave employees believing that everything has been provided for, so that carrying out the plan is treated as the whole of the job. Performance is not improved beyond what the plan requires, and following a settled course in changed conditions can turn out to be unprofitable.
Planning meets psychological resistance — people become accustomed to established practices and are reluctant to change them. A plan usually implies change, and managers who have more regard for the present than for the future resist it, which slows down both the preparation of plans and their acceptance.
Planning is restricted by external limitations — changes in technology, in government policy, in law, in the state of the market and in industrial relations lie outside the control of management altogether. The organisation can only respond to these, not decide them, and in a fast-changing environment a plan drawn on today’s conditions may have little practical value tomorrow.
Planning is affected by human elements — individuals and groups within the organisation may use the planning exercise to serve their own interests, influencing the objectives set and the plans framed in ways that suit them rather than the organisation. Elaborate reports of little use and endless review of results are the common results.

Business Example

Plans Overtaken By Events When the pandemic of 2020 forced businesses across India to shut for weeks, sales targets, production schedules and expansion plans drawn up for that year became unworkable almost overnight. No degree of care in preparing those plans could have protected them, because the event that upset them lay entirely outside the control of management.

The conclusion to draw is a limited one. Planning is not a substitute for the judgement of the manager who has to act; it is an aid to that judgement, and it has to be reviewed as conditions change. Nor does a plan by itself achieve anything — until it is translated into action it remains a statement of intention, which is why planning does not guarantee success.

8.5 Steps in the Process of Planning

A sound plan is not arrived at in a single act of decision. It is built up through a settled sequence of steps, and the order matters: each step supplies the material on which the next one works. Objectives cannot be chosen after the alternatives have been listed, and alternatives cannot be judged until the conditions they will operate in have been assumed. The sequence is summarised in FC 8.2.

Flowchart

FC 8.2 — Steps In The Process Of Planning Setting objectives → developing the planning premises → identifying alternative courses of action → evaluating the alternatives and selecting the best → formulating derivative plans → securing cooperation → follow-up action

The Steps In Order

Setting objectives — the first step is to state clearly what the organisation, and each of its departments, is to achieve during the period of the plan. Objectives must be specific, and the general objective of the enterprise has to be broken down into departmental, sectional and individual targets, since a target that is not fixed for a particular unit cannot be pursued by anybody. Everything that follows is shaped by this step, because the objective is the end against which every later choice is tested.
Developing the planning premises — a plan is to be carried out in the future, so assumptions have to be made about what that future will look like. These assumptions relate to the demand expected, the availability and cost of materials, the state of technology, the degree of competition and the policies of government. They are arrived at by forecasting, and they set the boundaries within which the plan will work. Until the premises are settled, there is no common basis on which alternatives can be compared.
Identifying alternative courses of action — with the objective fixed and the premises settled, the different routes by which the objective could be reached are discovered and listed. Information for this purpose is drawn from within the firm and from outside it, and must be current and reliable. Not every conceivable alternative is worth examining; attention is confined to those that bear directly on the objective in hand, a principle known as the principle of limiting factor.
Evaluating the alternatives and selecting the best — each alternative is weighed against the others in terms of its cost, the return expected from it, the risk it carries and how well it fits the premises already assumed. The alternative that is most feasible and most profitable, and carries the fewest adverse consequences, is selected. Where the choice is close, the experience and judgement of the manager decide it.
Formulating derivative plans — the main plan is not by itself capable of being worked. Detailed supporting plans have to be prepared for each department that will act on it — the policies, procedures, programmes, schedules and budgets that translate a decision into daily work. A decision to launch a new product, for instance, calls for separate plans covering design, purchase of materials, finance, training and advertising, and these have to be timed to fit one another.
Securing cooperation — a plan is executed by people, and it will be executed properly only if they understand it. The plan must therefore be communicated and explained to the employees who will carry it out, and the reasons behind it made clear. Communication at this stage also brings useful suggestions back from those who do the work, and it secures the willing effort on which the plan depends.
Follow-up action — the plan is reviewed at intervals to see whether it is still relevant and whether it is producing the results expected. Facts come to light during execution that were not known when the plan was drawn, and the plan is revised in the light of them. This review also supplies the experience on which the next plan will be built, which is what makes planning a continuous exercise.

