Planning is the most basic of all management functions, and the skill with which this function is performed determines the success of all operations. Planning may be defined as the thinking process that precedes action and is directed towards making decisions now with the future in mind. Theoretically, the function of planning is to improve the quality of decision making by a careful consideration of all the relevant factors before a decision is made, and ensuring that decisions conform with a rational strategy by which the firm's future is to be shaped. Planning may be seen as consisting of five stages:

(a) Setting organizational objectives.

(b) Assessing the environment in which the organization will be operating, by reference to the external factors which are likely to affect its operations. For this purpose, forecasts have to be made which attempt to predict what will happen in the future, with and without policy changes on the part of the planning organization.

(c) Assessing existing resources, for management is concerned with making the most efficient use of those scarce resources, often called the four M's: men, machines, materials and money. This aspect of the planning function involves both making an estimate of external resources which are accessible, and resources already held which are either idle or which might be more efficiently utilized.

(d) Determining the strategy for achieving stated objectives by means of an overall plan which specifies strategic goals. Strategic decisions are concerned with establishing the relationship between the firm and its environment.

(e) Designing a programme of action to achieve selected strategic goals by means of both long-range programmes and short-range programmes, the latter covering a period of a year or less and containing sets of instructions of the type found in annual budgets.

Thus, decisions are essential at every stage of the planning process, and the key areas may be stated as deciding 'what should be done, when it should be done, how it should be done and who should do it'.

The importance of environmental factors to the planning process is obvious; and it is equally clear that environmental information should not be subjected to a less disciplined treatment than the internal or analytical information, which an organization itself provides. There may sometimes be important areas in which one may criticize the quality of analytical information as being inadequate for the purpose of efficient decision making. Deficiencies in the nature and quality of analytical information will be examined in much greater detail elsewhere in this book. However, there is a need for a continuous flow of information on the environment, for the most important determinant of a firm's potential for growth and improved efficiency is the ability of its management to learn about this aspect. Information systems are now moving away from a heavy emphasis on internal or analytical information and incorporating much more environmental data. As surveys in the United States have shown, the scan of environmental data in which management is interested ranges from market potential of new and existing product lines, to new processes and technology, the actions of competitors, sales regulations, resources and supplies available to government actions and policies.

We may distinguish three kinds of planning activities:

Strategic planning which is concerned with a period from three to ten years ahead and which is usually called long-range planning.

Project planning is an activity which follows the long-range plan, and involves developing plans for the capital expenditures necessary to meet long-term objectives.

Budgetary planning which converts the firm's long-range plan to the needs of the immediate future. This is usually described as budgeting, and is generally carried out on a one-year basis. The annual budget is then broken down into months, and in some cases into weeks, to chart the path the firm should take in the immediate future.

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Read on: Section 1 a Framework For Planning and Control

Section 1 A framework for planning and control

The meaning of planning and control

There are two conflicting schools of thought regarding the extent to which the firm is in charge of its own destiny. Market theory postulates that the firm is solely at the whim of prevailing economic and social forces, so that successful management depends upon the ability to 'read' the environment. By contrast, planning and control theory asserts that management has control over the firm's future and believes that the firm's destiny may be manipulated and hence planned and controlled. In this view,... see: Section 1 a Framework For Planning and Control