The practical steps listed below are of general application. In practice however, one must study the feasibility of possible course of action at each stage.
Although it precedes actual planning and is, therefore not strictly a part of the planning process, an awareness of opportunities in the external environment as well as within the organization is the real starting point for planning. All managers should take a preliminary look at possible future opportunities and see them clearly and completely know where they stand in light of their strengths and weaknesses, understand what problems they wish to solve and why and know what they expect to gain. Setting realistic objectives depends on this awareness. Planning requires a realistic diagnosis of the opportunity situation.
The second step in planning is to establish objectives for the entire enterprise and then for each subordinate work unit. This is to be done for the long term as well as for the short term. Objectives specify the expected results and indicate the end points of what is to be done., where the primary emphasis is to be placed, and what is to be accomplished by the network of strategies, policies, procedures, rules, budgets and programmes.
Enterprise objectives give direction to the major plans, which by reflecting these objectives define the objective of every major department. Major department objectives, in turn, control the objectives of subordinate departments, and so on down the line in other words, objectives from a hierarchy. The objectives of lesser departments will be more accurate if subdivision managers understand the overall enterprise objectives and the derivative goals. Managers should also have the opportunity to contribute their ideas for setting their own goals and those of the enterprise.
The third logical step in planning is to establish circulate, and obtain agreement to utilize critical planning premises such as forecast, applicable basic policies, and existing company plans. They are assumptions about the environment in which the plan is to be carried out. It is important for all the managers involved in planning to agree on the premises. In fact, the major principle of planning premises is: The more thoroughly individuals charged with planning understand and agree to utilize consistent planning premises, the more coordinated enterprise planning will be.
Forecasting is important in premising. What kinds of markets will there be? What volume of sales? What prices? What products? What technical developments? What costs? What wage rates? What tax rates and policies? What new plants? What policies with respect to dividends? What political or social environment? How will expansion be financed? What are the long term trends?
Determining Alternative Courses:
The fourth step in planning is to search for and examine alternative courses of action, especially those not immediately apparent. There is seldom a plan for which reasonable, alternatives do not exist and quite often an alternative that is not obvious proves to be the best.
The more common problem is not finding alternatives but reducing the number of alternatives so that the most promising may be analysed. Even with mathematical techniques and the computer, there is a limit to the number of alternatives that can be thoroughly examined. The planner must usually make a preliminary examination to discover the most fruitful possibilities.
Evaluating Alternative Courses:
After seeking out alternative courses and examining their strong and weak points, the next step is to evaluate the alternatives by weighing them in the light of premises and goals. One course may appear to be the most profitable but it may require a large cash outlay and have a slow payback; another may look less profitable but may involve less risk; still another may better suit the company’s long range objectives
There are so many alternative courses in most situations and so many variables and limitations to be considered that evaluation can be exceedingly difficult. Because of these complexities, newer methodologies and application and analyses are discussed.
Selecting a course:
This is the point at which the plan is adopted – the real point of decision making. Occasionally, an analysis and evaluation of alternative courses will disclose that two or more courses are advisable and the manager may decide to follow several courses rather than the one best course.
When a decision is made, planning is seldom complete, and a seventh step is indicated. Derivative plans are almost invariably required to support the basic plan.
Numbering Plans by budgeting:
After decisions are made and plans are set, the final step in giving them meaning, as was indicated in the discussion of types of plans is to number them by converting them into budgets. The overall budgets of an enterprise represent the sum total of income and expenses, with resultant profit or surplus, and the budgets of major balance sheet items such as cash and capital expenditures. Each department or programme of a business or some other enterprise can have its own budgets, usually of expenses and capital expenditures which tie into the overall budget.
If done well, budgets become a means of adding the various plans and set important standards against which planning progress can be measured.