planning, kinds of planning

Introduction

Planning is the process of thinking about and organizing the activities required to achieve a desired goal (also called forethought). It involves the creation and maintenance of a plan, such as psychological aspects that require conceptual skills. There are even a couple of tests to measure someone’s capability of planning well. As such, planning is a fundamental property of intelligent behavior.

Types of Planning: There are various types of planning which are discussed below.

1.    Planning by Direction and Planning by Inducement:

•      Planning by Direction

          Planning by direction is an integral part of a socialist society like that of the Soviet Union. It entails complete absence of laissez-faire. There is one central authority which plans, directs, and orders the execution of the plan in accordance with pre-determined targets and priorities. Such planning is comprehensive and encompasses the entire economy. As Lange has stated “With regard to the socialist sector the national plan represents a binding directive. The targets of the national plan and its financial provision represent order to be carried out of the various ministries and the enterprises subject to him. They are duty bound to carry out the directives of the plan.”The state holds the “commanding post” in its hands by taking over the entire private industrial and agricultural sectors, and banking and transport. “Without such concentration the State would lack the means to carry out the task of the plan. Provision in the plan would be mere “pious wishes” without any guarantee of realization attached to them”.

It’s Drawbacks

But planning by direction has got some drawbacks.

First, Planning by direction is associated with a bureaucratic and totalitarian regime. There is complete absence of consumer’s sovereignty. People are not allowed to spend and consume according to their choice. Even the right to choose one occupation does not exist.

Secondly, Planning by direction is always unsatisfactory because the present economic system is exceedingly complex. In order to increase the output of a commodity, planning require the increase the output of all complementariness or a reduction in the output of substitutes.

Thirdly, Planning by direction is always inflexible. Once a plan has been drawn, it becomes possible to revise any part of it, necessitated by circumstances. For, it is extremely difficult task to alter a part of the plan without altering the whole of it.

Fourthly, as a corollary to the above, as the plan proceeds the fulfillment of targets under planning by direction becomes a difficult task. The more one tries to overcome the difficulties of planning by direction, the more costly the fulfillment of targets become in terms of resources.

Fifthly, planning by directions develops what Lewis calls the ‘‘tendency of procrustean.’’   It’s leads to excessive standardization because it makes production process easy. A standardized product is manufactured without any varieties.

Lastly, planning by direction is costly affair. It requires an army of clerks, statisticians, economists, and other trained personnel. Large funds are spending on conducting innumerable surveys and censuses. 

Planning by inducement:

Planning by inducement is democratic planning. It means planning by manipulating the market. There is no compulsion but persuasion. There is freedom of enterprise, freedom of consumption and freedom of production. But these freedoms are subject to state control and regulation. People are induced to act in a certain way through various monetary and fiscal measures. If the planning authority wishes to encourage the production of commodity, it can give the subsidy to the firms. And if it finds scarcity of goods in the market, it can introduce price control and rationing. In order to increase the rate of capital formation, the planning authority can then undertake public investment and encourage private investment. Its Difficulties: There are some demerits of planning by inducement as follows. 1. It is maintained that the incentives offered may not be adequate for the producers and consumers to act the way the state desires them to behave. It may upset the government plans. 2. since the actual working of the plan is left to the market forces. surpluses or shortages are bound to arise. Proper adjustment between demand and supply is difficult to achieve. 3. Similarly, monetary and fiscal measures alone are inadequate to induce planned development of the economy by raising the rate of capital formation.

2.    Physical and Financial Planning;

Ø Financial planning

Finance is the main key to economic planning. If sufficient finances are available, it is not to achieve physical target. But without the stipulated financial resources it is not possible to carry the plan to its successful culmination. Financial planning is essential in order to remove maladjustments between supplies and demand and for calculating cost and benefit of the various projects. In the case of financial planning ‘’ the outlay is fixed in terms of money and the estimate are made on the basis of various hypothesis regarding the growth of the national income, consumption , import etc. to this outlay by taxation savings and the increase in the cash holding”. This consist in establishing an equilibrium between the incomes of the population –wages , income of the peasant and others – and the amount of consumer goods which will be available to the population .Further it  must be establish equilibrium between that part of income of the population which will be used for private investment and the amount of investment goods made available to private investors .Finally in the public sectors  a balance must be established between the financial funds made available for investment purposes and the amount of investment goods  which will be  produced or imported. In addition to these balances of foreign payment and receipt .Financial planning is thus thought to secure   a balance between demand and supplies, avoid inflation and bring about stability. 

Its limitation;

First, measure to mobilize financial resources through taxation may adversely affect the propensity to save.

