Importance of Planning in Business

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Everything you need to know about the importance of planning in Business. “Planning without action is futile, Action without planning is fatal”.

Planning is the conscious, systematic process of making decisions about goals and activities that an individual, group, work unit, or organization will pursue in the future, It refers to the process of deciding what to do and how to do it.

Planning occurs at many levels, from day-to-day decisions made by individuals and families, to complex decisions made by businesses and governments.

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As planning is one of great importance to an organization, the entire process of planning should be carried out in a systematic manner.

The importance of planning can be studied under the following heads:-

1. To Manage by Objectives 2. To Take Care of Future Uncertainty 3. To Secure Economy in Operation 4. To Make Control Effective 5. For the Immediate and Distant Future 6. Selection of “Optimum” Goals and Objectives

7. Sorting out Complex Situations 8. Meeting the Changes in External Environment 9. Safeguard against Business Failures 10. Unity of Purpose and Action 11. Effective Coordination and Control 12. Economizing Operations 13. Facilitating Coordination

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14. Facilitating Efficient Control 15. Facilitating Integration 16. Reducing Future Uncertainties 17. Improving Competitive Strength 18. Optimum Utilization of Resources 19. Increasing Organizational Effectiveness 20. Helping in Executive Development and a Few Others.


Importance of Planning in Business

Importance of Planning in Business – To Manage by Objectives, To Take Care of Future Uncertainty, To Secure Economy in Operation and To Make Control Effective

Planning implies an orderly approach to the task in hand. In the absence of planning, “business decisions would become random, ad hoc choices, as though a pilot set out without knowing whether he wished to fly to London, Hong Kong, or Johannesburg.”

As a managerial function, then, planning is important for the following reasons:

(a) To Manage by Objectives:

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Good and effective management is management by objectives. The planning function brings the manager’s attention to focus on the formulation of objectives in clear-cut terms and compels him to prepare a ‘blue­print’ of the course of action to be pursued for the accomplishment of organisational objectives.

It enables the manager to take his mind off the present problems and the headaches of the moment and look into the future to see whether the enterprise is well on way to its goals or the road ahead is blocked.

(b) To Take Care of Future Uncertainty:

The future is uncertain and the manager can, therefore, ill-afford to take a nap after setting the objectives. This makes planning an absolute necessity. By constant planning, the manager can take care, at least in part, of the future developments as they unfold themselves.

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He can make adjustments in the plans of the enterprise in the interests of the objectives of the enterprise. Even where the future seems certain for some time, planning is necessary to evaluate the alternate courses of action and determine the ones which will contribute most directly to the organisational objectives.

(c) To Secure Economy in Operation:

Planning focuses on efficiency and economy in operation. A plan is, by definition, a course of action that can take the organisation to its objectives at the minimum cost. In the absence of planning, there is bound to be chaos, confusion and disorder. The various organisational activities will be unco­ordinated and the resources will be wasted for lack of orderly allocation.

(d) To Make Control Effective:

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The managerial function of controlling is concerned with a comparison between the planned performance and the actual performance of subordinates and departments of the organisation. In the absence of plans, a manager will have no standards for controlling others’ performance. Thus, planning without control is a fruitless exercise and control without planning is an impossibility.


Importance of Planning in Business

Importance # 1. Planning for the Immediate and Distant Future:

The increasing pace of environmental changes has highlighted the need to anticipate developments in the near and immediate future and plan ways to meet them. A management that does not identify the emerging situations, nor prepares to meet them, will soon find the very existence of the organiza­tion threatened.

Management must be ever ready to survive and grow even amid turbulent changes in domestic and global economy. Remember, erstwhile governor of Reserve Bank, Raghuram Rajan, who is credited with being the first to predict the 2008 global economic crisis and suggest corrective measures.

Importance # 2. Selection of “Optimum” Goals and Objectives:

Planning involves rational thinking and decision-making on determination of objectives and action- plans to achieve them. It implies selection of one set of objectives and action-plans, and rejection of the others.

The selected objectives and action-plans will naturally be those that promote overall organiza­tional interests within the framework of resource availability and general economic, social and politi­cal conditions in the country.

To optimize the efficiency-levels of objective-directed operations, it may sometimes become neces­sary to sub-optimize certain other operations by reducing resource allocation to them.