Definition

Planning Premises Planning premises are the assumptions about future conditions — such as demand, costs, technology, competition and government policy — on which plans are based and within whose limits those plans are to be carried out.

Kinds Of Planning Premises

Premises are classified in three ways, and a plan of any size rests on all three at once. Premises that can be measured are tangible and those that cannot are intangible; premises about conditions inside the enterprise are internal and those about conditions outside it are external; and premises that management can regulate are controllable, while trade cycles, political change and similar factors are uncontrollable. Between these last two lie premises such as price policy and choice of sales area, which management can influence but not decide alone, and these are called semi-controllable. The first of the three classifications is set out in Table 8.1.

Table

Business Example

Assumptions Behind A Launch Before a car manufacturer commits itself to a new model, it forms a view of fuel prices, of the rates of tax and duty likely to apply, of what rival firms are expected to offer and of how many buyers will be in the market three years later. The model is designed and priced against those assumptions.

Figure

Fig. 8.5-1 — Working Out The Premises Photograph of a management team studying demand charts and forecast data displayed on a board.

Case Snippet

Case 8.2 — Before The Alternatives Are Listed Sundaram Appliances is preparing its plan for the coming year. Its managers first record what they expect of that year: that electricity tariffs will stay near their present level, that a rival firm will enter the market in the second half, and that the cost of imported components will rise. Only after these expectations are agreed does the team begin listing the ways in which the sales target might be reached. Q. Name the step of the planning process described and state one reason why it must be completed before the next step is taken.

8.6 Types of Plans

No organisation runs on a single plan. The decision to enter a new market, the guideline that governs whom the firm will recruit, the sequence followed when a purchase order is placed and the statement of what each department may spend next year are all plans, yet they differ in how long they last, how often they are used and how much freedom they leave to the person acting on them. Plans are classified so that the right kind of plan is used for the kind of decision in hand.

Standing Plans And Single-Use Plans

The first and broadest division rests on how often a plan is used. Some situations recur in much the same form — an employee applies for leave, a customer asks for credit, materials have to be purchased. Framing a fresh plan every time such a situation arises would waste time and would produce inconsistent decisions. Plans framed once and used repeatedly in situations of this kind are called standing plans or repeat-use plans, and they remain in force until they are altered or withdrawn. Objectives, strategies, policies, procedures, methods and rules are standing plans.

Other situations arise once and do not repeat in the same form — a factory is to be set up, a new product is to be launched, the coming year’s expenditure is to be provided for. A plan drawn for a situation of this kind is exhausted when its purpose is served, and any later requirement calls for a fresh plan. Such plans are called single-use plans. Programmes and budgets are single-use plans. The two classes are compared in Table 8.2, and the whole classification is set out in FC 8.3.

Table

Flowchart

FC 8.3 — Classification Of Plans Plans → Standing plans, Single-use plans; Standing plans → Objectives, Strategies, Policies, Procedures, Methods, Rules; Single-use plans → Programmes, Budgets

The Hierarchy Of Plans

The plans of an organisation also stand in an order of rank. Objectives come first, since everything else exists to achieve them; strategy settles the broad course by which they are to be pursued; policy lays down the guidelines within which decisions on that course are to be taken; procedure fixes the sequence of steps for a particular activity; method fixes the way a single step in that sequence is performed; and a rule states what must or must not be done, leaving nothing to be decided. Programmes and budgets are then drawn to put the whole into effect within a stated time and a stated cost.

Each level takes its content from the level above it, so that a plan at a higher level generates the plans below it. This ranking is shown in FC 8.4.

Flowchart

FC 8.4 — Hierarchy Of Plans Objectives → Strategies → Policies → Procedures → Methods → Rules → Programmes → Budgets

Business Example

A Standing Plan At A Bank Counter Every bank in India follows a settled sequence of verification steps before a new account is opened, and the same sequence is applied to every applicant. The plan is framed once and used at every branch, on every working day, for as long as it remains in force.

The eight types named in FC 8.3 are taken up in turn in the sections that follow — objectives, strategies and policies first, then procedures, methods and rules, and finally programmes and budgets.

