Value of Creating a Business Plans - Term Paper Example

INTRODUCTION The term planning may be broadly defined as “the selection and relating the facts and making and using of assumptions regarding the future in the visualization and formalization of the proposed activities believed necessary to achieve desired result” (Terry, 1988). If the above definition is analyzed, it can be understood that planning is an activity which involves the future of an entity. The analysis of the present and to be prepared for the future is the essence of planning. Planning is a continuous and pervasive activity that is essential for the success of an organization. Another aspect to be noted from the definition is that planning is assuming about the future and making the necessary arrangements to move towards the goals of the organization. It can also be comprehended from these statements that planning is the base upon which the other managerial operations are carried out in an organization. It is a cyclical process in an organization. Planning first, based on planning organize people and coordinate them. Ultimately the performance of the organization is compared with the plans made initially and based on the results the making of plans starts again. If this cycle is carefully carried out in an organization, objectives can be achieved easily. But it is not as simple as mentioned here. There are a lot of factors that influence the planning process. For a small business the need for planning and the importance of planning will be more crucial because of the scale of operations. For a small business organization planning is crucial to survive and to grow in the competitive environment. Hence, this essay elaborates on the need, value, importance and advantages of a concrete business plan in the following pages. VALUE OF CREATING A BUSINESS PLANS For a small business, there are so many reasons which make a business plan very valuable for its survival and growth. The primary reason is that the plans can help us to perceive opportunities. Awareness of the opportunities is not strictly planning process. But, the awareness of the opportunities is essential for making plans. When there is a mechanism for efficient planning in an organization, it includes collection of information from the market intelligence sources. When the organization is effective in planning it will be in the constant look out for information about new opportunities. Both the factors are reciprocative in nature. When there is good planning the organization is receptive to the opportunities in the environment. When it is receptive to the opportunities created by the changes in the external environment, it there is room for more planning and implementation. Thus, planning makes the organization to be on track towards the achievement of its strategic goals. Another major factor that is associated with planning which adds value to the organization is that it makes us formulate objectives. The long term and short term goals to be achieved can be formulated only when the activities to be done to survive in the future are known. Planning gives an opportunity for the management to define its long term objectives. For creating the objectives of the organization the business entity should first explore its internal and external environment. This gives room for appraisal about the fitness of the business entity towards exploitation of the opportunities and to be prepared to face the threats. Planning is a pervasive activity throughout the organization. At all levels of the management plans create a discipline within the organization and improves the efficiency in the use of resources. For a small business entity, planning is very crucial in this aspect. IMPORTANCE OF BUSINESS PLANS Business plan is created before the commencement of a new project or a venture. But most of the small business entities do not spend much time in creating business plans. There are various reasons for this. Lack of awareness about the importance of creating business plans is one of the main reasons for not creating business plans. The entrepreneur most often relies on his intuition rather on scientific analysis. The scope of business plan is very limited in case of small business enterprises. An understanding of the importance of business plans in a small business entity is very essential. First, it has to be understood the primacy of planning. Business plan precedes all other managerial functions in the success of a new venture. Although all the major actions of management intermesh in practice as a system of action, planning is unique in that it establishes the objectives necessary for all group effort. It should be realized that the external environment is very dynamic and the organization has to work in accelerating change. The changes have to be in both tangible and intangible forms. To scope with such changes it is essential to have a clear plan about the future course of actions. Another major factor that makes planning very important is that, planning helps the organization to focus on its objectives. Without proper business plan, what has to be achieved at the end is not clear and sometimes the course of action may lose the focus. But when operational business plans are prepared it makes the objectives more clear. For example, if the organizational objective is to earn profits, planning activity will help to specify how much of profits is to be earned looking into all facilitating and constraining factors. Also a good business plan helps in the coordination of the personnel involved in various activities in the business entity. When teams are formed to achieve the objectives, conflicts and confusion may occur, which can waste the time and other resources. But the business plan will act as a guide to check the progress and the roles that have to be played by various members in the team. a business plan is the key for appraising the performance of the members of the team. At each level of implementation of the business plans. It helps to know whether the business is in the correct course and if not what are the factors that deviate the course of action (Kerzner, 1992). It helps to identify what has to be done to bring the operations back into the desired path to achieve the objectives and the resources that are required for it. Business plans help to increase the effectiveness of an organization in several ways. First when it comes to the tangible resources like the technology and inputs for products, plans help to achieve maximum utility and minimum wastage. This is possible because in a business entity plans are made after taking into account the existing resources. When the plans are implemented, any deviations in results can be easily detected and can be analyzed. Less utilization of the resources and the wastage of any inputs in production will be easily identified and can be remedied. Also, the intangible factors in a business entity such as the morale of the team members and the culture of the organization can be checked whether they are in line with the requirements for the achievement of the objectives. Thus it can be said that planning with control will help to utilize the resources of the organization to the maximum level. Also, a business plan helps to provide the managers a unity of direction that transcends individual needs. It promotes a sense of shared expectations among all levels and generations of the employees. It consolidates values over time and across individuals and interest groups. It projects a sense of worth and intent that can be identifies and assimilated by company outsiders. Finally, the business plan affirms the company’s commitment to responsible action which is symbolic with its need to preserve and protect the essential claims of insiders for the sustained survival, growth and