Interrelationship Between Management Functions

TYPES OF PLANNING

1. Strategic Planning : Strategic planning is the process of deciding the objectives of the organization and determining the manner in which the resources of the enterprise are to be deployed to realize the objectives in the uncertain environment.

A strategy represents the general direction of the organizational efforts. It is the way in which the management chooses to utilize the organisation resources to reach its objectives. It involves multilateral relationships among the organisation, its resources and the environment. Strategic plans are made by the top management of the firm after taking into account the firm's strengths and weaknesses in the light of internal and external environment.

2. Operational Planning : Operational planning is concerned with the efficient use of the sources already allocated and with the development of a control mechanism to ensure efficient operation so that organisational objectives are achieved. It lays down programmes, budgets, projects, policies, procedures, rules, etc. to implement the strategic plan. In other words, an operational plan (also called tactical planning) involves laying down how the firm's resources of the organisation will be used to help the firm achieve its objectives.

Operational plans provide the details of how the strategic plans will be accomplished. In other words, the details that activate the strategic plan are domain of operational planning. An operational plan is often more specific than a strategic plan.

3. Tactical Planning : Tactical plans are made for short-term moves and maneuvers necessary for supporting the strategic plans and achieving firm's objectives. They are required to meet the challenges of sudden changes in the environmental forces. For instance, tactical plans may be made to handle a sudden fall in the demand of firm's products of unexpected move by a competitor. Tactical planning may also become necessary to secure big orders by changing the price policy, terms of credit and discount, etc. The nature of a tactical plan is dictated by the threats posed by the environment.

Range or Time Span of Planning

1. Long-range Planning. Long-range planning is the process of establishing long-term goals, working out strategies, policies and programmes to achieve these goals. In other words, long-range planning sets long-term goals for the enterprise and formulates strategic plans for attaining these goals. It generally covers a period ranging from 5 years to 20 years or even more. The period will vary from organisation to organisation. It may be five years for a departmental store and at least twenty-five years for a company intending to take up the production of timber. The purpose of long-range planning may include technological leadership, increase in market share, globalization of production and marketing, public image, etc.

Long-range planning may involve capital budgeting, product planning, project planning, acquisition of competing units. It may involve a complete change in outlook of the business. It deals with the broad technological, financial and competitive aspects of the business. Because of this, long-range planning is associated with a great deal of uncertainty. Its success will be determined by the ability of the organisation to predict and deal with the environment.

2. Intermediate or Medium-range Planning. Intermediate plans are made to support the long-term plans. They may relate to development of new products and markets, product publicity, increasing return on investment from the existing products and markets, etc. Medium-term planning usually covers a period of more than one year but less than five years. The length of period may vary from one business to another depending upon the nature of business, risks and uncertainties, government control, changes in technology, nature of market, etc.

3. Short-range Planning. Short-range planning relates to a period of upto one year, generally. Such plans are made to achieve short-term goals. Short-range planning is concerned more with the current or near future operations of the enterprise. It may be considered as a step by step approach to medium and long-range planning. Short-range plans are instrumental in implementing long-term plans. They are quite specific in nature such as change of product design, training of workforce, reduction of inventory levels, preparation of production budget and so on. Short-range planning is generally action-oriented and is the reasonability of lower level managers.

Formal and Informal Planning

Various types of planning discussed above are of formal nature. They are carried on systematically by the management. They specify in black and white the specific goals and the steps to achieve them. They also facilitate the installation of internal control system.  Informal planning, on the other hand, is mere thinking some individuals which may become the basis of formal planning in future.