Types of Planning in Management
By understanding the different types of planning in management, organizations can develop a comprehensive approach to achieving their goals and objectives successfully.
There may be several ways in which an organisation can undertake the planning process through the basic steps involved remain the same in each way.
The types of planning classification are not mutually exclusive but iterative. Organizations have the flexibility to conduct strategic and tactical planning using either a proactive or reactive approach and in a formal or informal manner. However, in each set of classifications, the emphasis put on the types of planning processes differs.
The purpose of this post is to provide a comprehensive overview of the five types of planning in management and emphasize their importance. By reading this post, you will gain a deeper understanding of the planning techniques used in management and how they can benefit the managers and the organization.
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List of types of planning in management:
- Coverage of Activities
- Importance of Contents
- Time Period Involved
- Approach Adopted
- Degree of Formalisation
1) Coverage of Activities
i) Corporate Planning
Drucker has defined corporate planning as the continuous process of making present risk-taking decisions systematically and with the greatest knowledge of their futurity; organising systematically the efforts needed to carry out these decisions, and measuring the impacts of these decisions against the expectations through organised and systematic feedback.
ii) Functional Planning
Planning plays a vital role in ensuring the organization functions seamlessly while catering to each department’s requirements. The goal of functional planning is to promote standardised management practices for corporate functions in the department’s decentralised corporate management structure.
2) Importance of Contents
i) Strategic Planning
Strategic planning sets the long-term direction of the organization in which it wants to proceed in future. Strategic planning holds an important role in every organization, as it outlines the decisions that require attention.
ii) Tactical Planning
Tactical planning is short-term planning which usually covers one year or so. Its objective is to maintain the organization’s production and distribution of current products or services to the existing markets.
iii) Operational Planning
Operational planning is an annual work plan. It defines the short-term strategies of the business and specifies the methodology for executing a strategic plan in a designated operational period. An operational plan is a basis for and justifies an annual operating budget request.
3) Time – Period Involved
i) Long-Term Planning
Long-term planning is strategic and involves more than one year extending to twenty years or so. However, the more common long-term period is 3 to 5 years. Long-term business plans are expansive, covering all functional areas, and influenced by both immediate and long-term economic, social, and technological conditions.
ii) Short-Term Planning
Short-term planning, also known as operational or tactical planning, usually covers one year. The objective is to sustain the organization’s production and distribution of a new product or service within its existing markets. These plans directly affect functional groups – marketing, production, finance, etc.
4) Approach Adopted
The categorization of planning into proactive and reactive depends on how organizations respond to environmental dynamics.
i) Proactive Planning
It is based on the anticipation of the future outcomes and state of affairs that would affect the working of the organisation. This type of planning must exhibit a broad-based, highly flexible, and creative nature. The organisation that favours this kind of planning often anticipates the future and takes necessary steps before the occurrence of the events.
ii) Reactive Planning
As indicated by its name, this planning doesn’t revolve around future predictions; it takes action when a problem arises or has already occurred. It encompasses the straightforward execution of corrective action.
5) Degree of Formalisation
i) Formal Planning
Formal planning exists in the formal hierarchy of the organisation and is always carried out in the stepwise process. It is according to the predefined policies and the rules of the organisation. This type of planning is done on a large scale and is based on logical thinking.
ii) Informal Planning
Informal planning is usually carried out in very small organisations where the formal organisation structure may or may not exist. The planning is usually intuitive and short-term.
How the Types of Planning in Management Works
Planning can be broadly classified into three main categories based on the organisational objectives and goals. In the field of management, types of planning generally follow a specific order:
- Strategic planning,
- Tactical planning, and
- Operational planning
The organisation operates in an uncertain business environment, making it susceptible to various threats and opportunities. When an organisation analyses potential threats, assesses competitive opportunities within the environment, and evaluates its strengths and weaknesses to position itself for environmental advantages or to survive adversities, it engages in strategic planning.
Strategic Planning
Strategic planning begins with top management and includes a long-term commitment, often for five or more years. Due to its long-term and highly technical nature, top management is involved in strategic planning. Strategic planning directs the management towards establishing an organisation’s objectives and formulating strategies to achieve them. This type of planning is complex as it encompasses the entire organisation and requires developing goals. Generally, strategic planning is aligned with the organisational vision and mission.
Tactical planning
In contrast, tactical planning is less long-term and is used by middle management, usually spanning one to three years. It focuses on developing the means and HRD mechanism for implementing strategic plans for various organisational departments or teams. In simple terms, tactical planning answers the question of “how to implement” strategic objectives. Since it is primarily about implementation, middle-level managers are involved in the tactical planning.
Operational planning
The third type of planning, operational planning, resembles functional planning, where organisation-wide goals and objectives for each unit or sub-unit are established, and ways to achieve them are determined. Operational planning is short-term, spanning less than one year, and aims to address current operational problems. Planning at this level supports higher-level planning, both tactical and strategic. Operational planning focuses on daily activities and processes required to run a business, such as project scheduling, production runs or arranging logistics. If there are changes to be made after monitoring the progress, they are done at the level of operational planning.
Effective types of planning at all levels of management require a deep understanding of an organizational structure, vision and mission statement, its internal strengths and weaknesses, external market challenges, financial constraints, and available resources.
Exploring Types of Planning Horizons: A Time-Based Classification
The preceding discussion delves into the categorization of planning into three overarching groups. Beyond this, planning can also be systematically classified based on the time frame it encompasses. Within the expansive realm of planning, this classification unfolds into Long-term, Medium-term, and Short-term goals, each serving distinct purposes in organizational strategy.
Long-term Goals: Navigating the Technological Landscape
Long-term plans, characterized by their technical intricacy, direct attention towards the competitive landscape of the organization. These plans involve the allocation of resources for an extended period, typically spanning five to fifteen years. Despite their variance in nature, scope, complexity, and size, long-term goals often harbor a level of vagueness. They are especially susceptible to uncertain events, including technological shifts, changes in consumer behavior, and alterations in government policies. Crafting a resilient long-term plan demands focused attention from top management.
Medium-term Plans: Operational Precision in a Two-to-Five Year Horizon
In contrast, medium-term plans emerge as relatively detailed and specific, usually spanning a period of two to five years. These operational plans play a vital role in decision-making, encompassing aspects such as raw material procurement, overhead expenses, labor wages, and production. While the significance of these decisions is indisputable, any planning flaws can be rectified within a two to three-year timeframe, mitigating the risk of severe failure.
Short-term Plans: Navigating Daily Operations with Precision
Short-term plans, covering approximately a year or so, exhibit a higher level of specificity and pertain to day-to-day operations. Activities like inventory management and employee training fall under the purview of short-term planning, providing organizations with the agility needed to adapt swiftly to changing circumstances.
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