What is the Importance of Planning and Control in an Organization?

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By: Site Engineer, Staff

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Planning is one of the management functions. Planning is usually considered to be the first task of management in any organization. Others are organizing, staffing, directing, coordinating, motivating and controlling. Planning precedes all other activities; it is continuous in nature and very closely related to other management functions.

The Nature of Planning

What does a manager mean when he says our plan is to establish a plant in South Africa next October? We do not have much cause to worry since things are going according to plan? Our plan is to build up enough stock now, so as to be able to cope with the expected increases in demand during the Christmas and New Year periods?

The word plan in each of these cases refers to a predetermined course of action which identifies:

  • What is to be achieved;
  • What actions must be taken to achieve it;
  • How and when each action is to be taken;
  • By whom each step is to be implemented; and
  • The standards for evaluating the success or failure of the planned course of action for achieving the desired goal. The plan, therefore, is the blueprint which spells out these details.

Therefore, the process by which this plan is derived is called planning.

Planning can be defined as the analysis of relevant information from the present, and an assessment of probable future developments, so that a course of action may be determined, that enables the organization to meet its stated objectives.

This definition does not consider the setting of objectives as part of the planning process. The objectives are taken as given. Planning is simply the process of determining the course of action by which the predetermined objectives can be achieved.

In this sense, planning has been defined as a process which involves selecting the objectives and policies, programmes and procedures for achieving them – either for the enterprise or for any organized part thereof. It is clear that the formulation of objectives is part and parcel and in fact an integral part, of the planning process.

Importance of Planning in an Organization

  • Planning may be done at the corporate level, or at the level of divisions, departments, sections of departments, subsections or even individual jobs;
  • Planning is essentially a mental process which is intellectually challenging;
  • Planning precedes the performance of all other management functions;
  • Planning is a pervasive activity: all managers in an organization plan; although as one climbs down the organizational hierarchy, planning occupies less and less of the manager’s time;
  • Planning is principally concerned with the future, in the sense that it is concerned with what will be done in the future; however, it involves using information about the past, the present, and the future;
  • Planning involves decision-making; that is, selecting a preferred course of action from amongst competing alternatives;
  • Planning is not a one-shot activity, but a continuous process.

Benefits of Planning

  • Planning enables management to anticipate future problems which are then provided for in the plan.
  • Since plans serve as a guide for future actions, planning ensures that every action taken is deliberate and purposeful, thus eliminating waste and improving efficiency. The confusion and inefficiency that result when activities are not planned are illustrations of the need for, and importance of, planning.
  • In the course of deriving and evaluating alternative courses of action, planning forces the planner to think ahead and to innovate.
  • By identifying the tasks to be performed and how they will be performed, planning results in the identification of the major tasks that must be attended to in order to succeed.
  • Planning is a very useful tool in the allocation of resources. For example, in capital budgets, production budgets, and time budgets, resources are assigned on the basis of projects, time or units within the organization.
  • By providing the basis for action, plans help in coordinating the activities of units within the organization.

Planning is more fruitful when formularized. Several studies have shown that companies which engaged in formal strategies planning performed better than others which did not.

Types of Plans

Types of Plans on the Basis of Time Periods Covered

  1. Short-Range Plans: A short-range plan usually covers periods not longer than one year. The actual period adopted depends on the characteristics of the firm, and the type of industry it is in. for a local producer of vegetables whose crops mature in a matter of a few months, short-range plans may cover only a few weeks.

In most manufacturing industries, however, three months is usually regarded as a short-term planning period. A producer of candles may plan his production for the next six months. A furniture maker may prepare a cash budget for the next three months while a university may formulate short-term plans on a semester basis.

  1. Intermediate Plans: Intermediate plans usually cover between one and three years. A manufacturing company which depends on foreign sources of raw materials may make plans for these materials for the next eighteen or twenty-four months.
  2. Long-Range Plans: In most industries, long-range plans cover any period over three years. Long-range plans could, therefore, cover the next five, ten, or even twenty years. Such plans may cover new product selection and development, marketing channels and strategies, major capital equipment, or expansion of physical facilities such as buildings.

In universities, planning is usually broken up into short-range (covering one term or semester), intermediate (covering one or two years) and long-term plans covering four or five years. Examples of the long-range plans are the Third and Fourth National Development Plans, covering the period 1975 – 1980 and 1981 – 1985 respectively.

Correlation of Short-Term, Intermediate, and Long-Term Plans

Although we have discussed these three types of plans are though they are independent of one another, they are in fact closely interrelated. When a long-range plan is made, it is usually implemented by formulating short-range plans whose implementation will guide the company towards the achievement of the long-range plans. In this sense, therefore, short-range plans, usually derive from and dovetail into the long-range plans. In the course of implementing the short and medium range plans, it may become necessary to modify the long-term plans.