Importance # 3. Sorting out Complex Situations:

An organization is a varied group of human beings, each with different socio-cultural and educational background. They will work together effectively and efficiently to accomplish the tasks and duties assigned to them if they have had a say in decision-making, because in that case they will treat orga­nization objectives as common property for achievement of which they have equal responsibility. This will promote the spirit of cooperation and participation among both—employees and the management.

Importance # 4. Meeting the Changes in External Environment:

Business environment changes are difficult to predict. Change in social values, increase in competi­tion, new product discoveries, change in consumer tastes and preferences, social unrest – each has potential to impact the functioning of an organization. However, a competent management will be able to foresee these and keep standby plans ready; it would adjust and adapt its input and worker requirements, including production processes to meet the needs of any given situation.

Importance # 5. Safeguard against Business Failures:

Often, business failures are blamed on cut-throat completion, unpredictability of consumer demand and preferences, technological changes and general economic and political developments in the country and abroad. Invention of new production technology would promote capital investments by domestic and foreign businesses, but apprehension of hostilities anywhere in the world would dull market sentiment.

True, planning activity cannot be a panacea that will cure all ills afflicting an organization, but it is also true that it keeps the management on its toes to identify likely problems and opportunities and follow the most effective course of action to tackle them successfully.

Importance # 6. Unity of Purpose and Action:

Planning enables the personnel working in an organization to utilize their knowledge and skills for achievement of organization goals and objectives. This will spring from the awareness inculcated among them by the management that they can satisfy their personal needs and desires only if they work harmoniously to accomplish organizational objectives.

Importance # 7. Effective Coordination and Control:

Planning involves a plain and clear definition of objectives and the tasks and activities necessary to achieve them. So workers are clear about what work is to be done, where and how, and by whom. This will enable the workers and departments to perform the tasks and duties assigned to them within the stipulated time-frame. It will also facilitate effective monitoring and measurement of actual perfor­mance, and detection and correction of deviations from the planned standards.


Importance (or Significance) of Planning in Business – Economizing Operations, Facilitating Coordination, Facilitating Efficient Control, Facilitating Integration and a Few Others

The significance of planning can be understood from the following points:

i. Economizing operations – Activities are planned to reduce inefficiency and wastage, which lead to econ­omy in operations. Planning helps to realize the business objectives in the best possible manner. It paves the way for the proper utilization of available resources. Planning also emphasizes efficiency in operations and consistency in approach. It avoids incorrect actions and reduces frequency of failures.

ii. Facilitating coordination – Plans are selected courses along which the management desires to coordinate group action. A plan provides the guidelines and lays down the parameters for different departments. It facilitates coordination of departmental operations by establishing common goals. It avoids duplication of work and inter-departmental conflicts. Well-defined objectives, policies, programmes, and procedures help in proper coordination.

iii. Facilitating efficient control – Planning is always a pre-requisite for control. In other words, control pre-supposes the existence of planning. Planning without control is useless and control without planning is impossible. Planning brings effectiveness in the process of control. It enables a manager to check the perfor­mance of his subordinates. Thus, planning serves as a base for control.

iv. Facilitating integration – Planning involves logical thinking and decision-making. It projects a course of action for the future through consistent and coordinated actions. It brings about effective integration of diverse decisions and activities of the managers over a period of time. A well thought-out plan integrates inter-departmental activities.

v. Reducing future uncertainties – The future is uncertain and full of changes. Planning helps in reducing uncertainties of the future. Planning provides necessary provisions to face uncertainties. It brings rationality and higher degree of stability into the organization. It prepares the organization to cope with changes in the business environment in order to achieve organizational objectives.

vi. Improving competitive strength – Effective planning provides direction and a sense of purpose to the organization. It guides the business along pre-determined goals. It helps to improve the competitive strength of the organization by adding new lines of products, changes in quality, changes in methods of production, expansion of planned capacity, increasing the volume of production, etc. It leads to the growth and improve­ment of the organization by ensuring orderly progress.

vii. Optimum utilization of resources – Planning leads to the optimum utilization of resources at the cheap­est and in the best possible manner. It helps managers to allocate available resources in the most efficient manner to achieve the organizational goals. It prompts managers to reduce wastage and brings about overall improvement in the utilization of available resources. It removes all friction, doubts, hesitance, crisis, and duplication.

viii. Increasing organizational effectiveness – Planning helps the management to increase organizational effectiveness in various ways. Planning forecasts the future, coordinates future activities, reduces future uncer­tainties, and facilitates effective control. Thus, it increases the overall efficiency of the organization. It ensures that resources are utilized in a way in which these have been specified in the plan.

