What is the Business Planning Process?


By: Site Engineer, Staff

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Planning is the first and most important function of management. It is always good to plan, before embarking on any programme because failure to plan gives rise to inefficiency and lack of direction. Planning for small-scale business owners means identifying what the business plans to do in volume, return on investment, identifying operating strategies, marketing plans, strategies and performance goal.

Planning is a blueprint for action. In Africa, a businessman who wishes to enter into any business has to engage in detailed planning in order to identify the sources of raw material and equipment, determine delivery dates and sources of working capital.

Many projects have failed in some African countries because adequate plans were not properly made to identify all the necessary needs to determine their success.

The essence of planning is to prepare for and predict future events. Planning of business involves the establishment of objectives and a step-by-step determination of the activities and resources necessary to achieve them.

It entails the determination of control, direction and methods of accomplishing the overall organizational objectives.


There are some planning processes an entrepreneur will pass through before taking off in any business endeavor.

These planning processes include:

Setting Organizational Objectives -> Analyzing the Environment/Identification of Opportunities -> Selection of Alternative Courses of Action -> Formulation of Specific Targets -> Implementation -> Feedback.

(i)   Setting Organizational Objective

It is clear if the necessary steps are taken, planning for the future becomes relatively simple. The first thing to do is to determine organizational goals. This is very important because it gives a sense of direction. If a man decides to bake bread this will become objective and will determine the next course of actions.

(ii) Analyzing the Environment/Identification of Opportunities

After an entrepreneur has determined the organizational objectives, then he will now analyze the environment, to determine whether there is an investment opportunity or not. This he can do this by determining the type of products/service customers would need; the reasons why such needs are not at present being satisfied; and whether entrepreneur can satisfy such needs and whether the gap is large enough for him to invest in. The entrepreneur has to search for opportunities as to key competitors, suppliers and the type of technology required.

The entrepreneur should equally determine or examine the environment in terms of the economic, social, political, legal, technological and competitive level of the competitors. This environmental analysis will help the entrepreneur to identify and analyze the opportunities for the success of the business.

(iii) Selection of Alternative Courses of Action

At this point, the entrepreneur has to take a decision in choosing the best plan from many alternatives on the ground. The entrepreneur should choose a plan that is not only based on the possibility of being done successfully but also the one which would be flexible enough to accommodate the likely changes in the environment.

(iv) Formulation of Specific Targets

At this stage, the entrepreneur needs to set targets and quotas. Quantitative measures help to know if the objectives are being realized or not. This may involve the use of budgets and schedules.

(v) Implementation

The next step is the implementation of these measures. All the measures for the plan need to be implemented.

(vi) Feedback

Feedback is very necessary; any good plan must always have feedback. To complete the planning process there should be a review of the whole planning process. These help to take corrective actions and serve as a control process.


Planning can be classified into three categories: by terms, by functional areas and by scope.

Classification by Terms

Planning is classified in terms of:

  1. Short-Range Plans: These are sometimes called operating plans. As a general rule, plans that only require a short period of time to accomplish are referred to as short-range plans. A short-range plan is usually from six months to one-year planning. This is depending on the type of enterprise, the kind of industry, the production cycle and the quality of management the entrepreneur wants. The budget is a device for expressing future plans in quantitative terms. The budget is the most used short-range plan.
  2. Long-Range Plans: Long-range plan is between one year to five years and above. Many large corporations and universities generally plan over a long time span. A plywood industry that plans new seedlings to grow into timber is planning for the long term.

Many small-scale enterprises do not undertake long-range planning because of the ignorance of how to do it and many are entangled in day-to-day operation.

The realistic steps for undertaking long-range plans should include:

  • Set up a schedule for key events and try to keep to it. This makes things easy when you schedule all your events accordingly in order of priority and importance. It will make you make proper planning for each segment of the event and every activity surrounding the event.
  • Begin with a realistic appraisal of the present strengths and weaknesses of the company. A book publishing company may forecast rapid growth in the demand for primary school textbooks. This would influence the company in determining its course of action in the future. In analyzing the enterprise strengths, the following factors are considered:
  • The cost position of the company
  • Resources availability-finance and quality of staff
  • The demand for the product or service
  • Company’s competitive position or strength
  • Involve the company’s key personnel in planning. It is wrong for the managing director to do the planning of an organization alone. Research has shown that key employees can reason and their ideas are sometimes good if not better than those of the directors. They should be involved in planning too.
  • Base the plan on the customer, give it a marketing orientation. The success or failure of an enterprise could depend on customer orientation. Good plans should be concentrated in finding out such factors as the stability of company product for it is the utility or satisfaction derived from a product by the customer that will determine customer loyalty.
  • In carrying out a five-year plan, the entrepreneur should subdivide the plan and delegate responsibilities to the competent personnel in the company, good long-range plans take up to five years. The involvement of key personnel in long-range planning is strongly recommended.

Classification by Functional Areas

Planning can be classified according to the functional areas:

In this case, plans are centered on the five M’s of planning. The advantage in this type of classification is that it helps the entrepreneur to use the systems approach and recognize the interrelationship between these functions. In planning, the promotions department, for example, will consider the financial strength of the company, the activities of the production department and availability of personnel before it decides the right time to start massive campaign programme.

Classifications by Scope

The classifications by scope are company strategies, policies, programmes, and procedures.

1. Company Strategy

All successful organizations have strategies to exploit their environment by first undertaking a detailed analysis of their strengths and weaknesses. Strategy helps a company determine its future plans. After this, a plan of action is formulated.

A good company strategy helps the organization to identify and clarification and answer to these questions, such as:

  • The products or services it is capable of producing for a group of customers;
  • The services or products to be produced;
  • The synergy to exploit;
  • Timing and sequence of major steps; and
  • Targets to be met.

2. Policy

Policies are very useful because they make for consistency in decision-making. A policy is a company’s standing plan of action to guide its methods of operation. Every company is expected to have policies in all its major areas of operation including:

3. Programme and Procedures

These deal with the manner that an organization goes about to achieve our objectives. Procedures are often restricted to specific departments or units. The sales department could have procedures for initiating and granting credits; the procedure for costing products by the accounting department could be different from the method used by the sales department for entering orders accepting returns while the personnel department may have procedures for leave casual leave or allocating accommodation.

Adequate Planning

Research shows that many small-scale managers and entrepreneurs do not attach much importance to planning. Many of these entrepreneurs do not attempt any formal business planning. However, there is a positive correlation between the level of education and planning by small-scale entrepreneurs. The tendency, up to this time is to concentrate on production and sales and adjust as the market circumstances dictate.

The reasons were given for their inability to plan include:

  • Ignorance
  • Lack of time
  • Lack of expertise
  • Unavailability of reliable information for the exercise

Every entrepreneur should engage in business planning, at least, in the short-range. It is particularly important in Africa where there is no adequate published. Information on business trends, published indexes or sophisticated professional associations to provide reliable business forecasts for planning.


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