Secondly, in an underdeveloped country there is a vast subsistence non monetized sector and a small organized money sector .thus there is bound to be an imbalance between the sectors. This will lead to a shortage in supplies and to an inflationary rise in price .as a result physical target are likely to be upset.Thirdly. It is possible that supplies can be increased through import, but they lead to balance of payment difficulties from which underdeveloped countries already suffer.Fourthly, to be successful financial planning must be free from all bottlenecks .specially inflationary rise in prices. It is more appropriate to use it in sectorial planning rather than to overall planning.Lastly financial planning is unsuited to an underdeveloped economy where this ‘means not merely loss of potential income but also a threat to the character of balanced social development because it result in an insufficient provision of employment at average wages relative to the increase in the population and thus increases inequality between those who are privileged to obtain employment and those whose needs both for work and income necessarily remain unmet.

•     Physical Planning:

Physical planning is concerned with physical allocation of resources on the one side, while with the product yields on the other side.  Its aim is to bring physical balance in between investment and output.  Accordingly, investment coefficients are computed.  These coefficients show how much amount of investment will be required for a given amount of output.  Moreover, in such planning it is also analysed that what will be the composition of investment to obtain an increase in output.  As, how much iron, how much coal, oil and electricity will be required to produce some specific amount of steel.  While making physical planning, an overall assessment is made regarding the real resources of the economy like raw material and manpower.

 In financial planning, equilibrium is established between demand and supply to avoid inflation and bring economic stability.  The difference between physical planning and financial planning is that the physical planning tells us the size of investment in terms of real resources, whereas the financial planning tells us the size of investment in terms of money.  In financial planning, the planner determines how much money will have to be invested in order to achieve the pre-determined objectives.  Total outlay is fixed in terms of money on the basis of growth rate to be achieved, the various targets of production, estimates of the required quantity of consumer goods and the various social services, expenditure on the necessary infra-structure, etc. as well as revenue from taxations, borrowings and savings.

 Finally, we can say planning is the first and foremost function of management planning is deciding in advance what to do, when to do, how to do and who is to do intuit is in essence the exercise of foresight. The nature of planning may be understood in terms of it being a rational approach, open system, flexibility and pervasiveness. Planning can be classified on the basis of coverage of activities, importance of contents in planning, approach adopted in planning process, time dimension and degree of formalization and so on. Different types of planning solve different types of problem.

3.    Perspective Planning and Annual Planning:

•       Perspective Planning:

Perspective planning refers to long-term planning in which long range targets are set in advance for a period of 15, 20, or 25 years. A perspective plan, however, does not imply one plan for the entire period of 15 or 20 years. In reality, the broader objectives and targets are to be achieved within the specified period of time by dividing the perspective plan into several short-period plans of 4, 5 or 6 years

•     Annual Planning: Not only this, a five year plan is further broken up into annual plans so that each annual plan fits into the broad framework of the five-year plan. Plans of either kind are further divided into regional and sectoral plans. Regional plans pertain to regions, districts and localities and sectoral plans pertain to plans for agriculture, industry, foreign trade etc.

4.    Indicative Planning and Imperative Planning: This is the French system of planning which is based on the principle of decentralization in the operation and execution of the national plans.

•    Indicative Planning:  In indicative planning the private sector is neither rigidly controlled nor directed to fulfill the targets and priorities of the plan. Even then, the private sector is expected to fulfill the targets for the success of the plan. The state provides all types of facilities to the private sector but does not direct it, rather indicates the areas in which it can help in implementing the plan.
•   Imperative Planning: On the other hand, under imperative planning all economic activities and resources of the economy operate under the direction of the state. There is complete control over the factors of production by the state. The entire resources of the country are used to the maximum in order to fulfill the targets of the plan. There is no consumers’ sovereignty in such planning. What and how much to produce – such decisions are taken by the managers of firms and factories on the direction of the planning commission or a central planning authority? Since the government policies and decisions are rigid, they cannot be changed easily

5.    Democratic Planning and Totalitarian Planning:

•   Democratic Planning: In democratic planning, the philosophy of democratic government is accepted as the ideological basis. People are associated at every step in the formulation and implementation of the plan. Cooperation of different agencies, and voluntary groups, and associations plays a major role in the execution of the plan. Democratic planning respects the institution of private property. Price mechanism is allowed to play its due role. The government only seeks to influence economic and investment decisions in the private sector through fiscal and monetary measures. The private sector operates side by side with the public sector. Democratic planning aims at the removal of inequalities of income and wealth through peaceful means by taxation and government spending on social welfare and social security schemes. Individual freedom prevails and people enjoy social, economic and political freedoms.
•     Totalitarian Planning: In totalitarian or authoritarian planning there is central control and direction of all economic activity in accordance with a single plan. There is planning by direction where consumption, production, exchange, and distribution are all controlled by the state. In totalitarian planning, the planning authority is the supreme body. It decides about the targets, schemes, allocations, methods and procedures of implementation of the plan. There is absolutely no opposition to the plan. People have to accept and rigidly implement the plan.