8.7 Objectives, Strategies and Policies

The three plans taken up in this section are the broadest of the standing plans. Objectives state the end the organisation is working towards, strategy settles the broad course by which that end is to be pursued, and policy lays down the limits within which decisions along that course may be taken. Each is general in its terms, and each leaves the detail to the plans that follow from it.

8.7.1 Objectives

Objectives are the ends or results an organisation sets out to achieve over a given period. They are the starting point of the planning process, since a course of action can be chosen only when the end it is meant to reach has been fixed, and they are the point at which planning is finally tested, since the plan succeeds or fails according to whether the objective is reached. A business ordinarily pursues several objectives at once — survival, profit, growth, service to society — and management must fix priorities among them, because the effort available is limited and the priorities themselves change as the enterprise develops.

Definition

Objectives Objectives are the ends or results which an organisation seeks to achieve over a stated period of time. All activities of the organisation, and all the functions of management, are directed towards them.

The terms ‘goal’ and ‘objective’ are often used interchangeably in business. Where a distinction is drawn, a goal is the broad end desired, such as improving product quality, while the objective states that end in exact and measurable form, such as reducing quality rejects to a stated percentage within the year.

Features Of Objectives

Clear and specific — an objective stated in general terms cannot guide action, because nobody can tell from it what is expected of a particular department or a particular employee.
Result-oriented — an objective states the result to be achieved and not the activity to be performed, since it is the result that the plan is meant to deliver.
Measurable — as far as possible an objective is stated in quantitative terms, because performance can be compared with it only if it can be measured.
Time-bound — every objective carries the period within which it is to be achieved; without a date it cannot be reviewed and cannot be enforced.
Mutually supportive — objectives set for different departments must fit one another, for objectives that pull in opposite directions cancel each other out.
Challenging but attainable — an objective set too low draws less effort than the organisation is capable of, and one that cannot be reached is abandoned by those expected to work towards it.
Acceptable — objectives are achieved through people, so they must be understood and accepted by those who have to work for them.
Flexible — since objectives are set for a future that may change, they must admit of revision when the conditions assumed at the time of setting them do not hold.

Objectives set at different levels of an organisation form a chain. The objective of each lower level is the means by which the objective of the level above it is achieved, so that the sales target of a branch serves the target of the marketing department, which in turn serves the profit objective of the company as a whole. This arrangement, known as the ends–means chain, is shown in FC 8.5.

Flowchart

FC 8.5 — Hierarchy Of Objectives As An Ends–Means Chain Corporate objective: profitability → divisional objective: raise net profit → departmental objective: raise production and sales → sectional objective: assemble a larger number of units → work group objective: raise the output of the group

8.7.2 Strategy

A strategy is a comprehensive and integrated plan that states the desired future of the organisation and the broad course by which it is to be reached. It answers three questions together — where the organisation stands now, where it intends to be, and what it must do to get there. A firm facing a price cut by a competitor, entering a new market, or deciding whether to manufacture a component or buy it takes a strategic decision, because the answer settles the direction of the whole enterprise and not the conduct of one department.

Definition

Strategy Strategy is the determination of the basic long-term objectives and goals of an enterprise, together with the adoption of courses of action and the allocation of the resources necessary to achieve those objectives. — Alfred Chandler

Features Of Strategy

Long-term in nature — a strategy looks well beyond the current year, though the moves it calls for have to be made in the short term.
Integrated and multipronged — it brings the production, marketing, finance and personnel sides of the business into one line of action, since a move on one front is defeated if the others do not support it.
Formulated at the top level — the commitment of resources involved is large and irreversible, so the decision rests with those who answer for the enterprise as a whole.
Framed against the environment — a strategy is settled only after the opportunities and threats outside the firm and its own strengths and weaknesses have been examined.
Competitive in purpose — it is meant to cope with the moves of rivals and with other pressures from outside, and it is therefore reframed as those pressures change.
Flexible and dynamic — the sequence, timing and direction of the moves it lays down are adjusted as the uncertainties it was framed against work themselves out.

8.7.3 Policy

A policy is a general statement that guides thinking and decision-making. It does not decide the matter itself; it marks out the boundaries within which subordinates may decide, so that decisions taken by different managers, at different times and in different places, remain consistent with one another and with the objectives of the organisation. A company that has settled a policy of promoting from within has not thereby filled any post, but every manager filling a post now knows where to look first.

