An Introduction to Planning Premises
The anticipated context in which plans are projected to operate is referred to as Planning Premises. They include future assumptions or forecasts, as well as known factors that will influence the path of plans, such as current policies and existing firm plans, which govern the fundamental character of supporting plans.
Let us now know in detail about this important study in this article. We will study the meaning, types, and importance of Planning Premises. First, let us briefly discuss what is ‘Planning’.
Meaning of Planning
The process of conceptualising and specifying an action step by step is known as Planning. This allows you to objectively assess how and when the objectives can be met. As a result, Planning entails determining your intended aim or objective and considering the tasks and activities required to reach that goal. It is a necessary step to take before embarking on any new personal or professional endeavour.
Planning - A Fundamental of Business
Planning is a part of everything that we do or intend to do. We do planning in our everyday life, whether we have to plan for going to a movie or organising a family function. However, the definition of planning takes another level when it comes to business and management. Planning is the fundamental function of management, where one has to decide what to do, when to do it, and how to do it. In planning, you establish goals that are backed by policies and procedures for an economic or social unit.
Planning Linked with Forecasting
Planning is a very specialised procedure. It is an essential tool in a variety of industries, including management, manufacturing, and business. To fulfil its objectives successfully, each field necessitates a distinct form of plan.
The link between Planning and forecasting is a crucial, yet frequently overlooked, part of Planning. Forecasting is to forecast the company's future while taking into account an external element. Planning, on the other hand, forecasts how a company's future should look in numerous circumstances.
An overview of Planning Premises
The Planning process is based on projections about the future. Though the past influences present plans, plans are designed to attain future objectives. As a result, forecasting future events leads to effective Planning. Because future occurrences cannot be predicted with certainty, assumptions are made about them. These occurrences could be known facts (tax law changes announced in the budget) or expected events that may or may not occur (entry of competitors in the same market with the same product).
Planning is a Scientific and Intellectual Process
Though these assumptions are generally based on scientific analysis and models, managers also make assumptions about future occurrences based on their intuition and judgement. The process of identifying the factors (assumptions) that influence plans is known as premising, and the tools for doing so are known as forecasting. Planning is an intellectual process that is designed for the future by making certain assumptions about the future.
Planning premises are the assumptions one makes or the anticipated environment in which our plans are meant to execute. In this article, we will define planning premises and look at what goes into developing premises in planning.
What is Planning Premises?
A planning premise is a set of assumptions that are derived from forecasting the future. It is a logical and systematic estimate of the future factors that can affect planning. Planning premises provide a background against which the estimated events take place. These are the events that affect planning. Establishing planning premises is a critical element in the planning phase, which ensures that all managers in the organisation are in sync with each other. To explain planning premises, let us consider a few examples from business and government planning:
In the budget, there is an announcement of even changes in the tax laws. These are known conditions on which planning is based.
A competitor might enter the same market as yours with the same kind of product. This is an anticipated event; the possibility of that happening is not particular.
Importance of Planning Premises
The premise of planning is the framework on which planning is based. Amid uncertainty surrounding business and management, it is these planning premises that imply not just assumptions about the future but also predictions. They are the bedrock on which managers plan the future course of action. Without proper planning premises, the planning does not have a solid foundation. If panning premises change, the plans need to change as well. Here are the primary reasons for establishing planning premises:
They help in well-organised planning.
The risk of uncertainty is reduced considerably.
There is a reduction in the risk of flexibility.
Managers can do effective coordination.
It also increases profitability.
Types of Planning Premises
Planning premises in management are vital in making important decisions that are based on certain predictions about the future. Managers build the superstructure of planning based on their ability to identify the crucial, strategic, or limiting factors that allow them to select the proper planning premises. Planning premises in business management can be classified based on many factors, as described below:
Internal and External Premises
The premises which exist within the boundaries of the business are internal premises. Some of the internal premises are men, money, material, and methods. Your planning would be based on how competent is your workforce and how much money you have at your disposal.
External premises are derived from the environment that surrounds the business. They are centred around the market like money market, product market, government policies, growth in population, etc.
Tangible and Intangible Premises
Any premise which can be quantitatively measured is a tangible premise. These premises can be quantified in terms of time, money, and units of production.
On the other hand, intangible premises cannot be quantified. Some of the intangible premises are public relations, business reputation, the morale of employees, etc.
Controllable, Semi-Controllable, and Uncontrollable Premises
Those premises which can be controlled by the management to a large extent come under controllable premises. Management has a lot of control over their future commitments when it comes to material, machines, and money.
The business can partially control some premises or assumptions about the future. These fall under semi-controllable premises. Few examples of such planning premises are trade union relations, product demand, etc.
Those premises which can not be controlled by the management of an organisation come under uncontrollable planning premises. Some examples are weather conditions, natural disasters, etc.
Constant and Variable Premises
These premises which do not change irrespective of actions taken are constant premises like men, money, etc. These premises behave similarly under all circumstances.
Based on the course of action taken, some premises change which is termed as Variable premises. These premises cannot be controlled or predicted, for example, the sales volume of a firm, union and management relations, etc.