Types of Plans on the Basis of Business Functions

  1. Production Systems Plans: Production may be described as the transformation of input from human and physical resources into outputs desired by customers. Decisions relating to this function may be concerned with the location of production facilities, how the factory shall be arranged to facilitate efficient production, what equipment will be purchased in order that production can be carried on at a minimum cost; the style, form, quality, and pattern of goods to be produced and how production tasks will be divided among workers, taking into consideration their skills, health and the costs involved. These are long-run production system decisions, and should not be confused with production planning, which is concerned with assessing the future level of manufacturing, based on sales forecasts, and the labor, machines, and materials available.
  2. Personnel Plans: Plans in the area of personnel are concerned with the recruitment, selection, training and development and utilization of staff. Plans will normally be made to select new people who will be required as the organization expands and as employees retire, resign, are fired, or die, and therefore need to be replaced. Plans may also be made to train employees, such that the skills needed by the company in the future may be available.
  3. Financial Plans: These are plans which specify the organization’s intended actions in obtaining short-term and long-term loans, raising funds through retained earnings and new equity. Financial plans are concerned with how to invest the company’s funds in the various assets needed for successful operations. Another decision area included is how much of the company’s earnings should be paid out as dividends.
  4. Marketing Plans: Marketing plans are concerned with decisions on what products to sell, what markets to serve, and how to stimulate and maintain demand for the company’s products. They are dealing with what pricing policies to pursue, what types of and how many middlemen to use.
  5. Corporate Plans: A series of decisions which cover, not just one function or department, but relate to the entire company, is called a corporate plan. Such plans cut across all the functional areas. They help to integrate plans in the various functional areas and therefore help to ensure that all the efforts of the various departments are harmonized.

What is the Planning Process?

Planning involves decision-making, which is the selection of a course of action from amongst competing alternatives. Planning involves several steps.

  1. Awareness of Problem: In planning, the manager attempts to assess the future and decide on how to cope with it, plans are necessary because the future may have undesirable consequences for his company. He embarks on planning as a way of managing or minimizing such risks. The anticipation of future opportunities may be exploited to our advantage. In either case, the need for planning arises.
  2. Analyzing the Problem: Once a problem is anticipated, we must further study the problem in order to understand its exact nature. This may involve breaking down the problem, so that its components parts may be understood. The analysis of the problem enables us, not only to distinguish it from its symptoms but also to understand its underlying cause(s). When a company experiences a decline in sales, the marketing manager investigates the problem, to find out if it is due to a decline in product quality, a fall in consumers’ income, a change in fashion, or increased competition. A decline in the number of defective products may be due to poor training of production workers, carelessness on the part of quality control personnel, a malfunctioning of production machines, poor quality of raw material or poor motivation of workers.

The analysis of the problem ensures that in attempting to solve it, the manager does not solve only a part of it, or pursue the shadow. This is probably why it is often claimed that a problem once diagnosed is half-solved.

  1. Forecasting the Future: As pointed out earlier, plans are concerned with the future of the company. Obviously, therefore, plans are premised on certain assumptions about the future. For such assumptions to be sufficiently realistic to make the plans which are based on them meaningful, forecast of the future must be as systematic as possible, provided that the cost of achieving this does not exceed the expected benefits.

Forecasts may be made about the future state of competition, the company’s strengths and weaknesses, government’s economic policies, and the general state of the nation’s economy. The forecasts may also be extended to other key internal and environmental variables.

These forecasts are normally based on trends identifiable from relevant historical and current data, that may be obtained from the company’s internal records, or from reliable external information sources. No matter how reliable the historical and current data may be, forecast trends based on them are usually no more than estimates or informed guesses. Actual future developments may deviate from forecast trends, because history never actually repeats itself, and because of the inaccurate assumptions made in arriving at the forecast figures. To overcome these problems, plans based on any forecasts should be flexible, so that modifications can be made as the future unfolds.

  1. Setting Objectives: Objectives are specific results to be achieved by a plan. They are a derivative of organizational goals. Logically, establishing objectives is the first step in the planning process. The objectives direct the actions leading to organizational goal achievement. In other words, objectives streamline courses of action, and how such actions are to be carried out.

Finding Alternative Courses of Action

The next step to identify in the planning process is finding alternative courses of action from which a choice will eventually be made. This is the beginning of the decision-making aspect of planning. Decision-making is the process of selecting a preferred course of action from amongst competing alternatives. At this stage in the planning process, all known possible ways of attaining the objectives that have been set are identified.

Alternatives may be obtained by inviting suggestions from key executives, individually, or in brain-storming sessions. The experiences of competitors, management textbooks, journals, and magazines may also be a useful source of ideas about alternatives.