Definition

Policy A policy is a general statement of understanding which guides or channels the thinking of subordinates in taking decisions. It defines the limits within which decisions may be made, so that they contribute to the objectives of the organisation.

Features Of Policy

A standing plan — a policy is a standing answer to a problem that recurs, framed once and applied whenever the problem arises again.
A broad guideline — objectives indicate the destination and policies provide the routes to it, so a policy is stated in general terms rather than in detail.
Allows discretion — a policy channels decisions but does not remove judgement; the manager still decides the case, within the limits the policy sets.
Exists at every level — there are company-wide policies, departmental policies and minor policies covering narrow matters, each framed within the one above it.
Derived from objectives — a policy has no independent purpose; it exists to carry the organisation towards an objective already fixed.

Table

Table

Case Snippet

Case 8.3 — Two Statements At One Meeting At its annual meeting, Meghna Foods Ltd. resolves that the sales of its packaged snacks are to be raised by a stated percentage during the coming year. At the same meeting it records that, as a general rule, vacancies arising in the sales department will be filled by promoting employees already serving in the company. Q. Name the type of plan represented by each of the two statements and state one feature of each that supports the answer.

8.8 Procedures, Methods and Rules

The plans taken up in this section are the narrow end of the standing plans. A policy tells a manager where the boundaries lie but leaves the decision to be made; a procedure, a method and a rule leave progressively less to be decided, until at the level of a rule nothing remains open at all. They are guides to action rather than guides to thinking, and they exist because work that recurs must be done the same way each time it recurs.

8.8.1 Procedure

A procedure lays down the exact manner in which a particular activity is to be carried out. It is a series of steps arranged in chronological order, each step following from the one before it, so that the activity is completed in a settled sequence rather than in whatever order suits the person doing it. Purchase of materials, recruitment of staff, processing of a customer’s order and settlement of a grievance are each governed by a procedure.

Procedures are framed to give effect to policies. A firm that has adopted a policy of preventive maintenance, for instance, must then lay down the exact order in which each item of equipment is to be inspected, by whom and at what interval — the policy states the intention, the procedure carries it out. Because an activity often passes through several departments, a procedure commonly cuts across departmental lines: purchase of raw material may run from the department requesting it, through the purchase department, to the stores and finally to accounts.

Definition

Procedure A procedure is a chronological sequence of steps prescribed for carrying out a particular activity. It states the exact manner in which the activity is to be performed and the order in which each step is to be taken.

Features Of Procedure

Chronological — the steps are arranged in a predetermined order and taking them out of order defeats the purpose of laying them down at all.
A guide to action — a procedure directs what is actually to be done, not merely what is to be thought about before deciding.
Narrow and rigid — it applies to one specified activity and leaves the person carrying it out little room to depart from it.
Derived from a policy — a procedure gives effect to a policy already settled, so it cannot be framed until the policy exists.
Laid down at middle and lower levels — the detail is worked out where the activity is actually performed, within the framework fixed above.

Table

8.8.2 Method

A method is the prescribed way in which a single step of a procedure is to be performed. Where a procedure states the order of the steps, the method states how one of those steps is carried out — a procedure for selecting staff includes the step of interviewing candidates, and the manner in which the interview is conducted is the method. A method is therefore narrower than a procedure but more detailed than one, and it is arrived at by studying the alternatives and settling on the one that costs least in time, effort and money. Because it is settled in this way it is described as the one best way of doing a piece of work.

Definition

Method A method is a standardised way of performing a particular step or operation. It prescribes the manner in which one part of a procedure is to be carried out, and is settled with the object of doing the work in the most efficient way.

Features Of Method

Confined to one operation — a method deals with a single step and not with the sequence of steps as a whole.
Standardised — the same way of working is prescribed for everyone doing that step, which makes performance uniform and comparable.
Aims at efficiency — a method is adopted because it saves time, effort or cost, and it is replaced when a better way is found.
Arrived at by study — it is the result of research, experiment and experience rather than of instruction alone.
Part of a procedure — a method always forms part of some procedure, since a step exists only within a sequence.

Table

8.8.3 Rule

A rule is a specific statement of what must be done or must not be done in a given situation. It is the most rigid of all plans and the simplest, because it leaves nothing to be decided — ‘no smoking in the factory’ admits of no interpretation and no exception. The only discretion left is whether the situation covered by the rule has arisen at all.

