CAIIB ABFM Module A Unit 2 : Planning

02/10/2023

CAIIB Paper 3 ABFM Module A Unit 2 : Planning (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 3 (ADVANCED BUSINESS & FINANCIAL MANAGEMENT) includes an important topic called “Planning”. Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.

In this article, we are going to cover all the necessary details of CAIIB Paper 3 (ABFM) Module A (THE MANAGEMENT PROCESS) Unit 2 : Planning, Aspirants must go through this article to better understand the topic, Planning and practice using our Online Mock Test Series to strengthen their knowledge of Planning. Unit 2 : Planning

Fundamentals of Planning

Planning is the process of engaging in thoughtful discussion before undertaking a task, which entails engaging in in-depth contemplation about that task and going into all the details meticulously to be ready with an execution and implementation plan, to save both effort and time.
During the planning, each possibility, both present and future, that is even remotely connected to the goals, will be taken into consideration.

Steps in Planning

Opportunity Analysis

Opportunity analysis entails analysing the opportunity, being aware of the opportunity, and basing the development of the business plans on this opportunity.

Objective Establishment

Without knowing the objective, it is impossible to develop a strategy for its accomplishment.

Developing Planning Premises

The collection of future forecasting-derived assumptions is known as the planning premises determination.
The predicting must be based on a realistic assessment of the environment in which the plans are to be executed, as well as a creative understanding of the surroundings.

The premises cover the following areas:

Forecasting
Basic Policies
Existing Plans.

Alternatives Identification

The process of determining the availability of various means to attain goals is referred to as “identifying alternative means.”

Evaluating Alternatives

When comparing the various approaches, the use of statistical methods and computers proves to be extremely beneficial.
One of the processes might be less desirable or effective compared to the others, while another might be more suited to the immediate goal.

Selecting the best Alternative

At this stage, the plan is to be adopted, and the numerous options are to be evaluated, so that it can be determined which plan can best assist in the accomplishment of the business objectives.

Formulating Derivative Plan

It includes making sub plans or secondary plans.

Development of the new policies and procedures
Coordination of the activities of the derivative plans
Working in accordance with the targets of the main plan

Follow-up & Reviewing a plan

Planning is a continuous process for ensuring attainment of business objectives. It is very important for a business entity to continuously monitor the implementation of the plans and keep adjusting and amending the plans as required.

Importance of Planning

A SMART goal is a carefully planned, clear and trackable objective. SMART is an acronym that stands for Specific, Measurable, Achievable, Realistic, and Timely.

Advantages in Planning

Coordination of Various Activities: The coordination of efforts of various functionaries and departments of a business entity to achieve the goals, set out in the plan, is facilitated by planning
Optimisation of Resources: Planning enables managers to determine which activities have the maximum demand for resources, and further helps them in the optimum allocation of these resources to the areas that will provide the maximum possible return on investment.
Inspirations and Responsibilities: Planning lessens the likelihood of risk and outlines the accomplishments that are commonly anticipated of everyone. Individuals are compelled to work for a goal that they are familiar with and can comprehend and relate to.
Establishment of Execution Principles: The planning process is distinguished by mile positions, which are used to mark progress along the way to the intended result. The milestones serve as a reference point for determining whether things are moving as planned and, if not, when adjustments are necessary.
Adaptability: When things start to change, the viability of the guiding principles is dependent on how well these can adjust to the new environment.

Basic Advantages Of Planning

Planning reduces uncertainty.
Planning is focused on objectives.
Planning facilitates control.
Planning encourages creativity and innovation.
Planning anticipates problems and copes with change.
Planning works with the board by destinations.
Planning limits vulnerabilities
Planning works with co-appointment.
Planning works on worker’s moral.
Planning helps in accomplishing economies.
Planning works with controlling.
Planning gives the upper hand to the managers
Planning empowers development

Disadvantages in Planning

Forestalls Activity: It is possible that managers will become so immersed in the process of planning and getting ready for every possibility, that they won’t have time to put their plans into action. It is sometimes referred to as “death by plan.”
Lack of Concern: If an Organisation has solid systems in place, its managers may be led to believe that they are aware of the path the Organisation will take and how it will accomplish its objectives. Because of this, it is possible that they won’t be able to monitor the system’s progress or recognise shifts in the external circumstances.
Forestalls Adaptability: Even though well-laid plans have the potential to encourage adaptability, sometimes the opposite occurs Middle and lower-level supervisors may have the mentality that they are required to stick to an arrangement no matter what, even if their experience demonstrates that the arrangement is not working. They will continue to devote their time and resources to activities that are not.
Hinders Innovativeness: People working for the organisation may get the impression that they are required to carry out the activities outlined in the plans because only that is expected of them and, how well they complete the systematic tasks assigned to them is what matters. They might be prevented from engaging in invention, drive, and learning via trial and error.