ix. Helping in executive development – Planning is an intellectual activity. It involves the use of creative and innovative abilities of executives, which may generate opportunities for profitable use. Regular use of such abilities of executives may inject dynamism in the management of the organization.

x. Accomplishing organizational objectives – An organization exists to pursue and achieve certain objec­tives. All the activities are directed and coordinated for accomplishing organizational objectives. Planning makes the organization a purposeful system with a pre-determined destination. It determines the courses of action to achieve objectives efficiently and smoothly. It ensures that resources are channelized in a proper way to attain organizational objectives.


Importance of Planning in Business – Helps to Achieve Targets, Minimises Uncertainty, Guide for Action, Ensures Order, Improves Efficiency, Facilitates Control and a Few Others  

The main purpose of planning is to minimise the uncertainty that comes with future. It is intended to clarify the implications of managerial actions or decisions. Planning done, organisations are bound to succeed in terms of increased sales, customer growth, reduced operating costs, growth and expansion.

1. Helps to achieve targets – Plans are expressed in terms of budgets. Budgets act as targets. Every manager strives hard to achieve a given target. Thus, planning contributes to target achievement.

2. Minimises uncertainty and, thereby, risk – Business environment is uncertain and risky. Planning is the only way to move towards certainty and confidence.

3. Guide for action – Plans direct people towards achieving goals. As part of planning, organisations keep a list of supporting plans, policies, procedures, programmes, strategies, rules and budgets to guide their people towards the goals.

4. Ensures ‘order’ – Organisations walk into chaos if they do not plan properly. The only way to ensure order is to think of probable problems in advance and create the necessary infrastructure to sort them out.

5. Improves efficiency – Efficiency means doing things correctly and at minimum cost. Every department has a budget. It means all possible activities have been considered while framing the budget. Clear plans leave only one task for managers – their implementation. Planning is bound to improve efficiency. Despite detailed planning sometimes there can be an unexpected shortage of resources. Organisations keep a portion of their resources to cushion such crises.

6. Facilitates control – Plan is a means of control. The actual performance of the organisation and also its members can be evaluated based on plans.

7. Promotes innovation and creativity – Progressive organisations involve their staff in organisational planning. Planning is considered a means to promote innovation and creativity among the staff.

8. Coordination made easy – Plans indicate what the employees have to do to attain their goals. Plans make it easier for managers to coordinate the efforts of their staff.


Importance of Planning in Business: 9 Points

In fact, planning activity is very important for organization, country, business and even for families and lastly for an individual. Sound and effective plans are essential to an effective management as they serve as guidelines for all activities of managers. A manager who works with a good plan will be successful than a manager who does not have any plan to guide him. That is why it is said “Failure to plan is planning to fail”.

The following are the importance of planning:

Importance # 1. Focuses Attention on Objectives and Results:

As every organization exists to fulfill certain goals/objectives, the management of the organization chalks its activities to fulfill the goals. Departmental managers also program their activities to satisfy the organizational goals. All the levels of management focus their work towards fulfilling the organizational goals. Thus, the effective plan guides everybody in the organization towards the organizational goal to achieve the desired results.

Importance # 2. Reduces Uncertainty and Risk:

External environmental changes of business world are out of control of the management of the corporation. Sometimes external environmental changes along with internal disturbances causes the organization to face difficulties. But a good plan with forethought provides mans to tackle these uncertainties and move towards success. The plan always keeps management alert to the changing environment of business.

Importance # 3. Provides Sense of Direction:

Planning always bridges the gap between “where we are and where we want to go”. Planning avoids the organization to indulge in unprofitable activates and saves its resources which can be used in profitable business. It also guides/directs all the personnel in the organization towards fulfilling the organizational objectives. Without planning action is likely to become random activity producing nothing but chaos.

Importance # 4. Encourages Innovation and Creativity:

Innovation and creativity are prerequisites to continuous growth and steady prosperity of business. Planning is forward looking and it enables the organization to cope up with technological and other developments. Planning requires continuous monitoring of environment for new ideas and developments. As a result, the enterprise becomes dynamic. Being anticipatory in nature, planning improves the adaptability of an organization to the changing environment.