profitability of the firm” (Pearce, 1982) FACTORS THAT HAVE TO BE CHECKED FOR SUCCESS OF A BUSINESS PLAN Preparation of elaborate business plans alone will not yield the desired results. But the management and all the people in the organization should show the commitment to follow the plan. Issues such as “Is planning in our firm a people process or a paper process? Should be addressed. ( Fred, 2005). “Even the most technical perfect business plans will serve little purpose if it sis not implemented. Many organizations tend to spend an inordinate amount of time, money and effort on developing plans, treating the means and circumstances under which it will be implemented as after thoughts! Change comes through implementation and evaluation, not through the plan. A technically imperfect plan that is implemented well will achieve more than the perfect plan that never gets off the paper on which it is typed.” (McConkey, 1988). If the management is over ambitious it does not take into account the current environmental factors, the plans will not be suitable for implementation and the plans become obsolete. Hence, the management when preparing the business plan should be more aware of the environment and motivate the employees to follow the plan with commitment. Another point that has to be remembered for the plans to yield the required results is that the plan should not become a bureaucratic mechanism. According to R. T. Lenz (1987) the important guidelines for effective management of business plans are , “ keep the planning process as simple and nonroutine as possible. Eliminate jargon and arcane planning language. Remember, strategic planning process is a process for fostering learning and action, not merely a formal system, for control. To avoid routine behavior, vary assignments, team memberships, meeting formats and the planning calendar. The process should not be totally predictable and settings must be changed to stimulate creativity. Emphasize word-oriented plans with numbers as back up material. If managers cannot express their plans in a paragraph or so, they neither do not have one or do not understand it. Stimulate thinking and action that challenge the assumptions underlying the corporate strategy. Welcome bad news. If the plan is into working, managers desperately need to know it. Further, no pertinent information should be classified as inadmissible merely because it cannot be quantified. Build a corporate culture in which the role of the planning and its importance are understood. Do not permit “technicians” to co-opt the process. It is ultimately a process for learning and action” (Lenz, R. T, 1987) A prerequisite for effective planning and implementation is open mindedness. A willingness and eagerness to consider new information, new ideas and new views is essential. (David, 2005). “Success always obsoletes the very behavior that achieved it, always creates new realities and always creates new and different problems. It is never popular to argue with success or rock the boat. The ancient Greeks knew that the penalty of success can be severe. The management doesn’t ask, “What is our mission? when the company is successful is, in effect, smug, lazy and arrogant. It will not be long before success will turn to failure. Sooner or later, even the most successful answer to the question,”what is our business?” becomes obsolete.” (Drucker, 1974). NEED OF BUSINESS PLANS FOR A START UP AND AN ESTABLISHED ENTITY Business plans are essential for both the a start up and an established business entity. Whatever may be the age of the organization, the need and importance are same. The value that are business plan creates is also same. But the difference lies in the purpose of making the plans. For survival of competition planning is a must. “Plans represent the executive action that embodies the skills of anticipating, influencing and controlling the nature and direction of change” (McFarland, 1974). It is the primary factor that gives meaning to all the other managerial activities. For a small business entity when the business plan is the fundamental piece of document that will act as a guide for development. For an already successful small business, the need for business plans is more necessary to continue the success. For a small business which is already successful, the business plans should focus first on, providing general understanding of an industry and its competitors. Also the business plan should identify areas in which competitors are vulnerable and to assess the impact the strategic actions will have on the competitors. Lastly, the business plan should help the business entity to identify the potential moves the competitor might make that would endanger a firm’s position in the market.( Prescott, 1989) Making a plan is concerned with the future. A planning system must involve different degrees of futurity. Some parts of the organization have requirements that entail planning for many years into the future, while other parts require planning only for a short horizons. In fact, in a successful planning process, the short term plans contribute to long term plans. There should be coordination between the short range and long range plans. For a start up business entity, short term plans are essential based on long term goals. The age of the concern is not of primary importance but the purpose of creating the plan is more crucial for the success of a business. The principal benefit of business plans is to help organizations formulate better strategies through the use of a more systematic, logical and rational approach in decision making. Research studies show that the process, rather than the decision or document, is the more important contribution of business plans.(Langley, 1988) CONCLUSION For a small business entity there can be innumerable problems which are very unique to small scale firms. To tackle all these problems, a good business plan supported with the commitment for implementation and good control mechanism is a must for all firms. In planning, the business manager uses facts, reasonable premises and constraints and from all these he visualizes and formulates what necessary activities are, how they will be conducted and what will be their contribution to achieving desired results. Hence, a good business plan is a must for small business entities to take advantage of the opportunities and steer ahead of the competition. Preparation of a business plan is not the job of the top management. The planning activity has to involve people from all the levels of management in a firm so that the idea of planning, participation, implementation and accountability becomes a culture rather a creating administrative documents in the name of planning. REFERENCES 1. David, R. Fred (2005) Strategic Management: Concepts and Cases, New Jersey: Prentice Hall 2. Drucker, Peter (1974) Management: Tasks, Responsibilities and Practices, New York: Harper & Row 3. George, R. Terry (1988) Principles of Management, Richard D Irwin: Homewood, III 4. Kerzner, Harold (1992) Project Management: A Systems Approach to planning, scheduling and controlling, New York: Van Nostrand Reinhold 5. Langley, Ann (1988) “The Roles of Formal Strategic Planning” Long Range Planning, 21, No. 3 : 42 6. Lenz, R. T (1987) “Managing the evolution of the strategic planning process” Business Horizons, 30, No. 1, 39 7. McConkey, Dale (1988) “Planning in changing environment”, Business Horizons, September – October, 66 8. Mcfarland, E. Daltton( 1974) Management Principles and practices, New York: Macmillan 9. Pearce, John II (1982) “The company Mission as a strategic tool”, Sloan Management Review, 23, No. 3: 74 10. Prescott, John and Smith, Daniel(1989), “The largest Survey of ‘leading Edge’ Competitor Intelligence Managers” Planning Review 17, no.3: 6-13 Read More