Planning, the construction of a detailed operating program, is the process of sensing external opportunities and threats, determining desirable objectives, and employing resources to accomplish these objectives. Planning investigates the nature of the company’s business, its major policies, and the timing of major action steps. Effective planning is based on analyses of facts and requires reflective thinking, imagination, and foresight.
Effective planning requires participation and coordination of all parts of the entity.
Planning includes determining company objectives, which are measurable targets or results. In stating the objectives of a business, many people first think of profit. Although profit is indispensable in a successful business, it is only one goal and cannot be the sole objective. The companies best able to maximize profits are those that produce goods or services at an excellent level of quality and value, in a volume, at a time and place, at a cost, and at a price that will win cooperation of employees, gain the goodwill of customers, and meet social responsibilities.
Three kinds of plans are identifiable in business entities. Strategic plans are formulated at the highest levels of management, take the broadest view of the company and its environment, are the least quantifiable, and are formulated at irregular intervals by an essentially unsystematic process that begins with identifying an external threat or opportunity. Strategic planning decisions shape the future nature of the firm, its products, and its customers, and they have the potential to alter the external environment.
Short-range plans, often called budgets, are sufficiently detailed to permit preparation of budgeted financial statements for the entity as of a future date (typically the
end of the budget period). These plans are prepared through a systematized process, are highly quantified, are expressed in financial terms, focus mainly on the organization itself by taking the external environment as a given, and usually are prepared for periods of a month, quarter, or year.