Basic Disadvantages Of Planning

The process of planning takes a significant amount of time.
The planning process may result in lack of trustworthy data.
The process of planning could end up being very expensive.
The act of planning results in rigidity.
Planning is an exercise in fighting against change as the environment in which an organisation operates is ever-changing and dynamic.
Planning could give a false impression of the organisation’s strength.
The plan may be adapted to fit the interests of individual participants rather than the goals of the overall endeavour.
Inter-departmental rivalries may impact the effectiveness of planning.
Human errors can result in bad planning.
A rapidly changing environment may make planning harder.
A manager’s daily work schedule may be affected by his involvement in planning process.

Management By Objective

The phrase “management by objective” (MBO) was coined by Peter F. Ducker and first appeared in his book “The Practice of Management,” which was published in 1954.

Limitations of MBO

The MBO approach frequently disregards the culture of the organisation as it exists today as well as its working conditions.
Goals and targets receive a greater amount of attention. When managers forget about participation, employees’ willingness to contribute, and the value of MBOs for management’s professional growth, they put constant pressure on workers to achieve their objectives.
Managers will frequently place a greater emphasis on goal setting than they will on issues pertaining to operations.
The MBO approach does not place a strong emphasis on the significance of the environment in which objectives are formulated.
Many managers have the habit of viewing MBO as a comprehensive system that, once implemented, can address any and all management concerns. Overdependence can bring problems into the MBO system.

Advantages of MBO

It provides a means for determining one’s goals and planning to achieve those goals.
Planning enables one to behave in a proactive manner and to approach the accomplishment of goals in a disciplined manner.
It also gives you the ability to plan for unforeseen circumstances and limitations that could make planning more difficult.
The process of MBOs also enables the preparation of contingency plans and strategies for overcoming roadblocks, which may be obstacles to the plan.
Objectives should be measurable so that progress can be monitored and altered as necessary. If goals are effectively set, managed, and accomplished, organisations have the potential to improve their overall efficiency
A more effective use of the available resources
An emphasis on the most important aspects of the results.

Disadvantages of MBO

The process of setting goals can be time-consuming, which means that both the managers and the employees have less time to get their actual work done.
The MBO programme requires elaborate written goals, careful communication of goals, and detailed performance appraisals, all of which contribute to an increase in the amount of paperwork an organisation generates.
To achieve success, it is necessary for all of the employees to work together.
Goals can become out of date and put a damper on employees’ ability to take initiative and be creative.
Too much multi-tasking can result in inefficiencies.
The inability of the subordinate to feel at ease.
Inflexibility.
It might make the workers’ lives more difficult and frustrating.
MBO is an approach based on rewards and sanctions.
MBO, sometimes, might lack appreciation by the employees and workers

Plan Components

For an organisation to achieve the goals, Planning is essential. The key components of Planning include:

Objectives/ Goals
Policies/ Overviews
Procedures/ Directions/ Rules
Programs/ Methods
Budgets/Funding
Time Schedule.
Core values/ Mission/ Vision
SWOT Analysis.
Management

Environmental Analysis

“Environmental Analysis” refers to the process of examining all of the factors, both internal and external, that have an impact on the performance of the organisation. This can be done both systematically and qualitatively.
The opportunity and the threats, that are external to the organisation, are portrayed by the external components, whereas the strength and the vulnerability of the business entity are shown by the internal components.

Environmental Analysis Steps includes:

Identifying
Scanning
Analysing
Forecasting

PESTLE Analysis

PESTLE refers to the following six factors that can have an impact on the company:

Political
Economic
Social
Technological
Legal
Environmental

Internal Analysis

The internal environment of a company can be classified into the following broad categories, based on its resources and assets:

Physical resources like plant and machinery, technology, etc.
Financial resources
Distribution network
Possession of strategic assets, such as access to raw material, locational advantage, regulatory protection, etc
Network with outside organizations (suppliers, customers, government, distributors, etc.)
Intangibles, like brand equity, goodwill, reputation, etc.
Human resources-profile, skill, managerial competencies; and organizational structure and administrative system, culture and values, and employee motivation/relationship.

This internal analysis, which is initiated by the management of the company, is an attempt to identify the areas of risk and opportunity in the business. An organization’s capabilities, resources, and competitive advantages are examined in depth as part of an internal analysis, which reveals both the organization’s strengths and its weaknesses in these areas.

Internal Analysis Tool

GAP Analysis

The Gap Analysis is a tool for conducting assessments that gives organisations the ability to analyse and identify internal weaknesses as well as performance deficiencies.
It is very easy to understand and put into practice, and it is helpful to compare the current position of the organisation to its projected position in the future.

