Importance of Planning
Planning has assumed great importance in all types of organizations- business or non-business, private or public sector, small or large, in developed countires or developing countires. In particular, plannign conributes in following ways:
i. To offset uncertainty and change
There is a continuous change in the environment and in order to cope up with the requirements of such changes, organization must look ahead for its future course of action which is basically provided by planning process. Planning does not stop changes but gears the organization to take suitable actions and cope up with the changes.
ii. To focus attention on objectives
Planning focuses on organizational objectives and direction of action for achieving these objectives. Sometimes people in the organization may not be specific about its objectives because of lack of clarity and precise definitions. When planning action is taken these objectives are made more concrete and tangible. The objectives are defined in more meaningful term so that managerial actions are possible.
iii. To help in coordination
Though all managerial functions lead to coordination in the organization, the real beginning is made at the level of planning stage. The various departments work in accordance with the overall plan and harmony is achieved.
iv. To help in control
Control involves the measurement of accomplishment of events against plans and the correction of deviations to assure the achievement of objectives as set by the plans.
v. To increase organizational Effectiveness
The concept of effectiveness is that the organization is able to achieve its objectives within the given resources. Planning along with control ensures that resources are put in action in a way in which these have been specified. If this is done, organization will achieve effectiveness.
Types of Planning
1. On the basis of Activity Covered
On the basis of activity covered planning can be classified into corporate and functional planning.
(i) Corporate Planning
- Planning activities takes place at top level which covers entire organizational activities.
- It is also called long term planning or strategic planning.
- Basic focus is to determine long term objectives.
(ii) Functional Planning
- It is segmental and it is undertaken for each major function of the organization like production/operation, marketing, finance, human resource etc.
- It is derived out of corporate planning.
2. On the basis of Importance
On the basis of Importance it can be classified as:
(i) Strategic Planning
Strategic Planning is the long term direction of the organization in which it wants to proceed in future.
According to Anthony
“Strategic planning is the process of deciding on objectives of the organization, on changes on these objectives, on the resources used to attain these objectives, and on the policies that are to govern the acquisition, use and disposition of these resources.”
According to Kreitner
“Strategic planning is the process of determining how to pursue organizational long-term goals with the resources expected to be available. A well-conceived strategic plan communicates much more then general intentions about profit and growth. It specifies how the organization will achieve competitive advantage with profit and growth as necessary by-products.”
It encompasses all functional areas of business and involves analysis of environments factors.
(ii) Operational Planning
Tactical/short term planning; one year the process of deciding the most effective use of the resources already allocated and developing control mechanism to get the work done.
| Strategic Planning | Operational Planning | |
| 1 | There is wide range of choice among the broad directions in which organizations want to move External Environment is being taken care. | Ways and means in which individuals function focuses on internal organization. |
| 2 | Primacy sets trends and directions. | Managers have to work with in framework. |
| 3 | Level of formulation top level. | Level of formulation middle level. |
3. Based on Time Period
Planning is concerned with problems of future. Thus, a planning system must involve different degrees of futurity. Based on this Planning can be short term or long term.
(i) Long term Planning
It is of strategic nature and involves more than one year period. The long term plans usually encompasses all the functional areas of the business and are affected within the existing and long-term framework of economic, social and technological factors. Long-term plans also involve the analysis of environmental factors particularly with respect to how the organization relates to tis competition and environment. Examples of such plans are new product planning, product diversification, development of new markets etc.
(ii) Short Term Planning
Short term planning, is also known as operational or tactical planning. It usually covers one year. These aimed at sustaining organization in its production and distribution of current products or services to the existing markets. These plans directly affect functional groups like production, marketing, finance etc.
Co-ordination of short term planning and long term planning
Short term plans are to be streamlined with long term plans and subsequently with the objectives of the organization.
Difference between Long Term and Short Term Planning
| Long Term Planning | Short Term Planning | |
| 1 | Strategic in nature. | Operational. |
| 2 | Common 3-5 years. | Tactical -1 year. |
| 3 | It is aimed at development of new markets, It involves analysis of environmental factors. | It is aimed at sustaining organization in its production and distribution of current products and services to existing market. |
4. On the basis of Approach adopted
Proactive Planning and Reactive Planning
(i) Proactive
Involves designing suitable courses of action in anticipation of likely changes in the relevant environment-use broad planning approaches-broad environmental scanning decentralized control-reserve resources-before environmental changes.
- It is planned in anticipation of likely changes and takes the lead role.
- In this the needs of planning are forecasted
- It is optional and depends upon the will of the management.
- It involves broad planning wide environmental scanning, decentralised control.
(ii) Reactive
In reactive planning, organization’s responses come after the environmental changes have taken place. In this approach, no specific sequence of actions is planned in advance. In such a situation the organizations lose opportunities to those organizations which adopt proactive approach because by the time, reactors are ready with their plans, the contextual variables of planning show further changes.
- It is a plan made as a response to the environmental needs or changes
- It is planning which is enforced due to change in the environment/technology.
- There is no choice left.
- It becomes invalid if not done at suitable time.
5. On the basis of Nature of degree of formalization
Formal Planning and Informal Planning
(i) Formal planning
- Well-structured process involving different steps
- Large organizations undertake planning in formal way in which they create separate corporate planning cell
- The corporate planning cells have people from different backgrounds like engineers, statisticians, MBAs, economists etc. depending on nature of business.
- These cells monitor the external environment on continuous basis.
- The planning process is rational, systematic, well documented and regular.
(ii) Informal planning
- Undertaken by small organizations.
- Planning is based on manager’s intuition or gut feeling.
- It is the part of manager’s regular activities.
| Formal | Informal | |
| 1 | Formal planning is a well structured and systematic process. | It is not well structures and is not bounded by set of principles and rules. |
| 2 | It is very rational, logical. | It is based on Manager’s memory of events, institution and gut feelings. |
| 3 | It is done after a regular interval of time. | There is no fixed schedule followed. |
| 4 | It involves different steps. | No special series of steps is followed. |
| 5 | It is executed by a separate corporate cell in the organization. | It is manager’s regular activity and is not executed by special cell. |
| 6 | It involves top level management. | It involves middle level management. |
| 7 | Formal planning are the result of survey done by the high profile people. | To execute them, no prior survey is required. |
| 8. | Usually, Formal planning is taken up by large organizations. | Informal planning is done in small as well as large organizations. |
| 9 | Large infrastructure is required. | Small infrastructure is required. |