Learn and Understand, Explain are What is the Importance of Planning in Management?


While planning does not guarantee success in organizational objectives, there is evidence that companies that engaged in formal planning consistently performed better than those with none or limited formal planning and improved their own performance over a period of time. It is very rare for an organization to succeed solely by luck or circumstances. Also learn, Vision Statement, What is the Importance of Planning in Management?

Some of the reasons as to why planning is considering a vital managerial function are given below:

Planning is essential in modern business:

The growing complexity of the modern business with rapid technological changes, dynamic changes in the consumer preferences and growing tough competition necessities orderly operations, not only in the current environment but also in the future environment. Since planning takes a future outlook, it takes into account the possible future developments.

Planning affects performance:

A number of empirical studies provide evidence of organizational success being a function of formal planning, the success is measuring by such factors as return on investment, sales volume, and growth in earnings per share and so on. An investigation of firms in various industrial products as machinery, steel, oil, chemicals, and drugs revealed that companies that engaged in formal planning consistently performed better than those with no formal planning.

Planning puts focus on objectives:

The effectiveness of formal planning is primarily based on clarity of objectives. Objectives provide a direction and all planning decisions are directing towards the achievement of these objectives. Plans continuously reinforce the importance of these objectives by focusing on them. This ensures maximum utility of managerial time and efforts.

Planning anticipates problems and uncertainties:

A significant aspect of any formal planning process in the collection of relevant information for the purpose of forecasting the future as accurately as possible. This would minimize the chances of haphazard decisions. Since the future needs of the organization are anticipating in advance, the proper acquisition and allocation of resources can plan, thus minimizing wastage and ensuring the optimal utility of these resources.

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Planning is necessary to facilitate control:

Controlling involves the continual analysis and measurement of actual operations against the established standards. These standards are set in the light of objectives to by achieve. Periodic reviews of operations can determine whether the plans are being implemented correctly. Well-developed plans can aid the process of control in two ways.

First, the planning process establishes a system of advance warning of possible deviations from the expected performance.  The second contribution of planning to the control process is that it provides quantitative data which would make it easier to compare the actual performance in quantitative terms, not only with the expectations of the organization but also with the industry statistics or market forecasts.

Planning helps in the process of decision making:

Since planning specifies the actions and steps to take in order to accomplish organizational objectives, it serves as a basis for decision-making about future activities. It also helps managers to make routine decisions about current activities since the objectives, plans, policies, schedules and so on are clearly laying down.

Importance of planning in management is!

Planning is the first and most important function of management. It is needed at every level of management. In the absence of planning all the business activities of the organization will become meaningless. The importance of planning has increased all the more in view of the increasing size of organizations and their complexities.

Planning has again gained importance because of uncertain and constantly changing business environment. In the absence of planning, it may not be impossible but certainly difficult to guess the uncertain events of future.

The following facts show the advantages of planning and its importance for a business organization:

(1) Planning Provides Direction:

Under the process of planning the objectives of the organization are defining in simple and clear words. The obvious outcome of this is that all the employees get a direction and all their efforts are focusing towards a particular end. In this way, planning has an important role in the attainment of the objectives of the organization.

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For example, suppose a company fixes a sales target under the process of planning. Now all the departments, e.g., purchase, personnel, finance, etc., will decide their objectives in view of the sales target.

In this way, the attention of all the managers will get focusing on the attainment of their objectives. This will make the achievement of sales target a certainty. Thus, in the absence of objectives, an organization gets disable and the objectives are laying down under planning.

(2) Planning Reduces Risks of Uncertainty:

Planning is always done for future and future is uncertain. With the help of planning, possible changes in future are anticipating and various activities are planning in the best possible way. In this way, the risk of future uncertainties can minimize.

For example, in order to fix a sales target, a survey can undertake to find out the number of new companies likely to enter the market. By keeping these facts in mind and planning the future activities, the possible difficulties can avoid.

(3) Planning Reduces Overlapping and Wasteful Activities:

Under planning, future activities are planning in order to achieve objectives. Consequently, the problems of when, where, what and why are almost deciding. This puts an end to disorder and suspicion. In such a situation coordination is establishing among different activities and departments. It puts an end to overlapping and wasteful activities.

Consequently, wastages move towards nil, efficiency increases and costs get to the lowest level. For example, if it is deciding that a particular amount of money will require in a particular month, the finance manager will arrange for it in time.

In the absence of this information, the amount of money can be more or less than the requirement in that particular month. Both these situations are undesirable. In case, the money is less than the requirement, the work will not complete and in case it is more than the requirement, the amount will remain unused and thus cause a loss of interest.

(4) Planning Promotes Innovative Ideas:

It is clear that planning selects the best alternative out of the many available. All these alternatives do not come to the manager on their own, but they have to discover. While making such an effort of discovery, many new ideas emerge and they are studying intensively in order to determine the best out of them.

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In this way, planning imparts a real power of thinking in the managers. It leads to the birth of innovative and creative ideas. For example, a company wants to expand its business. This idea leads to the beginning of the planning activity in the mind of the manager. He will think like this:

  • Should some other varieties of the existing products manufacture?
  • ……Retail sales undertake along with the wholesales?
  • ……Some branch open somewhere else for the existing or old product?
  • ……Some new product launch?

In this way, many new ideas will emerge one after the other. By doing so, he will become habituated to them. He will always be thinking about doing something new and creative. Thus, it is a happy situation for a company which is born through the medium of planning.

(5) Planning Facilitates Decision Making:

Decision making means the process of making decisions. Under it, a variety of alternatives are discovering and the best alternative is chosen. The planning sets the target for decision making. It also lays down the criteria for evaluating courses of action. In this way, planning facilitates decision making.

(6) Planning Establishes Standards for Controlling:

By determining the objectives of the organization through planning all the people working in the organization and all the departments are informing about ‘when’, ‘what’ and ‘how’ to do things.

Standards are laying down in their work, time and cost, etc. Under control, at the time of completing the work, the actual work done is comparing with the standard work and deviations are found out and if the work has not been done as desire the person concern is held responsible.

For example, a laborer is to do 10 units of work in a day (it is a matter of planning), but actually he completes 8 units. Thus there is a negative deviation of 2 units. For this, he is held responsible. (Measurement of actual work, knowledge of deviation and holding the laborer responsible falls under controlling.) Thus, in the absence of planning control is not possible.

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