Planning consists in the development of plans. It involves intellectual activity and determines what, when, and how things should be done, what actions should be taken, who is responsible for them, and why these actions are necessary. Planning consists in choosing appropriate alternatives, and the higher the level of the organization, the longer the planning horizon usually tends to be. Planning can be defined as the process of choosing the direction in which the organization will move and the methods and means that must be used to achieve its ultimate goal.
Planning is the function of selecting the goals of an enterprise, its policies, programs, and the procedures for achieving them. Planning is, without any doubt, a decision-making process, since it involves choosing among alternatives. Planning encompasses both forecasting the characteristics of the environment in which the organization will operate and making decisions about where and how it will act.
It does not follow from this, however, that every decision constitutes planning. Decisions oriented toward choosing effective ways to achieve established goals are better regarded as part of the executive function of management. In the planning process, current decisions necessarily affect the future. This applies, above all, to the allocation of resources and to the organization's strategy.
Long-range planning is more than simply planning for the long term; it is a process of continuous planning whose broad scope reflects a new way of thinking about the future, a new mode of entrepreneurial and industrial life. As a force ensuring the coordinated effort of people, their functions, activity outcomes, and external factors of the organization, long-range planning develops on the basis of management science, practice, and general philosophy. Long-range planning is something greater than forecasting commercial activity by identifying trends and directions of development. It goes further and directly helps the management apparatus exploit favorable future opportunities, minimize damage from unfavorable trends, and ensure the achievement of the organization's goals.
As a result of the long-range planning system's operation, a hierarchical set of plans must be created that describes the enterprise's behavior under projected conditions. These plans must possess the following three important characteristics:
- a forward-looking orientation, the degree of which depends on the functional area and organizational level at which the plan is formulated;
- an assessment of the organization's elements according to their role and tasks in implementing the overall plan;
- the personal involvement of the organization's key leaders.
Each level of the plan is constructed on the basis of the requirements of the level above it and elaborates on that portion of the plan, focusing attention on specific types of activity linked by a common goal. The system of plans covers all time periods and enables planning at all levels of the organization and in all functional areas of its activity, from research to administrative management.
In essence, long-range planning serves the purpose of systems analysis, since analysis can also be applied to particular decisions and a problem can be solved without linking it to the overall plan for the future. Thus, although strategic decisions and their analysis are an obligatory part of long-range planning, they are not synonymous with it.
Strategic plan. The strategic plan of an organization is the apex of all its plans. It defines the most general goals and strategy of the firm, both at present and in the future. It provides answers to such questions as:
- what are the overall objectives and role of the organization?
- what strategy is needed for the transition from the current state to a competitive position in the future?
- how realistic does the overall strategy of the organization appear against the backdrop of other plans developed within the organization?
- what position would this organization like to occupy within the structure of a more complex system (social, economic, political) of which it is a part?
The importance of the strategic plan lies in the fact that it provides initial benchmarks for planning decisions at all levels of the organization. The strategic plan is a general document that establishes the compatibility of project plans with other plans of the organization.
Development plan. The next level of planning is the corporate development plan, which covers all activities related to the introduction of new products or services. At the same time, this plan outlines in greater detail the path by which the organization will achieve the future position defined in the strategic plan. The corporate development plan addresses the following questions:
- what is the expected demand for our products or services? What is expected of our organization at this stage of the future?
- what favorable conditions must be created within the organization that would make it possible to identify and define new products and new markets?
- what methods can be used to identify unprofitable investments and products and unjustifiably risky ventures?
- what resource requirements will the new products or services impose?
The corporate development plan serves as a guide for the three plans at the next level.
The product discontinuation plan deals with curtailing the operation and liquidating individual elements of the organization. These elements may be products, services, or fixed assets of the enterprise (organization).
The diversification plan contains measures for the production of new products and services and the development of markets intended to replace the current generation of products. It identifies new areas of production and defines the path toward their development — merger with another organization or the conduct of research and development within the organization itself, building on its own capabilities and experience.
The research and development plan defines activities for creating new products and identifying processes that meet existing demand for these products, or new markets for currently manufactured products or existing processes. In accordance with this plan, the organization conducts fundamental and applied research aimed at raising the level of knowledge and expertise in the given area. This plan, one way or another, affects all elements of the organization, including products, sales, finance, and administrative management.
The operational plan, which is one of two plans ensuring the implementation of the strategic plan, defines the framework of the organization's current activities. It directs actions regarding the placement of currently produced products and services within the existing market. The operational plan is developed separately for each functional area (production, sales, finance, administrative management) and serves as an integral part of the project plans pertaining to the area in question.
The operational plan determines the total volume of work; in a given specific area, it allows the work to be subdivided into logical operations, their sequence to be determined, resources to be allocated, and a scheme for the distribution of authority and responsibility among the principal performers of the work to be established. On the basis of these same plans, general work schedules and budgets are developed. In part, these plans are cyclical — where they deal with the establishment of new enterprises, with organizational activities, and with day-to-day procedures.
Project plan. Project plans include specific projects within other plans. For example, the corporate development plan is supported by a series of special plans for implementing the corporate development plan, covering the details of individual actions. Project plans are the basic building blocks from which the planning system is constructed. By their nature, these plans may be short-term, medium-term, or long-term. They are distinguished by the fact that they are associated with a clearly defined set of work items specified by cost, deadlines, and technical results. Project plans are found at all levels of the organization. Thanks to their specific orientation, they are very useful for monitoring work results.
The project plan must provide a detailed description of the processes of product development and implementation. Project work management cuts across the lines of functional management, and therefore the existence of a specific work plan is an essential condition for success, since the people and organizations participating in the project may have competing or conflicting goals.
It provides answers to the following questions about the project:
- why is this work necessary?
- what actions should be taken?
- what resources are needed to support the actions?
- what is the result of the actions?
- when is the result of these actions expected?
- what goals and conditions must the actions satisfy?