Planning is the core of management. Planning involves utilising current resources and determining their future use to achieve the company's objectives. It is defined as making decisions about future actions using a manager's intellect, foresight, and sound judgment. Planning for the future involves forecasting a company's future revenue, expenses, profit, capital, and debt.
There are daily, weekly, annual, and long-term plans. Without planning it will be difficult for a company to be ready for opportunities and threats in the business environment. Let us discuss the 7 importance of planning:
1. The core function of management
This is the main character of planning. It is the primary function of management. Planning precedes other functions like organising, directing, and controlling. Without it, all the other management functions are useless. Managers have to plan the resources, the project, and set the goal before other functions can follow. This makes planning a core management process.
2. Ensures uniformity
Planning is done by all levels of management. Plans at other levels of management must be aligned with the plans at the top. For example, the annual budget should have the same purpose as the forecast.
3. Involves using your intellect
Planning involves using your intellect. In the definition above, we state that it includes foresight and sound judgment of events that may occur in the future. Intellectual skills such as design and conceptual skills, are required when creating a plan. These skills are not learned in schools but are developed over time. They aid understanding of the future during planning sections.
4. It is about achieving goals
Another characteristic is that the planning process involves achieving the organisation's goals and objectives. That is, managers cannot plan if there are no goals to attain. The plans are aligned with the set goals and objectives.
For example, if the entity's goal is to increase the current dividend to 7% in three years, it plans how to increase profit after tax by more than 7%
5. Planning involves forecasting
There is no planning without forecasting and a budget. Forecasting is the quantitative way of writing down a long-term plan. Although forecasts can be done for a particular project, they can also be used for the overall company plan.
6. Decision-making follows planning
While planning, managers will have to make a decision among alternative courses of action. We can say that decision-making follows planning. In the management function, decision-making is not included. The reason is that it occurs during plans. This makes it a peculiar feature of planning.
7. It is a continuous process
Planning is continuous. A plan from last year is required to decide on this year's planning process. And the following year will require input from the plans in the current year. We can explain this with incremental budgeting.
Incremental budgeting involves planning the year's budget with information from the previous year. The manager will simply add new data and use an agreed percentage to increase last year's budget.
Zero-based budgeting also involves a continuous process. Although, the managers will prepare the budget as if there were no previous one. There is no gainsaying that the input from the previous budget will be required.