Planning Process in Commerce: Steps, Types & Practical Applications

Planning is a fundamental function in Commerce and management, forming the basis for all organizational processes. A plan is a predetermined course of action—a blueprint that guides an entity towards achieving its goals efficiently. 

Planning means deciding in advance what to do, how to do it, when to do it, and who will do it. It helps bridge the gap between the current position and the desired outcome by providing direction, purpose, and a structured approach for individuals and teams within an organization.

Understanding planning is vital as it sheds light on why organizations succeed or face challenges, emphasizing the importance of well-thought-out goals and the steps to achieve them.

Characteristics and Importance of Planning

Planning is goal-oriented, arising from the objectives set by management. It is a primary function, being the foundation upon which all other managerial activities rest. All managers, regardless of rank, use planning, making it an all-pervasive activity. The process is a continuous one, requiring regular updates and flexibility as future conditions change.
Critically, planning involves mental effort—using judgment, foresight, and systematic thinking rather than guesswork. It fosters efficiency by minimizing waste of resources and organizing efforts around clearly defined goals. By preparing for uncertainties and anticipating risks, planning reduces the chance of errors and surprises, ensuring the organization remains competitive and innovative.

Key Steps in the Planning Process

The planning process in management is systematic and follows several essential steps. Each step helps in narrowing down broad goals into specific, actionable plans, thus increasing the chances of success and minimizing confusion. The main steps are:

1. Establishing Objectives:
   The first step involves identifying what the organization wants to achieve. Objectives should be clear, specific, and measurable. For example, a business may set a sales target or a school may aim to increase student enrollment.
2. Developing Premises:
   Managers make assumptions about future conditions—such as market demand, economic climate, or regulatory changes—called premises. These assumptions form the basis for making detailed plans.
3. Evaluating Alternatives and Selection:
   After identifying the objectives and considering the premises, managers examine various courses of action. Each alternative is carefully analyzed for its advantages, limitations, and feasibility.
4. Formulating Derivative Plans:
   With the basic plan selected, related or secondary plans (like departmental or individual plans) are created to support the main objective. For example, to launch a new product, marketing, finance, and HR plans must be developed.
5. Securing Cooperation and Participation:
   Success depends heavily on the support of employees. Involving team members in the process increases acceptance and commitment, ensuring better execution.
6. Providing for Follow-up:
   Managers must continually monitor and review plans to ensure relevance and effectiveness. Conditions may change, requiring modifications to the original plan.

Example – Practical Application

Suppose a manufacturing company wants to expand its production. The objective (Step 1) is to increase output by 25%. The premises (Step 2) include assuming market demand will rise and raw material prices will be stable. Alternatives (Step 3) could be expanding the current factory or building a new one. After evaluation, the company selects factory expansion (Step 4). Derivative plans (Step 5) are made for workforce training, machinery procurement, and marketing. All department heads are involved (Step 6), and progress is checked periodically for needed changes (Step 7).

Principles of Planning

• Contribution to Objectives: Every plan should aid in achieving organizational goals.
• Primacy of Planning: Planning comes before any other managerial task.
• Pervasiveness: Applies to all managers, at all levels.
• Flexibility: Plans should adapt to changing situations when required.
• Integration and Periodicity: Plans at different levels must be interconnected for long-term efficiency, with regular reviews.
• Limiting Factor: Constraints like time, money, and resources should be addressed in all plans.

Types of Planning

Planning in management is categorized based on scope and duration. Each type meets specific organizational needs and operates over different timeframes as shown below:

Standing plans are used repeatedly, such as policies and rules, while single-use plans address one-time events, like budgets for a specific project.

Limitations of Planning

Despite its benefits, planning has some limitations. It may create rigidity, discouraging flexibility in the face of unexpected changes. Preparing detailed plans is often costly and time-consuming. If employees are not involved, resistance may develop. Overconfidence in plans can create a false sense of security, and plans made without knowledge of external forces may fail. Sometimes, the complexity of planning or lack of coordination leads to failure. Finally, a focus on existing plans may stifle innovation or prevent prompt response to new opportunities.

Practice Question

Q: A retail company wishes to open new stores in a different city. Explain the steps in the planning process the company should follow and identify one strategic and one operational plan involved in this expansion.

Next Steps and Further Learning

• Strengthen problem-solving skills using Vedantu’s Commerce courses.

In Commerce, mastering the planning process allows you to analyze real-life business cases, make informed decisions, and develop practical skills to manage any organization effectively.