Four stages have been identified as the usual path that business appear to pass through on their way to sophisticated planning. It is possible for some businesses to jump some of the stages. Various businesses can be found in any of stages today. Historically,however,the stages identified below are the path that business have passed through.
1) Unplanned Stage: At this stage of business, the focus of its managers are how to get the business well established such that it's life would not be terminated by lack of funds,customer,equipment and materials. Managers may be busy with these several ingredients that they do not have time for formal planning. Consequently,there has no planning staff and the company has little or no time for planning.
2) Budgeting System Stage: Management feels that it is too bad not to have time for planning at all. It recognises the need to develop and install a budgeting system to facilitate orderly financing of company growth. It plans the estimated sales for the coming year and the probable cost,cash flows,personal requirements and production schedule. Departmental and divisional heads are asked to submit a budget of their respective departments,detailing out the expected expenditures and revenues for one year. Managers at this stage do not know plans per say; they limit their work to budget preparation. Budget are not business plans.
3) Annual Planning Stage; Management recognises the limitation of budgets in envisaging what would happen in the organisation and deciding a step of action to help the company. Management then turns to planning. There are three options to management to adopt in its task planning.
I) Top Down Planning; This is the type of planning where top management set goals and plans for all the lower level of management. It's underlining assumption is that the top level managers know better than the lower level managers. It is also assumed that employees dislike work and responsibility and would prefer to be directed.
II) Bottom Up Planning: This is the type of planning where the lower level manager prepare their own goal and plans and send to the top manager for approval. It's underlining idea of the company's task because they executive the assumption is that the low level managers have a better day to day operations of the firm. It is also assumed that employees like work and responsibility and are more creative and commuted if they participate in the planning and running of the enterprise.
III) Goals Down plans Up Planning: This is a type of planning where by top management take a broad look at the company's opportunities and requirements and set corporate gaol for the year. So the gaols are communicated down from the top management to the low level management. The low level management develops a plan based on the gaols and send up to the top management for approval. When approved,the plan becomes the official annual plan. This type of plan receives input from both top and low level management. Each unit is committed to thus this plan because every body is involved.
4) Strategic Planning Stage: Not fully satisfied with annul planning, management takes a further step in it's planning development to institutionalise a formal and systematic planning that takes on several elaborations with a view to improving the overall planning effectiveness. Management extends its short range plans to intermediate and long rang plans. Strategic planning is a long range planning,covering 5 to 10 years andand above. The long range plans are worked into a rolling planning which is yearly revised and received from time to time.
