Planning: concept, significance, process, types of plans and approaches

1. Meaning and definitions

Planning is deciding in advance what is to be done, how, when, where and by whom. Koontz and O’Donnell: “Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. Planning bridges the gap from where we are to where we want to go.” Louis Allen: planning is “the determination of a course of action to achieve a desired result”.

Features

1. Primary function — it precedes all other functions (primacy of planning).
2. Goal-oriented — it starts from objectives.
3. Pervasive — done at every level, by every manager.
4. Continuous — plans are revised as conditions change.
5. Futuristic — it looks ahead and rests on forecasts.
6. Involves choice — there is planning only where there are alternatives.
7. Intellectual process — it requires thinking, foresight and judgement.
8. Aims at efficiency — the best use of resources.

2. Significance (importance)

• Gives direction: everyone knows the goal and the means.
• Reduces uncertainty and risk by anticipating future events.
• Reduces overlapping and wasteful activity.
• Promotes innovative ideas, since it forces managers to think of new ways.
• Facilitates decision-making by setting the alternatives and criteria.
• Establishes standards for control: without a plan there is nothing to measure against.
• Improves co-ordination across departments.
• Helps the firm meet competition and use opportunities.

3. The planning process

1. Being aware of opportunities — a scan of the market, competition, customers and the firm’s strengths and weaknesses (a SWOT analysis).
2. Establishing objectives for the enterprise and then for each department.
3. Developing planning premises — the assumptions about the future on which the plan rests (sales forecast, price levels, government policy, technology).
4. Identifying alternative courses of action.
5. Evaluating the alternatives against the objectives and premises, weighing cost, risk and return.
6. Selecting the best alternative — the actual point of decision.
7. Formulating derivative plans — supporting plans for each department (a decision to launch a product needs plans for production, purchase, hiring and advertising).
8. Numbering plans by budgets — expressing the plan in figures, and then implementing and following it up.

Planning premises

Premises are classified as internal (capital, workforce, policies) or external (economy, government, competition); tangible (quantifiable, like units of sales) or intangible (goodwill, employee morale); and controllable, semi-controllable or uncontrollable (war, natural calamity, changes in tax law).

4. Types of plans

The hierarchy of plans (Koontz and O’Donnell)

Purpose or mission, objectives, strategies, policies, procedures, rules, programmes and budgets. The first four are dealt with in the next note.

Standing plans and single-use plans

The single-use plans in brief:

• Programme — a combination of goals, policies, procedures, steps and resources for a given course of action (an expansion programme).
• Project — a smaller, separable part of a programme with a defined end (installing a new machine).
• Budget — a statement of expected results in numerical terms for a period; a “numberised programme”. A budget is both a plan and a control device.
• Schedule — the timetable of the steps.

Other classifications

• By level: strategic (top, long-term, whole firm), tactical (middle, departmental) and operational (lower, day-to-day).
• By time: long-range (more than five years), medium-range, short-range (up to one year).
• By formality: formal (written) and informal (in the manager’s mind).
• By function: production, marketing, financial and personnel plans.

5. The six Ps of planning

A short-note topic set in April 2023. The six Ps are purpose (why the organisation exists), philosophy (the beliefs about how it will operate), premises (assumptions about the future), policies (general guides to decisions), plans (the specific courses of action) and priorities (the order of importance in which goals and resources are taken up).

6. Approaches to planning

• Top-down — top management sets the plan and passes it down. Quick and consistent, but lower levels feel no ownership.
• Bottom-up — departments propose plans, which are consolidated at the top. Realistic and participative, but slow and may not fit overall goals.
• Composite (participative) — the top gives guidelines, lower levels prepare detailed plans within them, and the top approves. The usual approach in large firms.
• Team approach — a planning committee or cell of managers from different functions.

7. Limitations of planning

1. Forecasts can be wrong, and the plan is only as good as its premises.
2. Rigidity: a plan once made can discourage initiative and adaptation.
3. Time-consuming and costly.
4. Not effective in a rapidly changing environment.
5. False sense of security: managers may think a plan guarantees success.
6. External factors (government policy, natural calamities, technology) are outside control.
7. Resistance from employees to the change a plan requires.

How this is examined

Question 2(a) for 10 marks: “Define planning. Explain its concept and significance” (June 2025), “Explain the concept and significance of planning” and “Define planning. Explain single use plans” (January 2025), “Explain the process of planning” (August 2024, April 2023). The 6-mark notes include “limitations of planning” (June 2025), “types of plans” (August 2024) and “six Ps of planning” (April 2023).

For the process, give the eight steps with an example carried through them (a company deciding to set up a new plant). For single-use plans, define each with an example and contrast with standing plans in a table.