A rule may or may not form part of a procedure. The prohibition on smoking stands by itself and belongs to no sequence, whereas the requirement that every order received be acknowledged within a stated time forms part of the procedure for processing orders. Rules indicate the limits of acceptable behaviour, and they are enforced strictly, ordinarily with a penalty attached to violation, because a rule that is enforced only sometimes ceases to serve its purpose.

Definition

Rule A rule is a specific statement of what must or must not be done in a given situation. It permits no deviation and no discretion, and it prescribes the action to be taken rather than the thinking to be applied.

Features Of Rule

The most specific of plans — a rule covers one situation exactly and states the action required in it.
A guide to behaviour — it channels the conduct of employees towards the objectives of the organisation and makes that conduct predictable.
Rigid — no exception is allowed, and no judgement is exercised by the person to whom it applies.
Ordinarily backed by a penalty — violation carries a stated consequence, which is what secures compliance.
Impersonal — a rule applies to everyone in the same situation, without regard to the person concerned.

Figure

Fig. 8.8-1 — A Rule On The Shop Floor Photograph of a safety instruction board inside an Indian factory, displaying compulsory and prohibited actions for workers.

Table

Table

Case Snippet

Case 8.4 — On The Factory Floor At Anmol Engineering Works, every consignment of raw material is first weighed at the gate, then inspected for quality, then entered in the stores register and only then issued to the workshop. A notice at the entrance to the workshop states that no worker may enter the shop floor without a helmet, and that a day’s wages will be forfeited for doing so. Q. Name the type of plan illustrated by each of the two arrangements described and state one feature that distinguishes them.

8.9 Programmes and Budgets

The plans dealt with so far are framed once and applied whenever the situation they cover recurs. Programmes and budgets are of the other kind. Each is drawn for one particular purpose or one particular period, and each is exhausted when that purpose is served or that period ends. A fresh requirement of the same sort calls for a fresh plan.

8.9.1 Programme

A programme is a comprehensive plan drawn to accomplish one specific objective. It brings together, in a single scheme, the goals to be reached, the policies that apply, the procedures to be followed, the tasks assigned to each person or department, the resources required and the time within which each activity is to be completed. Setting up a new plant, launching a new product, modernising machinery or training a batch of new recruits are each carried out through a programme.

A programme is therefore concrete where a policy is general. It states not only what is to be achieved but who is to do what, in what order and by when, which is why it can be acted upon directly and its progress checked at each stage.

Definition

Programme A programme is a single-use plan designed to accomplish a specific objective. It sets out the activities to be performed, the resources to be used, the persons responsible and the time within which each activity is to be completed.

Features Of Programme

Single-use but comprehensive — it is framed for one undertaking, yet within that undertaking it covers every activity required to complete it.
Built on objectives and policies — a programme gives effect to an objective already fixed and works within the policies already laid down.
An action plan with a time schedule — it names the activities and fixes the time for each, so that the work of one department is ready when the next department needs it.
Supported by a budget — the resources a programme calls for have to be provided in figures, so a budget is drawn as part of it.
Result-oriented — a programme is judged by whether the undertaking is completed as planned, and it fails if the conditions assumed for it change materially while it is running.

8.9.2 Budget

A budget is a plan that states the expected results of a future period in numerical terms. It may be expressed in money, in physical units or in units of time — rupees of sales, tonnes of output, hours of labour — and it is ordinarily prepared for one year. Budgets are drawn for production, sales, materials, cash and capital expenditure, each stating what that part of the business is expected to achieve and what it may use in achieving it.

A budget serves twice over. When it is prepared it is a plan, because it settles in advance how resources are to be allocated; when the period is over it becomes the standard against which actual performance is measured, and the difference between the two shows where corrective action is needed. It is in this second use that budgeting connects planning to the function of control.

Definition

Budget A budget is a statement of the expected results of a future period, expressed in numerical terms. It serves both as a plan for the allocation of resources and as a standard against which actual performance is measured.

