A detailed description of a new or existing business, including the company’s product or service, marketing plan, financial statements and projections and management principles, require a plan to be implemented. A document that spells out a company’s expected course of action for a specified period usually includes a detailed listing and analysis of risks and uncertainties. For the small business, it should examine the proposed products, the market, the industry, the management policies, the marketing policies, production needs and financial needs. Frequently, it is used as a prospectus for potential investors and lenders.
Think of it as a production line. What’s go in the start are raw materials and unfinished assemblies. Here, the raw materials include:
-Talent and initiative from employees
-Capital -Market position
-The company’s creditworthiness
-The firm’s earning capacity
-Assessment of changes in the marketplace.
It should have four major aspects:
– Its contribution to purpose and objectives
– Its primacy among the manager’s tasks
– Its pervasiveness
– The efficiency of resulting plans.
The Contribution of Planning to Purpose and Objectives: Every plan and all its supporting plans should contribute to the accomplishment of the purpose and objectives of the enterprise.
The Primacy of Planning Manager must plan in such a way that it leads to proper organizing, staffing, leading and controlling which support the accomplishment of enterprise objectives. Planning and controlling are inseparable. Any attempt to control without a plan is meaningless, since there is no way for people to tell whether they are going where they want to go. Plans thus furnish the standards of control.
The Pervasiveness of Planning: Planning is a function of all managers, which vary with each manager’s authority and with the nature of the policies and plans assigned by superiors. If managers are not allowed to a certain degree of discretion and planning responsibility, they are not truly managers.
The Efficiency of Plans: The effectiveness of plan refers to its contribution to the purpose and objectives. Plan is efficient if it achieves its purpose at a reasonable cost, when cost is measured not only in terms of time or money or production but also in the degree of individual and group satisfaction.
Procedures: Procedures are plans that establish a required method of handling future activities. They are chronological sequences of required actions. They are guides to action rather than to thinking and they detail the exact manner in which certain activities must be accomplished.
Rules: Rules are unlike procedures in that they guide action without specifying a time sequence. In fact, a procedure might be looked upon as a sequence of rules. Rule may be a part of procedure.
Programs: Programs are a complex of goals, policies, procedures, rules, task assignments, steps to be taken, resources to be employed and other elements necessary to carry out a given course of action; further supported by budgets.
Budgets: Budget is a statement of expected results expressed in numerical terms. Financial operating budget is often called a “profit plan”. This budget can be expressed in financial terms, in terms of labor- hours, units of product or machine hours or in any other numerically measurable term.
Steps in Planning: Being aware of opportunities, a manager should take a preliminary look at possible future opportunities and see them clearly and completely know where they stand in light of their strengths and weaknesses, understand what problems they wish to solve, and why and know what they expect to gain. Planning requires a realistic diagnosis of the opportunity situation.
Establishing objectives: This is to be done for the long term as well as for the short term. Objectives specify the expected results and indicate the end points of what is to be done, where the primary emphasis is to be placed and what is to be accomplished by the network of strategies, policies, procedures, rules, budgets and programs. Objectives form a hierarchy.
Developing premises: There are assumptions about the environment in which the plan is to be carried out. It is important for all managers involved in planning to agree on the premises. Forecasting is important in premising: what kind of markets will there be? What volume of sales? What prices? What products? What technical developments? What costs? What wage rates? What tax rates and policies? What new plans? How will expansion be financed? What are the long-term trends? Because the future is so complex, it would not be profitable or realistic to make assumption about every detail of the future environment of a plan.
Determining alternative courses: The more common problem is not finding alternatives but reducing the number of alternatives so that the most promising may be analyzed. The planner must usually make a preliminary examination to discover the most fruitful possibilities.
Evaluating alternative courses: From the various alternatives available proper evaluation should be done which may involve ash flow.
Selecting a course: The best alternative should be selected.
Numbering plans by budgeting Final step is giving them meaning by converting them into budgets. The overall budgets of an enterprise represent the sum total of income and expenses, with resultant profit or surplus and the budgets of major balance sheet items such as cash and capital expenditures.
We have many more Financial Planning Help Articles Now Available.