Establishment of Planning Premises
Developing Planning Premises needs the planners to do realistic forecasting. Determining planning premises involves
Calculating the probability of events.
Analysing changes in consumer behaviour, technology, government policies, etc.
Implementing systematic investigation to develop the basis for planning.
Predicting future events is a complex process; hence, premises must consider limited assumptions that are most critical for the plant. A typical process of developing premises in planning is:
Selecting the Premise - Not all the factors in the environment affect the operations of the business. The management must list down those premises which directly influence the development of organisational plans.
Reviewing Limitations - Several practical factors limit the abilities of an organisation to achieve its goals. Such limitations should be anticipated and provided for. A few examples of such limitations are power, labour, money, and material.
Developing Alternative Premises - Since it is not possible to predict all the factors that can affect organisational planning, managers must develop a set of alternative premises. These premises are established based on separate assumptions of future events. The alternative plans are developed since premises keep changing, some change slowly and some fast.
Verifying Premises - In an organisation, there are different departments and planning happens at different levels as per the judgement of people in that department. All these premises are sent to the top management for their approval. The premises developed by line managers and staff are more consistent with each other than those of the top executives.
Communicating Premises - The premises developed through this process are then supported by budget and various programs. Then the premises are communicated to all those who are part of the planning process at different levels of business. Documents like ETOP (environmental threat and opportunity profile) contain planning premises.
Quick Links
Hope the students have benefitted from this study. We have discussed planning and planning premises in business studies in detail. We have attached other links for the beneficial study, students will surely benefit from the same. Now check out these Frequently Asked Questions in order to have a clear understanding of the topic.
FAQs on Planning Premises: Definition and Types
1. What are planning premises in business management?
Planning premises are the anticipated environment in which business plans are expected to operate. They are a set of systematic assumptions and forecasts about future conditions that can affect a plan's outcome. These premises form the foundation upon which managers build their strategies, ensuring that all planning is based on a shared understanding of future events.
2. What are the main types of planning premises?
Planning premises can be classified in several ways to cover different aspects of the business environment. The primary types are:
- Internal and External Premises: Internal premises originate within the business (e.g., employee skills, capital investment policies, sales forecasts). External premises arise from the outside environment (e.g., economic conditions, technological changes, government policies).
- Controllable, Semi-controllable, and Uncontrollable Premises: These are based on the degree of control management has. Controllable premises include factors like materials and money. Uncontrollable premises include natural disasters or shifts in consumer behaviour.
- Tangible and Intangible Premises: Tangible premises can be quantified in terms of money, time, or units (e.g., production volume). Intangible premises are qualitative and cannot be measured easily (e.g., employee morale, company reputation).
3. Why is establishing planning premises considered a critical step in the planning process?
Establishing planning premises is critical because it provides a solid and logical foundation for all planning activities. Without a common set of assumptions, different managers might create conflicting or uncoordinated plans. Premises help in reducing uncertainty, facilitating effective coordination between departments, and ensuring that all plans are directed towards achieving organisational goals in a consistent manner.
4. How do internal and external planning premises differ in their impact on a company's plans?
The primary difference lies in their origin and the level of management control. Internal premises, such as the company's financial strength or workforce competence, arise from within the organisation and are largely controllable. Plans can be designed to leverage these strengths. In contrast, external premises, like changes in tax laws or competitor actions, are outside the company's control. They require businesses to be adaptive and create flexible plans that can respond to environmental shifts.
5. Can you provide a real-world example of how a tangible and an intangible premise might affect a company's planning?
Certainly. Imagine a tech company planning to launch a new smartphone.
- A tangible premise would be its production capacity—for instance, the assumption that its factory can produce 1 million units in the first quarter. The entire marketing and distribution plan would be based on this quantifiable figure.
- An intangible premise for the same launch would be the company's strong brand reputation for innovation and quality. The marketing team would base its pricing strategy on this assumption, setting a premium price that a lesser-known brand could not justify.
6. What are the consequences for a business if its planning premises are proven incorrect?
If planning premises are proven incorrect, the consequences can be severe as the plans are built on a faulty foundation. This can lead to wasted resources, such as money spent on a marketing campaign for a product whose demand was overestimated. It can also result in missed opportunities, strategic failure, and significant financial losses, forcing the organisation to make costly and urgent changes to its course of action.
7. How does forecasting directly contribute to the creation of reliable planning premises?
Forecasting is the process of using past data and analytical techniques to make systematic predictions about the future. It is the activity that generates the information used to establish planning premises. Essentially, forecasting is the tool, and the planning premise is the output. A thorough and accurate forecast about factors like market demand or raw material costs leads to the creation of reliable and realistic premises, which in turn leads to more effective plans.
8. What are the common limitations managers face when developing planning premises?
Managers face several limitations when developing planning premises, as they are based on an uncertain future. Key limitations include:
- Lack of completely accurate information and historical data.
- The inherent difficulty in predicting the future, especially in a rapidly changing environment.
- The personal biases or lack of skill of the managers involved in the forecasting process.
- The high cost and time required to conduct thorough research and analysis for developing premises.
