Chapt Er 5: Planning and Forecastin G

Chapt
er
Planning 5
and
Forecastin
g Copyright © 2002, Authors
5– 1 Excel Books
MANAGEMENT text and cases, V S P Rao, V Hari Krishna
5 Planning and Forecastin
A plan is a forecast for accomplishment. It is a predetermined course of

action. It is today's projection for tomorrow's activity. In other words, to
plan is to produce a scheme for future action, to bring about specified
results at a specified cost, in a specified period of time.
Copyright © 2002, Authors
5– 2
MANAGEMENT text and cases, V S P Rao, V Hari Krishna Excel Books
Features of Planning
Planning has a number of characteristics:
 Planning is goal-oriented
 Planning is a primary function
 Planning is all-pervasive
 Planning is a mental exercise
 Planning is a continuous process
 Planning involves choice
 Planning is forward looking
 Planning is flexible
 Planning is an integrated process
 Planning includes efficiency and effectiveness dimensions
5– 3
Planning Questions
Planning is the function that answers four basic questions:
 Where are we now?
 Where do we want to be?
 Gap?
 How can we get there from here?
5– 4
Steps in the Planning Process

 Establishing objectives
 Developing premises
 Evaluating alternatives and selection
 Formulating derivative plans
 Securing cooperation and participation
 Providing for follow-up
5– 5
Approaches to Planning
Managers follow various approaches to planning based on the extent
of participation, authority delegation and competency level of
managers working at various levels, namely:
 Top-down approach
 Bottom-up approach
 Composite approach
 Team approach
5– 6
Principles of Planning
 Principle of contribution to objectives
 Principle of primacy of planning
 Principle of pervasiveness of planning
 Principle of flexibility
 Principle of periodicity
 Principle of planning premises
 Principle of limiting factor
5– 7
Importance of Planning
Planning helps an organisation in the following ways:
 Planning provides direction
 Planning provides a unifying framework
 Planning is economical
 Planning reduces the risks of uncertainty
 Planning facilitates decision making
 Planning encourages innovation and creativity
 Planning improves morale
 Planning facilities control
5– 8
Planning in a Changing Environment

Planning is not useful in a fast Planning is beneficial even when the
changing environment environmental changes do take place
 The future is uncertain. We do  Agreed that future is uncertain but planning
not know what lies ahead. Even ensures informed anticipation of future. Motor
when we carefully plan, we do Car manufacturers who have anticipated the
not know whether we are right or future expectations of customers well in
wrong. advance are still the market leaders. Plans
 Planning is not a sure bet. It help us take calculated risks and challenge the
does not guarantee success. So future outcomes.
why spend money and energies  Better to commit mistakes and learn. Inability
unnecessarily? If we go off the to plan in a right way does not matter as long
track, planning might prove to be as we learn through mistakes and shift gears
a costly exercise. quickly. Proactive planning leads to disciplined
 It is better to react to events thinking. Haphazard actions, snap judgements
rather than take proactive steps. are avoided. Instead of accepting the future,
It is better to have a feel of the we can make the future all by ourselves in
market first rather than trying to course of time. The captain of a ship does not
enter the same with untried and leave the instruments of navigation, in case of
untested ideas. Planning is a a storm. The instruments are rendered
risky affair. ineffective temporarily. They can be pressed
 In emergency situations, we all into service once the storm is over.
know, planning is useless. Copyright © 2002, Authors
5– 9
Limitations of Planning
The limitations of planning can be examined under the following headings:
 Rigidity
 Costly and time consuming
 Employee resistance
 False sense of security
 Managerial deficiencies
 Planning prevents innovation
 External Limitations
 Difficult to predict
 Projected too far into the future
 Environmental turbulence
 Emergency situations
5– 10
Effective Planning
The following steps have to be taken in order to make planning effective:
 Climate
 Top management support
 Participation
 Communication
 Integration
 Monitoring
5– 11
Six rules of Planning in Learning Organisations

A learning organisation is one in which everybody is engaged in
identifying and solving problems, enabling the organisation to
continuously experiment, change and improve. Thus, increasing its
capacity to grow, learn, and achieve its purpose. The essential idea is
problem solving as opposed to the traditional organisation designed for
efficiency.
 Strong mission
 Stretch goals
 Learning environment
 Vital information
 Improvement; a way of life
 Planning still starts and stops at the top
5– 12
Forms of Planning
Long-Range Planning (LRP) vs. Short-Range Planning (SRP)
Long-range Planning Point of Distinction Short Range Meaning

