Archive for the ‘Business Planning Factors’ Category
Though the top management formulates the business plans, sometimes they fall in producing results due to the uncertainties in the implementation stage.
The limitations of the business planning include:
i) Implementation of the strategic plan should be pre-planned and based on detailed action. Many times managements fail to monitor the implementation process.
ii) Some managers are reluctant to formulate objectives for their departments or jobs.
iii) Managers are sometimes afraid of failure, to achieve business plans.
iv) Managers fail to integrate the plans of their departments or jobs with the organizational/company plans.
v) Some managers do not have required skills to understand and analyze the external environment
vi) Forecasting often becomes misleading due to wrong premises.
vii) Mangers due to their deficient and inherent nature, fail to plan efficiently.
viii) The uncertainties in the environment, makes the business plan in efficient.
ix) Inter-group conflicts: Inter group conflicts and inter-departmental conflicts are the other important limitations of business plan. These limitations are also due to
. Lack of understanding about the objectives of the firm
. Lack of constructive approach to objectives
. Different values and personalities of individual managers
. Competition for scarce resources.
. Built-in conflict between a young manager and an experienced manager.
There is a gap between the objectives those are sought and those realizable to be analyzed with a view to bridging it. Bridging the gap is essential in order to achieve the pre-determined objectives. The following are the measures to analyze and bridge the gap.
. Identifying the products and markets which fit into the existing technologies and production processes and thus developing them at a faster rate. Also, development of products which are already planned.
. Increase the sales volume: Increase the volume of sales by introducing new features to the existing products, developing new users to the existing products, finding new customers and markets, changing the price, improvements in distribution, sales promotion, expansion of production capacities, etc.,
. Increase profit on sales: Increase in profit on sales is possible through increasing the selling price, reduction in cost of production per unit, marketing cost per unit, reduction in inventory increase in productivity etc.,
. Minimize assets through better turnover of inventory: Identify excess inventory in all items and reduce it to the extent possible. Inventory of new material can be reduced to the extent of closer to production or just in time level.
. Value analysis: Value analysis involves a consideration of cost reduction without reduction in the value of the product to the customer. Use of low cost raw material, change in design, and more productive equipment are the ways of doing it.
. Reducing the Fat: This involves reduction of unnecessary, available and controllable costs. These are labor costs, general wastage, non-performing assets, etc.
The management has to evaluate the available courses of action through SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) and rank the alternatives. After ranking the alternatives, the management has to select the best business plans.
Developing Derivative Plans: The management after selecting the best business plan, it should formulate the other policies and plans which are the sub plans to the main plan. Management should involve and consult the lower level managers while formulating the derivative plans.
Implementation of the Business Plans: After the development and selection of the plans and derivative plans, management has to take initiative to implement the business plan.
Measuring and controlling: After the business plan is put into action, the management has to measure the progress of the plan and compare it with the standards, observe the deviations, if any and correct the deviations.
Deciding the planning period: After formulating planning premises and long term goals, the manager have to decide the length of business plan period. The plan of the period should be based on the nature of the business, the vision and mission of the company. Other factors which influence the planning period are lead time in the development of a new idea business/product, time required to get back the original investment and length of commitments already made.
Finding alternative courses of action: after formulating the business plans, the top level management should find out the alternative courses of actions available in order to accomplish the company’s mission. For example, availability of alternative technologies, alternative sources of capital, highly skilled employees abroad etc.
The premises which can be quantifiable are called tangible premises. The tangible premises include population growth, product demand, past sales, capital invested and the like. The intangible premises are those which cannot be measured quantitatively. These premises include political factors, social factors, technological factors, natural factors, etc. Some factors are controllable and some are uncontrollable. Business plans are to be modified and sometimes reformulated due to the presence of and interaction of uncontrollable premises. Uncontrollable premises include strikes, lockouts, wars natural calamities, emergency situations etc. Controllable premises include company’s labor policy, investment policy, advertising policy, level of technology competency of managerial personnel, quality of human resources, availability of financial resources etc.
