STEPS OF PLANNING PROCESS - STEP 2: ESTABLISHING PLANNING PREMISES

After setting up the objectives, the next step in planning is making planning premises. It is well known that planning is a forecasting activity which deals about the future and forecasting is based on past data as well as future assumptions. These assumptions are termed as ‘premises’.

A plan is decided on some assumptions regarding the internal as well as the external factors of the business, these assumptions are known as premises and are very essential for a plan. All these assumptions are made on the basis of collected data and thus data collection and analysis for forecasting also plays a vital role in the overall success of the planning process.

Establishing premises simply means making assumptions about the alternative options. It involves collection of data and its analysis to prepare a forecast. These premises pinpoint the circumstances, conditions, factors, limitations, resources, problems, etc. with which the planning is to be worked out. It lays down the basic periphery for the final plan.

To understand better let’s take an example, ‘Mr. X, manager of XYZ company is responsible for making the organizational plan. He finalized a plan and implemented it with an assumption that the production cost will rise 5% due to increase in the cost of materials. Before making this assumption he has collected data from the material suppliers and other sources and analyzed it carefully. Everything is working well however, after a few months the production costs increased about 7%. Now, Mr. X. have two options- first is to modify the plan accordingly to reduce cost for the upcoming months, second to bear the additional cost.’  This situation of XYZ company may have arisen because of the inaccuracy of the data, incorrect analysis, erroneous interpretation of data, unsuitable assumptions, etc. This example clearly depicts the importance of assumptions in the success of planning thus this step should be considered important and premises must be established carefully.

Further, planning premises can be categorized as:

Internal Premises: These are the assumptions made for internal factors like land, labor, policy, management, cost, etc.

External Premises: These are the assumptions made for external factors like government policies, rules and regulations, competition, business environment, etc.