Features Of Budget

Expressed in numbers — a budget states its content in figures, which is what makes the plan exact and the later comparison possible.
Prepared for a definite period — it covers a stated period, commonly a year, and lapses at the end of it.
Both a plan and a control device — it allocates resources in advance and supplies the yardstick against which results are afterwards judged.
Prepared for each part of the business — separate budgets are drawn for the different departments and activities, and these have to agree with one another.
Part of a larger plan — a budget quantifies a programme or a policy already decided; it does not by itself settle what the organisation will do.

Business Example

The Best-Known Budget Of All The Union Budget is presented in Parliament by the Finance Minister at the beginning of February each year. It states the receipts the Government expects and the expenditure it proposes for the financial year ahead, and the accounts of that year are afterwards judged against it — a plan first, and a standard of control later.

Figure

Fig. 8.9-1 — Preparing The Year’s Budget Photograph of accounts staff at a company office working on budget statements and spreadsheets.

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Case Snippet

Case 8.5 — A Statement For The Coming Year Kaveri Textiles Ltd. has decided to set up a second unit, and has drawn up a scheme naming the work to be completed at each stage, the department answerable for it and the month by which it must be finished. Alongside this scheme the accounts department has prepared a statement showing, in rupees, what the company expects to spend on the unit in each quarter of the coming year. Q. Name the type of plan represented by each of the two documents and state the relationship between them.

8.10 Summary

A plan is a course of action decided upon in advance, while planning is the process of arriving at it — deciding the objectives to be achieved in a given period, working out the courses of action open and selecting the best of them.
A plan is of use only when it settles what is to be done, how, when and where it is to be done, and who is to do it.
Planning is thinking before doing. It is an exercise in choice, and therefore in decision-making, and it is the primary function of management, since organising, staffing, directing and controlling are all carried out within the framework a plan lays down.
The features of planning are that it:

is goal-oriented, because a plan that does not carry the organisation nearer its objectives serves no purpose;
is forward-looking, resting on forecasts of conditions that have not yet arisen;
is an intellectual process, calling for facts, foresight and judgement rather than guesswork;
is the primary function, preceding all the others;
is pervasive, required at every level and in every department, differing only in scope;
is continuous, since assumptions fail and plan periods end;
involves choice, arising only where more than one course of action exists;
aims at efficiency, and is not worth preparing if it costs more than it returns.

Planning bridges the gap between the present position of a business and the position it wants to reach.
Sound planning provides direction, makes activities meaningful, brings order in place of confusion, reduces the risk of uncertainty, improves economy of operations, provides the basis for control, promotes innovation, facilitates decision-making and helps in coordination.
Planning also carries limitations. It is costly and time-consuming; it leads to rigidity and may restrict creativity; it lacks accuracy because forecasts are estimates; it may create a false sense of security; it meets psychological resistance; it is restricted by external factors beyond the control of management; and it may be bent to serve the interests of individuals and groups.
Planning is an aid to the judgement of the manager, not a substitute for it. A plan achieves nothing until it is translated into action, which is why planning does not guarantee success.
The process of planning runs through seven steps in a fixed order:

setting objectives;
developing the planning premises;
identifying alternative courses of action;
evaluating the alternatives and selecting the best;
formulating derivative plans;
securing cooperation;
follow-up action.

Planning premises are the assumptions about future conditions on which plans rest. They are tangible or intangible, internal or external, and controllable, semi-controllable or uncontrollable.
Plans are classified by how often they are used. Standing plans — objectives, strategies, policies, procedures, methods and rules — are framed once and applied to recurring situations. Single-use plans — programmes and budgets — are exhausted when their purpose is served.
Objectives are the ends the organisation seeks to achieve in a stated period. They must be clear, result-oriented, measurable, time-bound, mutually supportive, challenging yet attainable, acceptable and flexible. Objectives at each level serve as the means of achieving the objective at the level above, forming the ends–means chain.
A strategy is a comprehensive and integrated plan stating the desired future of the organisation and the broad course by which it is to be reached. It is long-term, framed at the top level after examining the environment, and reframed as competitive conditions change.
A policy is a general statement that guides thinking and decision-making. It marks the boundaries within which subordinates may decide, and it allows discretion within those boundaries.
A procedure is a chronological sequence of steps prescribed for a particular activity. It gives effect to a policy, is a guide to action rather than to thinking, and often cuts across departments.
A method is the standardised way in which a single step of a procedure is performed. It is settled by study and experiment, and is adopted because it saves time, effort or cost.
A rule is a specific statement of what must or must not be done in a given situation. It is the most rigid of plans, allows no deviation, applies impersonally and is ordinarily backed by a penalty.
A programme is a single-use plan drawn to accomplish one specific objective, naming the activities, resources, responsibilities and timing required to complete it.
A budget states the expected results of a future period in numerical terms. It is a plan when prepared and a standard of control when the period is over, which is the point at which planning connects with the function of control.

