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PLANNING PREMISES

• One of the essential and often overlooked steps in effective and


coordinated planning is Premising.

• Planning Premises are the anticipated environments in which the plans


are expected to operate.

• Planning premises include assumptions or forecasts of the future and


known conditions that will affect the course of the plans.

• Premising is recognition that plans operate in an environment both


internal and external to the enterprise.

• It thus emphasizes the long known fact that management is an open-


system approach.

• It is not enough-for the Manager to be responsive to the present


environment.

• As Plans operate in the future an effective manager should anticipate the


environment in which his plan will operate and forecast those elements in
the environment, which will affect his plans. E.g.: Changes in
Technology, Social conditions, Political factors etc.

• It is sometimes said, the successful manager is not one who just responds
to changes as they occur, but one who will rather forecast change.

• It is often also said that a successful manager is not one who dances to
others tunes, but makes others to dance to his tunes by his ability to
foresee changes in the environment much before they occur.

• This does not mean that everything can be predicted.

• There are in addition short and long range, Economic, Technological,


Social and Political and even ethical changes that will affect what will or
can be done in the near or far future.
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Planning Premises depending on the degree of Predictability

Quite Predictable Reasonably Predictable Unpredictable


E.g.: Population Growth, E.g.: Price Levels, E.g. September ll
Gross National Product changes Population Shift and Attack on WTC,
Certain Technological War on Iraq Etc.

Types of Planning Premises:

External Premises

General Environment Product Market Factor Market

Economic Technological Social Political

Internal Premises are those, which are absolutely under the control of
management like investment in plant and machinery, inventory etc.

Tangible Intangible
Which can be quantified which cannot be quantified
and seen or felt.
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Degree of controllability

Uncontrollable Semi Controllable Controllable


E.g.: Growth of Population E.g.: Firm Assumptions of Largely decided
Future price levels, Political the share of the market. By company
Environment, BusinessCycles Type of Labour Turnover, Management.

Types of Forecasting

Economic Forecasting:

• Fairly reliable economic, premises can be obtained from the forecasts of


employment, productivity, national income, and gross national income
that are available to the planners.

• Most, economic forecasts are derived from calculating gross national


product.

• Gross national product is calculated by forecasting population,


productivity increases, and unemployment percentage and average
workweek available.

• But problems occur in estimating such components of GNP and


government purchases, personal consumption expenditures, business
fixed and inventory investments, residential construction and other
investments.

• After studying broad forecasts of national and regional economic trends,


a company should translate them into their impact on its industry and on
itself.

• This requires two basic estimating procedures. One is the ‘Top-Down


procedure’ and the other is the ‘Bottom-Up Procedure’.
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Technological Forecasting:

• One of the more interesting aspects of premising in the recent years is the
keen interest being shown on the Technological Forecasting.

• Since the pace of Technological changes are so rapid and drastically


affecting the products and processes of several firms, the firms are
emphasizing more on regular and complete Technological forecasts
affecting their industry. E.g.: Rate of product obsolesces is very high in
software industry and in steel where the cost of production per tonne of
steel has drastically come down by raising the appropriate technology.

The Following are some of the commonly used methods for forecasting
technological changes:

Opportunity Oriented Techniques:

• This Technique looks at the future and raises the question as to whether
a certain product may be made obsolete by a new development.

• If yes, is there any Technological breakthrough that might be expected


which would solve a problem seen to exist in the development of a certain product.
E.g.: VCR has become obsolete with the advent of VCD and DVD. Similarly
traditional cameras are on decline with the advent of Digital Cameras.

• One might forecast when it would be possible to economically


desalinate the seawater to overcome the drinking water problem.

Goal Oriented Technique:

• In this case a decision is made to reach a certain goal and then analysis is
made to identify the technological needs required to achieve the goal. E.g.: The US
deciding to put the man onto the moon in 1970.
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Delphi Technique:

Social and political Forecasting:

• This has become increasingly relevant and important with the process of
LPG.

• If McDonald wants to introduce its product in the Muslim countries, it


has to think twice about it because the culture doesn't allow the people to consume
pork.

• Similarly political factors also have a significant impact on the


commercial policies like the labor laws, income tax policies etc.

Sales Forecast:

• One of the major planning premises in the typical business enterprise is the
sale forecast.

• Sales forecast is very important because it sets the framework on which


most internal plans are constructed and it must be regarded as the dominant
Planning Premise of an Enterprise.

Methods of Sales Forecasting

Jury of Executive Sales Force Users Expectation Users Projection Statistical


Opinion Method Composite Method of Past sales Methods