5 Years or more. Time factor Upto one year.
Mission, Long-term goals Deals with Current operations of an
and strategies. organisation.
Organisation's linkage with Primary Focus Linkage with various parts of

external factors. an organisation.
Demands changes in the Impact Operates within the existing
structure, resource structure and resources.
allocation.
It goes too far into the future; Uncertainty The time horizon is limited
the risk and uncertainty level and the risk associated with
is high. uncertainty level is low.
Top Management. Prepared by Lower level executives.
5– 13
Operational Planning vs. Strategic Planning

Feature Strategic (Long-range) Operational (Short-range)
Time horizon 5 years or more Under 1 year
Purpose Adapt to external environment Implement internal goals
based on internal strengths
Activity controlled Total institutional performance Internal tasks and operations
Decision range Relatively enduring Short-term
Organisational level Top management Middle and lower management

involved
Basis for planning Primarily judgmental Exact data and standards used
Predictability Uncertain Highly certain
Anticipated accuracy Within 25 per cent Within 2 or 3 per cent
Management Planning and forecasting Control primarily

functions involved dominant
Management control Slight; contingency plans Almost complete; single-option
of outcomes required plans used
5– 14
Tactical or Coordinative (Intermediate) Planning

Tactical plans are less detailed than the short-range plans. Based on the
results obtained by implementing short-range plans, a mid-term review is
undertaken. Coordinative planning, thus, helps in shifting the gears,
whenever pitfalls occur while implementing the short-range or long-
range plans.
5– 15
Formal and Informal Planning

A formal plan is a well documented plan. It is a written record of what
the organisation intends to do within a time frame. The record is made
after a careful evaluation of all relevant factors that have a bearing on
organisational functioning. It is systematic and rational.
Informal planning does not offer a written record. It is carried out without
any direction. Unhealthy tendencies like carelessness in planning and
implementation, haphazard actions, loss of memory and direction might
creep in.
5– 16
Functional and Corporate Planning

Functional planning is 'unit planning'. It deals with parts such as
production, marketing, finance, manufacturing in an isolated manner.
There is no unified focus. As a result, functional planners develop a
'parts mentality.' They, often, fail to see the total big picture. The impact
of internal as well as external factors may not be fully taken care of, in
respect of functional planning. Corporate planning outlines the broad
objectives of the company as a whole and develops plans designed to
meet those objectives. It has both the micro-as well as-macro focus. The
various functional plans are integrated so as to meet the broad
objectives of the organisation. It is integrative in nature. It takes a long-
term view. It tries to strike a balance between organisational resources
and environmental challenges. In the process, tendencies like adhocism,
parts-mentality, narrow functional outlook, friction between units are kept
under constant control. The focus is always on overall organisational
performance.
5– 17
Proactive and Reactive Planning

In proactive planning, managers challenge the future, anticipating future
contingencies and get ready with alternative routes for unforeseen
circumstances.
In Reactive planning, the organisation merely reacts to events as and

when they arise.
5– 18
Planning and Controlling: Relationship

 Plans are the directions in which managers intend to lead the
organisation in order to achieve its objectives. Controls are needed
to ensure that results are consistent with plans.
 Planning prescribes described behaviours and results. Controls can
maintain or redirect actual behaviours and results.
 Managers cannot effectively plan without information about the past
and current status of each department, product, etc.. Much of this
essential information is obtained through the control process. It
provides valuable information derived from past experience and
allows managers to plan effectively in future. It helps managers to
learn from past mistakes and plan well.
 Managers cannot effectively control the organisation unless there
are plans to indicate the purpose to be served by the control
process. Thus, the planning and control processes complement and
support one another.
5– 19
Misconception
One of the glaring misconceptions in management states that futurity is
the essence of planning and controlling is nothing but a postmortem
examination of past events.
5– 20
Forecasting: Introduction
Business forecasting is a systematic attempt to probe the future, so as to
recognise problems and opportunities and turn them into plans of action.
Business forecasting helps in analysing the economic, political and
market information to reduce the risks involved in making business
decisions and long-range plans.
Essential elements in business forecasting

 Developing the groundwork
 Estimating future business
 Comparing the actual with estimated results
 Refining the forecast process
5– 21
Relationship Between Planning and Forecasting