Importance # 5. Helps in Co-Ordination:

As planning acts as guidelines for all the departments, they work towards fulfilling organizational goals. Hence, to reach the desired target everybody must work in harmony and with extreme co-operation. They have to forget individual egos and to work for organization’s health and prosperity. This leads everyone towards oneness and promotes co-ordination the organization. In fact everybody will join hands to face the threats from external environment.

Importance # 6. Guides Decision-Making:

Planning sets guidelines for future course of action. Every department uses the data released by the top management and uses it to formulate the plans and programs of their department to fulfill the organizational goals. Without proper planning and communication, departments cannot decide what to do. Hence, it is the advantage of planning, which guides every manager at various levels to make decisions.

Importance # 7. Provides a Basis for Decentralization:

It is impossible for a single individual to do all the works. To divert his time to other works on table, he has to delegate his authority to lower level managers. In this sense, good plan will help effective delegation of authority of higher level to lower level and reduces the risk of delegation. As the authority is delegated, lower level manager feels responsibility and perform well.

Importance # 8. Provides Efficiency in Organization:

The planning is guideline for all level managers to execute their work. Planning helps them to utilize the organizational resources-men, material, money, machine and time optimally to produce goods/ services economically. This helps the organization to capture larger share of the market and promotes healthy growth. It also helps in increasing productivity and which in turn improves employee earning and moral. All this shows the efficiency of the organization.

Importance # 9. Facilitate Control:

In fact planning is also considered as standards. Once we have standards the manager can compare the actual with the standards and if any deviation, can exercise control. This appears to the activities like – production, employee performance, training, employee behaviour, etc., hence planning is not here it is very difficult to exercise control by the manager.


Importance of Planning in Business – In All Types of Organizations

Planning has assumed great importance in all types of organizations. That is why it is said, “If you have planned well, half of your work is done.” The most important differentiator between successful and unsuccessful organizations is planning. This is why top management of successful companies devotes maximum time on planning.

The importance of planning may be seen in the following contexts:

1. Direction for Action:

Stanely Judd, Communications Consultant, has observed, “A good plan is like a road map; it shows the final destination and usually the best way to get there.” A good plan is a result of good planning process. Thus, it shows that planning provides direction for action by prescribing what is to be achieved (objectives) and how it can be achieved (various actions organization-wide). Clarity of what is to be achieved and how this can be achieved leads to coordinated efforts of employees.

2. Reducing Risk of Uncertainty:

Planning does not reduce uncertainty of environment but it reduces risk likely to emerge because of uncertainty of environment. In the planning process, managers forecast likely behaviour of environment in future. Because of this forecasting, managers are sure, to a great extent, about the likely outcomes of their actions, thereby reducing their risk.

3. Reducing Overlapping and Wasteful Activities:

Planning reduces overlapping and wasteful activities by prescribing what is to be done and how this can be done. Because of this prescription, only necessary activities are performed, unnecessary activities are avoided, and there is no duplication of activities.

4. Promoting Creativity and Innovation:

Since planning is a mental exercise, it promotes creativity and innovation. Creativity is generation of new ideas which are unique in some way to solve problems. Innovation is introduction of any product, service, or idea that is considered as new. Creativity and innovation help an organization to increase its market standing.

5. Facilitating Decision Making:

Planning facilitates decision making throughout an organization by proving standing plans. Decisions are made on the basis of guidelines provided by these standing plans. For example, planning sets policies, procedures, rules, etc. which ease decision making. This not only quickens decision-making process but also ensures similarity of decisions on the same matters throughout the organization.

6. Help in Coordination:

Though all managerial functions lead to coordination in the organization, real beginning is made at the level of planning stage. Well-considered overall plans unify interdepartmental activities and consequently restrict the area of freedom in the development of purely departmental plans. Thus, various departments work in accordance with the overall plan and harmony is achieved. It is true to say that coordination is essence of management and planning is the base for it.

7. Providing Basis for Controlling:

Planning provides basis for controlling by specifying standards for evaluating actual performance results. In controlling, actual performance results are compared with standards. If there is any deviation between the two, necessary corrective actions are taken to ensure that no deviation emerges between the two in future. Because of the above importance of planning, an organization which adopts planning in a systematic way tends to achieve its objectives.


Importance of Planning in Business – According to Henry Fayol

Henry Fayol, explained the importance of planning as a management function. “Managing means looking ahead, gives some idea of the importance attached to planning in the business world and it is true that if foresight is not the whole of management at least it is an essential part of it.” George R. Terry thought planning as the basic function. Planning is prerequisite to good management. Better planning ensures better utilization of the organizational resources.