Internal Premises include sales forecasts, policies and programs of the organization, capital investment, managerial competency, human resource skills, and other organizational resources. External premises include general business and economic environment, technological changes, government policies and regulations, population growth, political stability, and social factors. Management would identify the objectives to be achieved or where should we go? Where are we? The gap between these two as gap analysis. Many companies have used gap analysis by setting the objectives and identifying the gap between them and the prospective growth of the present. The firms should achieve high performance in orders to fill the gap.
Business planning plays significant role in the corporate governance. The significant role played by the business planning can be attributed to the benefits which can be derived. The main reasons for the increasing importance of business planning are the increasing rate of technological changes witnessed significant growth particularly in recent days. The revolution in the information technology, enterprise resource planning, business process re-engineering, e-commerce, paperless office, online marketing, and the link, brought phenomenal developments in the operations of business. Globalization policies announced by various countries resulted in severe competition, which in turn led to heavy spending. This, in turn, brought strides in technology. Technology upgrades, in turn, accelerated the growth rate of business and economy. The long term business plan orientation from the corporate world’s angle is clearly evident through the changed view of the business firms. Business firms were concentrating on the short-run profits in the past. But, they are busily engaged in building relationship business which can be produce long-run results.
The systematic business planning helps the business to derive its advantages and get benefits out of them. The benefits of business planning include
. Business Planning helps the company to formulate objectives and goals clearly. The company formulates objectives after discussing thoroughly with superiors, colleagues and sub-ordinates. These objectives help the company to achieve stability of business and maximize profits.
. Business planning helps to avoid piece-meal approach and to have integrative approach.
. Business planning helps to view the organization in total rather than department wise
. Business plan aims at the long range plan rather than short-range plan
. Business plan integrates the company plan with the national plans and priorities
. Business plan takes in to consideration the environmental factors. Technological factors influence the business plan significantly.
Technology has been upgraded continuously. The changes in technology are pivotal, resulting in high technology.
. Liberalization, privatization and globalization not only brought significant changes in the economy, but they have intensified the competition. This resulted in tough competition between domestic and foreign companies.
. Business plan help the company to anticipate the political changes and developments in the national and international scenarios and their possible impact on the business
. Effective business plan helps the company to achieve its objectives and goals
. Effective business plan certainly contribute for the achievement of high rate of profits and increases in earnings per share
. Business Plan helps to determine potential growth and profit
Business Planning involves more than one strategy. The strategies relating to different functional areas are involved in business planning. An activity rather than a form of organization is at the core of business planning. Business planning provides a means to deal explicitly and systematically with matters of fundamental importance.
Business planning is the process of selecting an organization’s goals determining the policies and strategic programs necessary to achieve specific objectives en-route to the goals and establishing the methods necessary to assure that the policies and strategic programs are achieved. Thus business planning derived from strategic planning and strategy.
Business planning is different from implementation planning and it is not only planning activity of an organization however, it is one in which the top management’s role is most critical. Planning at lower levels is called operational planning. It focuses on present operations and its prime concern is efficiency rather than effectiveness.
In the sense that strategic planning provides guidance and boundaries for operational management. Effective management must have a strategy and must operate on the day-to-day level to achieve go
Business planning has become a very important part of the top management function due to the influence of external environmental factors and systems approach to the business management. Business planning is strategic planning because it is concerned mainly with the designing of business. Long range business planning is a systematic approach to decision making about issues which are fundamental and of crucial importance to its continuing long term effectiveness. Long range strategy is designed to provide information about an organization’s vision, mission, purpose, direction and objectives. Implementation planning, in contrast to business planning, explains the details of the policies and procedures, which are required to accomplish the strategies of firm. These plans produce immediate and tangible results in relatively shorter period. However, the business planning is concerned with the direction in which the company should move. The implementation of the plan for the subsequent period and the alternatives which are to be sacrificed, if the plan is accepted and implemented.