Forecasts are key aids to planning in the following ways:
 Forecasts offer pertinent information regarding future.
 Forecasting helps in bringing a singleness of purpose to planning,
that cannot exist easily otherwise.
 Forecasting improves the quality of managerial planning.
Forecasting helps in minimising the costly planning errors.
Forecasting also helps in preparing the organisation for future crisis
and emergencies.
 Forecasting supplies vital information regarding the weak spots in
the organisation thereby paving the way to appropriate control.
5– 22
Advantages of Forecasting
 Forecasting is the essence of planning. They supply vital facts and
pertinent information for successful planning.
 Forecasting forces executives to look ahead, think through the
future and improve their mental faculties.
 Forecasting helps in achieving better coordination by focussing
attention on the future. It helps in ensuring a singleness of purpose
to planning and objectives.
 Forecasting, by revealing the weak spots in the organisation, helps
in ensuring control wherever it is lacking and thereby improves
performance.
 Effective forecasting helps in identifying the environmental forces
and assists in providing for these challenges, though in an
imperfect way.
5– 23
Limitations
Forecasting suffers from the following limitations :
1. Rule of thumb forecasts only
2. Unreliable
5– 24
Techniques of Forecasting
Three techniques are commonly employed in business forecasting:
 Deterministic techniques: The principal deterministic techniques are:
 Latest information
 Knowledge of programmes or limits
 Spotting the beginning of a lengthy process
 Diagnosing people's expectations
 Symptomatic techniques
 Systematic techniques
 Intuitive approach
 The econometric approach
5– 25
Economic Forecasting Methods

Economic forecasting is one of the common types of external
forecasting. The basic aim of economic forecasting is to predict
business fluctuations.
There are numerous factors known as indicators such as interest rates,
stock prices, level of employment, and many others which are
frequently employed to measure the extent of economic activity in a
nation.
5– 26
Sales Forecasting Methods

Sales forecast is a projection of the expected sales. Various methods
are employed in sales forecasting:
1. Jury of executive opinion method
2. Grassroots method
3. User expectation survey method
4. Quantitative method
5– 27
Criteria for Selecting a Forecasting Method

Factor I  Level of forecasting  Understanding of the
Manager's technical sophistication. method.
ability  Formal training in
forecasting.
Factor II  Manager's time.  Time spent in
Cost  Forecaster's time collection and
processing of data.
Factor III  Time horizon of the  Amount of support

Problem - peculiar forecast. from top management
features  Length of each time  Manager-forecaster
period. relationship.
 Functional area to be
covered.
Factor IV  Accuracy
Method-characteristics  Statistics available
desired
5– 28
The Notion of Premises in Forecasting?

Premises are assumptions about the future. Premises provide the
basic framework for forecasting and planning activities.
Managers can also classify premises into other categories like
(a) tangible and intangible premises;
(b) internal and external premises for decision-making purposes.
Premises supply basic information necessary for effective planning.
5– 29

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Chapt

A plan is a forecast for accomplishment. It is a predetermined course of

Copyright © 2002, Authors

Copyright © 2002, Authors

Copyright © 2002, Authors

Steps in the Planning Process

Copyright © 2002, Authors

Copyright © 2002, Authors

 Principle of primacy of planning

 Principle of pervasiveness of planning

 Principle of planning premises

 Principle of limiting factor

Copyright © 2002, Authors

Copyright © 2002, Authors

Planning in a Changing Environment

Copyright © 2002, Authors

Six rules of Planning in Learning Organisations

Copyright © 2002, Authors

Long-range Planning Point of Distinction Short Range Meaning

Organisation's linkage with Primary Focus Linkage with various parts of

Copyright © 2002, Authors

Operational Planning vs. Strategic Planning

Decision range Relatively enduring Short-term

Organisational level Top management Middle and lower management

Predictability Uncertain Highly certain

Anticipated accuracy Within 25 per cent Within 2 or 3 per cent

Management Planning and forecasting Control primarily

Copyright © 2002, Authors

Tactical or Coordinative (Intermediate) Planning

Copyright © 2002, Authors

Formal and Informal Planning

Copyright © 2002, Authors

Functional and Corporate Planning

Copyright © 2002, Authors

Proactive and Reactive Planning

In Reactive planning, the organisation merely reacts to events as and

Copyright © 2002, Authors

Planning and Controlling: Relationship

Copyright © 2002, Authors

Copyright © 2002, Authors

Essential elements in business forecasting

Copyright © 2002, Authors

Relationship Between Planning and Forecasting

Copyright © 2002, Authors

Copyright © 2002, Authors

Copyright © 2002, Authors

 Deterministic techniques: The principal deterministic techniques are:

 Knowledge of programmes or limits

 Spotting the beginning of a lengthy process

 Diagnosing people's expectations

 The econometric approach

Copyright © 2002, Authors

Economic Forecasting Methods

Copyright © 2002, Authors

Sales Forecasting Methods

Copyright © 2002, Authors

Criteria for Selecting a Forecasting Method

Factor III  Time horizon of the  Amount of support

Copyright © 2002, Authors

The Notion of Premises in Forecasting?

Copyright © 2002, Authors

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