6.    Rolling and Fixed Plans:

•   Rolling planning: 

In a rolling plan, every year three new plans are made and acted upon. First there is a plan for the current year which includes the annual budget and the foreign exchange budget.

Second, there is a plan for a number of years, say three, four or five. it is changed every year in keeping with the requirements of the economy .it contains targets and techniques to be followed during the plan period ,along with price relationship and price policies.

Third, a perspective plan for 10, 15 or 20 or even more years is presented every year in which the border goals are started and the outlines of future development are forecast. The one year plan is fitted into the same years new three four or five year plan ,and both are framed in the light of the perspective plan .for example if planning is started in 1970 in a country ,there would be three plans under the technique of rolling plan .

Merits of rolling;

• 1.     The concept of rolling plan is devised to overcome the rigidity encountered in the fixed five year plan.
• 2.     In the rolling plan there are plan targets projection and allocations that are not fixed for the five year period.
• 3.     A rolling plan is more realistic than a flexible plan.
• 4.     It takes into consideration such unforeseen natural and economic changes as floods, drought, war hike in oil prices etc.

Demerits of rolling plan:

• 1.     Since the targets are likely to revised every year, it is not possible to achieve the targets laid down in the plan within affixed time period 
• 2.     For up to date knowledge of progress as well as the short comings in the implementation of projects are absolutely essential. But such information is today scattered.
• 3.     As this obviously cannot be done overnight it would be advisable.

Fixed Plan:

In contrast to the rolling plan, there is a fixed plan for four, five, six or seven years. A fixed plan lays down definite aims and objectives which are required to be achieved during the plan period. For this purpose, physical targets are fixed along with the total outlay. Physical targets and financial outlays are seldom changed except under emergencies. Planning in Russia and India is of the fixed type.

Merit of Fixed Plan:

Fixed planning has certain merits which make it superior to rolling planning. One of the merits of this type of planning is that it fixed targets and priorities rigidly for achieving the objectives laid down in the plan. Targets are bold and cover every aspect of the economy. They are meant to be fulfilled both by the public sector and private sector during the fixed period of the plan. It is thus a challenge to both the sectors which make all out efforts to achieve them through mutual cooperation and healthy competition.

Demerits of Fixed Plan:

The fixed plans in India have no connection either with available physical or financial resources. The main aim has been to fulfill the financial targets by all means through deficit financing, heavy taxation, larger borrowings and through massive foreign aid, irrespective of their adverse effects on the economy. The actual achievements have always fallen short of physical targets. Spending huge sums without matching results in physical terms has led to distortions in the price structure and availability of essential commodities. This has often led to plan holidays, as between 1966-68. Often a FYP is started on schedule but the actual plan is brought out after the lapse of 2 ½ years, as was the case with the Fifth FYP. A mid-term appraisal is done after three years which is nothing but a post-mortem exercise in futility. By the time this report is published the next plan is due which is again delayed because the necessary figures relating to the various variables and sectors of the economy aren’t available in time.

7.    Centralised and Decentralised Planning:

Ø Centralized planning: Under centralized planning, the entire planning process is under a central planning authority. The authority formulates a central plan, fixes objectives, targets, and priorities for every sector of the economy. The principle problems of the economy – what and how much to produce, how and for whom to be produced etc are decided by this authority. The entire planning process is based on bureaucratic control and regulation. Naturally, such planning is rigid. There is no economic freedom and all economic activities are directed from above.

Ø Decentralized planning: On the other hand, decentralized planning refers to the execution of the plan from the grass roots. Under it, a plan is formulated by the central planning authority in consultation with the different administrative units of the country. The central plan incorporates plans under the central schemes, and plans for the states under a federal set-up. The state plans incorporate district and village level plans. Under decentralized planning, prices of goods and services are determined by the market mechanism despite government control and regulation in certain fields of economic activity.

Conclusion: Planning increases the efficiency of an organization. It reduces the risks involved in modern business activities. It utilizes with maximum efficiency the available time and resources. The concept of planning is to identify what the organization wants to do by using the four questions which are "where are we today in terms of our business or strategy planning? Where are we going? Where do we want to go? How are we going to get there? In organizations, planning is a management process, concerned with defining goals for company's future direction and determining on the missions and resources to achieve those targets. To meet the goals, managers may develop plans such as a business plan or a marketing plan. Planning always has a purpose. The purpose may be achievement of certain goals or targets.

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