In an organization, planning is important in the following manner:

(i) Planning Offsets Change and Uncertainty:

Organizations face various complexities and uncertainty in future. Planning foresees the future and makes provisions for it thereby gives an added strength to the organization for survival and growth. Planning enhances the capabilities of the organization to cope with the rapidly changing environment.

Managers take the priority of the changing environment and offer a sufficient change in the planning process to take advantage of the environmental changes. Keeping in view the degree of probability of occurrence of events in the future, managers develop alternate plans.

(ii) Planning Facilitate Coordination:

Every activity in the organization requires coordination. It starts with planning stage. Planning integrates the objectives of different departments and meshes these objectives into organizational objectives. Plans make guidelines and provide a spectrum on which work is done in accordance with the organizational objectives. It can be said that if the coordination is the essence, planning is the base for it.

(iii) Planning Focuses on the Attainment of Objectives:

All the activities are performed to achieve the objectives. Planning defines the concrete objectives by focusing attention on these.

Planning focuses on the attainment of objectives through:

(a) Determination of objectives;

(b) Identifying strengths and weaknesses for the attainment; and

(c) Providing direction that how to achieve these objectives efficiently and effectively.

(iv) Planning Helps in Control:

Without planning, control is unthinkable. Planning provides the basic guidelines, control mechanizes it. The process of controlling may be viewed as an extension of planning. Controlling involves the measurement of accomplishment of events against plans and if any deviations take place to correct it according to plans.

It is exercised in the context of planning which expresses the goals in quantitative terms which are comparable with the actual achievement. Thus, the efficiency can be ascertained by comparing planning and controlling efforts.

(v) Planning Economies Operation:

Planning logically improves the performance of the various activities in the organization. Activities are planned to reduce inefficiencies and wastages. Planning decides the best course of action that would lead to best result at minimum cost and time. Thus, planning brings out efficient operation and consistency in activities which leads to economy.

(vi) Planning Leads to Effectiveness:

Organizational resources are utilized for accomplishing objectives which include measurement in the context of the stated objectives and further actions may be taken in this direction. The effectiveness of a plan pertains to the degree to which it achieves the purpose or objectives. So, more efficiency is not important, but it should lead to effectiveness.

Planning provides a rational approach to predetermined objectives as it requires a lot of systematic mental exercise. Planning helps to lay-down everything in the organization. It can be concluded that planning is the spectrum on which various activities is based.


Importance of Planning in Business – Quick Notes

Planning involves huge costs in their formulation. These may be in terms of money spent or time involved in the process. Planning is worth the cost involved if the benefits derived from it are more than the costs involved.

i. Makes Objectives Clear and Specific:

The planning exercise makes the goals clear and specific because it begins with the determination of objectives.

ii. Makes Activities Meaningful/Provides Directions:

Due to planning, employees and managers know how their activities relate to organisational goals. Everyone is conscious of his own contribution towards achievement of organisational goals. In this way, planning makes activities meaningful.

iii. Reduces the Risks of Uncertainty:

Planning helps to reduce the risks associated with uncertainties. In the process of planning, attempt is made to look into the future and predict it. Planning helps to identify potential threats of future and help to develop contingency plan to deal with them.

iv. Facilitates Decision-Making:

Planning ensures foreseeing future and choosing the best alternative amongst the various alternatives. The manager evaluates the positive and negative aspect of each alternative and choose the one with least negative consequence, having feasibility and profitability. Through this, a direction is provided to all the activities of the organisation which gives the basic guidelines to the manager for decision making.

v. Reduces Overlapping and Wasteful Activities/Help in Coordination:

Planned programmes of activities serve as the basis of harmonising the efforts of different divisions, departments and people. It makes coordination of various activities, departments and groups relatively easy. Planning is a step by step approach and through this systematic approach, it helps in coordination, e.g., while planning about a product, its marketing plan is also thought of so that there is complete coordination between production and sales department.

vi. Established Standards for Controlling/Provides the Basis of Control:

Plans provide the standards/targets against which actual performance is compared. Deviation of actual results from the standards indicates the nature of corrective action needed. Therefore, planning may be said to provide the basis of control.

vii. Promotes Innovative Ideas:

Planning assists managers in developing new ideas that provide a platform for building concrete plans. Such innovative ideas provide a direction towards the growth and prosperity of the business.


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