Analyzing Alternatives

In determining the alternative to select, the manager tries to obtain information on each alternative, so that comparisons of alternatives can be done more objectively. This may involve some extensive research, depending on the executives concerned, and the perceived importance of the plan. Based on the information obtained, each alternative is analyzed thoroughly, except those alternatives that may be dropped immediately, because they are clearly not feasible.

Selecting Amongst Alternatives

In determining the alternative to select, the organization’s decision-makers will consider:

  • The relative efficacy of each alternative in producing the desired results;
  • The cost of the alternative; and
  • The actual benefits to be derived in pursuing the alternative.

If two or more alternatives are equally capable of achieving the desired results, and if they have the same benefits, then the chapter of them is the better solution. Similarly, if there are two alternatives with the same cost and benefits, the one that achieves more of the objective is preferable.

For instance, if the purchase of different types of machines is being considered, the choice may take into consideration:

  • The experience of the production personnel in operating similar machines;
  • The number and type of manpower required to handle the machine;
  • The cost of buying and operating the machine; and
  • The expected returns.

Therefore, a comparison of the relative advantages and disadvantages of each alternative will then lead to a decision.

At this level, the decision is included in the budget of the company. Once a plan has been formulated, it is usually to express it in the form of a budget. Budgeting is the translation of plans into financial terms.

Implementation

A critical issue in the success of planning is plan implementation. The management decisions, which have become the official policy of the organization, must be implemented; that is, translation of the plans into concrete terms. It is therefore possible for planning to be done by an external consultant, while the implementation will usually be the responsibility of internal personnel.

In the implementation process, management formulates derivative plans for the operationalization of the major plan. In other words, this stage involves crucial questions concerning:

  • The procurement of manpower;
  • The acquisition of materials and equipment;
  • Financing;
  • Methods of control; and
  • Evaluation procedures.

All of which must be spelled out in understandable terms.

Selecting an alternative is a policy issue, while the implementation, for which guidelines are provided by the planners, is purely administrative. During the implementation of the plan, management should constantly review earlier decisions in the light of new information and experience.

Evaluation and Control

At this stage, management assesses the decisions earlier made and determines whether the outcomes are within the range of expectations. Questions that must be answered include the followings:

  • Has the implementation of the alternative solution selected led to the achievement of the goals of the organizations? If so, to what extent?
  • What is the relationship between costs and benefits? Has the company become more efficient in terms of cost as a result of the implementation of the alternative solution?
  • What specifically is the relationship between input (resources) and output (production)?
  • What adjustments in the plan are needed to enable the company to bridge the gap between the present achievements and the goals set?

Planning is a continuous process because of the uncertainty element involved. The rationale for evaluations to identify and eliminate detractions and oversights that may hamper goal is an achievement.

The answers to the above questions provide the basis for modifying the plans, and so to make the planning cycle begins all over again.

Limits to the Benefits of Planning

As we have seen, the benefits of planning are many. There are, however, limits to these benefits. The extent to which planning is done should be dictated by the expected benefits.

There are some disadvantages inherent in planning. Since planning is based on assumptions and forecasts of the future, the resulting plans can only be as realistic as the assumptions and forecasts on which they were based.

This is because it is easier to forecast the near future than the distant one, short-term plans tend to be more dependable than long-range plans.

Another limit to planning is the cost involved. Planning could be very expensive, in terms of the time it consumes and the financial and human resources devoted to it. Planning should ideally terminate at a point, where the marginal cost of planning equals the marginal revenue derivable from it.

Plans have a tendency to place their users in a straight proper guideline. This is the case when plans are regarded as immutable laws that must be followed tenaciously, irrespective of the prevailing circumstances. The way out of this problem is either to make the plans flexible so that they can be altered when the circumstance warrants that, or to have more than one plan, each of which is based on a different set of assumptions about the future. As the future unfolds, that plan which seems most realistic is adopted.

A fourth problem, which is not inherent in planning, but peculiar to developing countries, is that of availability and reliability of data. Census figures are not reliable; there are no dependable figures about the supply of, and demand for, goods and services. Even employment statistics and demographic information are either completely unavailable or very unreliable. These difficulties compound the problems in planning.

A final problem in planning, which is again unique to some developing countries is infrastructural. Communication between towns is difficult and time-consuming. Transportation problems are also acute due mainly to bad roads. Agencies specialized in collecting and analyzing data for business organizations are either rare or unreliable. Computers and other facilities for information storage, analysis and retrieval are difficult to come by. All these mean that planning is more time-consuming, more costly and more difficult.

In spite of these difficulties, it is better to plan, no matter how inaccurate the plans may be, than not to plan at all.

 

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