Flowchart

FC 8.6 — Types Of Plans From The Broadest To The Narrowest Objective: the end to be achieved → Strategy: the broad course towards that end → Policy: the limits within which decisions are taken → Procedure: the sequence of steps for an activity → Method: the way one step is performed → Rule: what must or must not be done; Programme: the scheme for one undertaking → Budget: that scheme stated in figures

8.11 Points to Ponder

Planning costs money, time and effort before it returns anything at all. For a small trader working with limited resources, at what point does the cost of planning formally begin to exceed what the plan is likely to save?
Order and consistency are counted among the benefits of planning, while rigidity is counted among its limitations, although both arise from the same habit of holding to an approved plan. Where does consistency end and rigidity begin, and who in an organisation should have the authority to depart from a plan once it has been approved?
Recurring work can be governed by a policy, which leaves the decision to the manager, or by a rule, which leaves nothing to be decided. Which of the two should an organisation prefer, and what does each choice assume about the people who carry the work out?
Forecasts become less accurate as the period they cover lengthens. Is there any value in preparing a plan for the next ten years, and if there is, what should such a plan be expected to deliver that a one-year plan cannot?
Planning is said to promote innovation because it obliges managers to look for better courses of action, and it is said to restrict creativity because it obliges them to work along lines already settled. Under what conditions is each of these claims likely to prove true?
A company whose plans are overturned by an event that nobody foresaw might conclude that the planning was wasted effort. Is that conclusion sound, and what, if anything, did the company gain from having planned at all?

8.12 Objective Questions

Aarav Industries expects that the price of imported components will rise and that a rival firm will enter its market during the coming year. It records both expectations before considering the ways in which its sales target might be reached. The step of the planning process described here is: [1]

Setting objectives
Developing the planning premises
Identifying alternative courses of action
Formulating derivative plans

Assertion (A): Planning is described as the primary function of management. Reason (R): Organising, staffing, directing and controlling are all carried out within the framework laid down by a plan. [1]

Both A and R are true, and R is the correct explanation of A.
Both A and R are true, but R is not the correct explanation of A.
A is true, but R is false.
A is false, but R is true.

A notice displayed in a workshop states that no worker may operate a machine without protective goggles, and that a day’s wages will be forfeited for doing so. This is an example of: [1]

A method
A procedure
A rule
A policy

Fill in the blank: The assumptions about future conditions on which a plan is based are known as ____________. [1]
Match each plan in Column A with the statement that describes it in Column B: [1]

Column A	Column B
a. Strategy	i. States what must or must not be done in a given situation
b. Policy	ii. Chronological sequence of steps prescribed for an activity
c. Procedure	iii. Broad course adopted for reaching a long-term objective
d. Rule	iv. General guideline within which subordinates may decide

8.13 Check Your Concepts

Define a planning premise and give one example of an intangible premise. [2]
Distinguish between a procedure and a method on any three bases. [3]
Why must the planning premises be developed before the alternative courses of action are identified? [3]
Explain any four features of a budget as a type of plan. [4]
‘Planning is not a guarantee of success.’ Explain any six limitations of planning in the light of this statement. [6]

8.14 Case-Based Questions

Neelkanth Beverages Ltd. has decided to raise the sales of its fruit drink during the coming year. Before settling how this is to be done, its managers record what they expect of that year — that a rival will launch a competing drink, that the price of sugar will rise and that summer demand will be strong. They then consider three courses of action: widening the distribution network, advertising heavily in one region, or reducing the selling price. After comparing the cost and the risk of each, the company adopts the first. It also instructs every depot that a dealer’s order must be acknowledged within twenty-four hours of its receipt.

Name the step of the planning process at which the managers recorded what they expected of the year, and state why that step must be completed before the step that follows it. [2]
Identify the type of plan represented by the instruction issued to the depots and state two of its features. [2]