Strategy Evaluation

The process of analysing the outcomes brought about by the execution of a strategic plan is referred to as strategy evaluation. It is very useful and helpful to check that everybody understands the business strategy and works well with it.

SWOT Analysis

SWOT stand for Strengths Weaknesses Opportunities Threats.
The SWOT analysis is a useful model for conducting evaluations because it takes into account both internal and external factors simultaneously.
It is especially helpful to conduct a SWOT analysis to obtain a comprehensive overview of a company, its products, its brand, or a new project at any stage in the project life cycle.

Contingency Planning

Contingency plans can be defined as alternative plans that can be put into effect if certain key events do not occur as expected.
The contingency plan minimises the risk associated with such unforeseen unpredictable events. The contingency plans are referred to as “Plan B” because they always work as an alternative course of action if things do not go as planned.

It involves the following:

Specifying trigger points
Estimating when contingent events are likely to occur.
Assessing the impact of each contingent event
Estimating the potential benefit or harm of each contingent event.
Developing alternate plans
Being sure that the contingency plans are compatible with current strategy and that they are financially feasible.

Forecasting And Decision Making

Forecasting

The process of predicting or estimating the future based on the evidence from the past and the present is referred to as forecasting.
The process of forecasting gives knowledge about the possible occurrences of the future as well as the implications those events will have for the business.
It is not possible for forecasting to lessen the complexities and unpredictability of the future.
Managers at different levels may be given the responsibility of making forecasts, or external or internal economists and statisticians may be employed for the task.
Since forecasting makes use of a wide variety of methods, another name for the discipline is Statistical Analysis.

Types Of Forecasting

Long-Term Forecasts: Forecasting for the long term typically covers a period of time ranging from three to five years. It gives an overarching perspective of the company’s monetary requirements as well as the availability of the investable surplus in the foreseeable future.
Medium -Term Forecasts: For making relatively minor strategic decisions pertaining to the functioning of the firm, projections over the medium term are generated. They play a crucial role in the operational budgeting as well as the business budgeting, and the budget of the firm is formed based on these projections.
Short-Term Forecasts: The term “short term forecasting” refers to planning that is done for a period that is relatively brief, with the planning period being less than one year and the duration ranging from one to six months.

Decision Making

Actual selection of one course of action, from among several alternatives, is called decision-making.
Decision making is not confined to planning alone but also embraces other aspects of management like organising, staffing, controlling etc.
Decision-making is a rational process and, to have a high degree of effectiveness, should be based on systematic analysis of all the relevant facts and not based on just intuition.
Decision making plays an important role in enhancing the efficiency of the organisation as decisions relating to future course of action, are taken in advance.

Decision Making By Groups

Whether a particular decision is to be made by an individual or a group depends on the policy of the organisation and thinking of top management. Before the task is assigned to a group to decide on a particular matter, the exact scope of the group’s authority to make that decision, should be clearly spelt out.
Advantages of Group Decisions include: (i) Thorough evaluation, (ii) implementation of decisions is easier (iii) Enhanced team spirit.
Disadvantages of Group Decisions include (i) Time consuming and costly, (ii) Disagreements and indecisions (iii) No-participation or domination.

Various Conditions for Decision-Making

The situations may be classified broadly into three scenarios, as under:

Certainty:

if the decision maker knows exactly what is going to happen, it is the condition of certainty, and he is able to precisely forecast the outcome. However, such conditions can be rarely expected to exist, in real business environment.

Risk:

When information is available only partially or it is insufficient to estimate the outcome precisely, the decision is to be taken under the conditions of risk.
As the outcome is not certain, a probability is assigned to each estimated outcome.
When a probability estimate is assigned to expected outcome based on the past experience, it is called objective probability, and if it is assigned on the basis of intuition, it is called subjective probability.

Uncertainty

When the decision maker feels that probabilities for various estimated outcomes cannot be assigned, it is called the situation of uncertainty. In such a situation, there is no way of measuring the likelihood attached to each estimate.

Principles of Decision-Making

There are a few principles which, if followed by the decision makers, will be helpful in enhancing the probability of the decision being correct. These principles of decision making can be summarised as under:

Principle of Definition: Correct identification of issues involved goes a long way is arriving at a better decision. It is, therefore, important to be aware of the exact problems. After the exact problems have been correctly identified and defined, the work of the decision maker becomes easier.
Principle of Evidence: Whenever a decision is based on evidence, it is likely to be better compared to decisions taken on the details which are not backed by evidence.
Principle of Identity: In a decision-making process, it is important to consider, with an open mind, the viewpoints of all the people involved, before taking a final decision.

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CAIIB ABFM Module A UNIT- 2 Planning ( Ambitious_Baba )