Management Notes

Reference Notes for Management

Importance of Planning – Concept of Planning | Principles of Management

Importance of Planning

Planning is the process of deciding what needs to be done, who should do it, how it should be done, and when it should be done. Choosing a course of action to achieve results is the process of deciding what should be done. By bridging the gap between where we are and where we want to be, it helps us achieve our goals. It allows for things to happen that would otherwise not be possible. Planning is a higher-order mental process requiring intellect, imagination, foresight, and sound judgment. 

Although planning does not guarantee success in achieving organizational objectives, companies with formal planning consistently outperformed those without it or with limited formal planning over time. The success of an organization can rarely be attributed to luck or circumstance alone. Following are a few reasons why planning is considered a vital managerial function:

a. Planning is essential in modern business

  • Modern business activity is becoming increasingly complex as a result of rapid technological advances, constantly evolving consumer preferences, and a growing amount of competition, not only in the current, but also in the future.
  • As planning is a future-oriented process, it takes into account future developments that may occur.

b. Planning affects performance

  • The correlation between organizational success and formal planning has been shown in several studies. These studies measure organizational success by assessing return on investment, sales volume, earnings per share, and so on.
  • Researchers examined firms engaged in formal planning in various industrial sectors such as machinery, steel, oil, chemicals, and drugs and discovered that the companies that were formal planners consistently achieved better results.

c. Planning puts focus on objectives  

  • Formal planning is most effective if the goals are clearly defined. All planning decisions are governed by objectives, and are intended to achieve these objectives.
  • These objectives are continuously reinforced in planning by focusing on them. This ensures that managerial time and skills are utilized efficiently and effectively.

d. Planning anticipates problems and uncertainties 

  • An important element of any formal planning procedure is collecting relevant information in order to forecast the future as accurately as possible. By doing so, haphazard decisions are minimized.
  • By anticipating the future needs of the organization, it is possible to acquire and allocate resources in an optimal way, thus minimizing waste and maximising their utility.

e. Planning is necessary to facilitate control 

  • Analyzing and evaluating actual operations against established standards is an integral part of controlling. Objectives are taken into account in setting such standards. Reviewing operations periodically can help determine whether the plans are being implemented properly. Developing good plans can assist control efforts in two ways.
  • First, planning establishes a system for anticipating deviations from expectation.
  • Second, the planning process contributes quantitative data which can be used as a basis for comparing the actual performance to not only the expectations of the organization but also to industry statistics and market forecasts.

f. Planning helps in the process of decision making 

  • Planning defines the actions and steps that must be taken to accomplish organizational objectives, and thus serves as a basis for making decisions about future activities.
  • The objective, plans, policies, schedules and so on are clearly outlined, so managers can make routine decisions about current activities.

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