Planning | Advanced Business and Financial Management (ABFM) | Module A

CAIIB Exam is conducted biannually (twice a year) by the IIBF with the objective to transform candidates into competent decision-makers and leaders in the banking universe and to empower the candidates to develop expertise in multiple areas. CAIIB exam date 2024 will be announced by IIBF on its website. Planning is an important topic in the syllabus of Advanced Business and Financial Management (ABFM), Module -A and this article will cover all the necessary concepts of the topic. Candidates who are preparing for CAIIB exam 2024, are advised to go through this article for a comprehensive understanding of the topic.

DEFINITION: Planning is the primary function of an organization which involves forehand deciding of –

• What tasks are to perform?
• How to perform?
• Who will perform?
• What methods/process are to be follow?
• What will be the deadlines etc.?

CHARACTERISTICS / FEATURES OF PLANNING

2. PERVASIVE: Planning is present in all segments and activities and is required at all levels in an organization. It is concerned with setting objectives, targets, and formulate plans to accomplish them.
3. FUTURISTIC: It helps in taking a glimpse of the future and finding ways to meet future needs and situations.

STEPS IN PLANNING

1. Business Opportunities:- It involves the awareness of the external as well as internal business.

2. Objective Establishment:- Objectives can be short-term and long-term. Without objectives, it is impossible to develop a plan for its accomplishment.

3. Developing Planning Premises:- This covers-

• Forecasts
• Existing plans
• Policies

5. Identification of Alternatives:- To attain the goals and objectives, alternative means are identified.
6. Selecting the Best Alternative:- After the evaluation of different options, the best feasible alternative is selected to accomplish the business objectives.
7. Implementing the Plan:- It includes-

• Making of new policies and procedures
• Coordination of the activities
• Working in accordance with the targets of the main plan

7. Follow-up and Review:- It is very important to monitor the implementation of the plans and keep adjusting and amending the plans to achieve the goals and objectives.

IMPORTANCE OF PLANNING

1. Goal Creation– One of the most benefits of planning is identifying and creating goals to accomplish.
2. Tackles Problems -Planning uncovers problems and tackles uncertainties.
3. 3. Offers Directions – Planning offers directions in such a way that what should be the first step and organise them.
4. Discards waste activities – Planning adds professionalism and discards wasteful activities.
5. Gives Perspective – It gives an idea of future trends specially in the long run.
6. 6. Promotes Innovative Ideas – The formulation of plans and policies is an intellectual process that requires creativity and innovation on the part of the managers.
7. Facilitates Decision-Making – It encourages the decision-makers to look into the future and decide from amongst several alternative plans of action.

A SMART goal is meticulously planned and clear.

SMART is an acronym that stands for Specific, Measurable, Achievable, Realistic, and Timely.

ADVANTAGES OF PLANNING

1. 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.

2. OPTIMIATION OF RESOURCES – Optimum allocation of these resources to the areas that will provide the maximum possible return on investment.

3. INSPIRATION AND RESPONSIBILITY – Planning lessens the likelihood of risk and outlines the accomplishments that are commonly anticipated by everyone.

4. ESTABLISHMENT OF EXECUTION PRINCIPLES – The milestones serve as a reference point for determining whether things are moving as planned and, if not when adjustments are necessary.

5. ADAPTABILITY– The process of objective determination involves the establishment of principles for the purpose of identifying individual advantages within the organisation as well as the fundamental variables found outside the organisation that need to be investigated. 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 THE PLANNING PROCESS:

1. Reduces uncertainty
2. Focus on objectives/goals
3. Economical operation
4. Facilitates control
5. Encourages innovation and creativity
6. Improves motivation
7. Avoids random activity
8. Improves competitive strength
9. Focuses attention on objectives and results
10. Establishes a basis for teamwork
11. Helps anticipate problems and cope with change
12. Better coordination
13. Works with the board by destinations.

DISADVANTAGE OF PLANNING

1. FORESTALL 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.”
2. FORESTALL ADAPTABILITY: – 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
3. HINDRANCE INNOVATIVENESS: – Achieving goals requires not just careful planning but also consistent progress, and the planning process in any organisation, if not executed well, might stifle creative thoughts.
4. LACK OF CONCERN:- If an Organisation has well-established systems, its managers may be led to believe that they have a clear understanding of the organization’s directions and how it will accomplish its objectives. They may overlook the need to closely monitor all the circumstances and changes.

BASIC DISADVANTAGE OF PLANNING

1. Lack of Reliable Data
2. Rigidity
3. Time Consuming Process
4. Costly Process
5. Rapid Change
6. Internal Inflexibility
7. External Inflexibility
8. Expensive
9. Resistance to Change
10. Human errors can result in bad planning

TYPES OF PLANS

Single-use Plan: A single-use plan is developed for a one-time event or project. These plans are for non-recurring situations. These plans include budgets, programmes, and projects.

Standing Plan: A standing plan is used for activities that occur regularly over some time. These plans are designed for the smooth running of internal operations in the organisation. Standing plans include policies, procedures, methods, and rules.

LIMITATIONS OF PLANNING 

1. Planning leads to rigidity
2. May not work in a dynamic environment
3. Planning reduces creativity
4. Planning involves huge costs
5. Planning is a time-consuming process
6. Planning does not guarantee success

Management by objective (MBO)

Strategic management models can help companies better define their primary objectives and achieve them. MBO processes identify an employee’s main objectives, which are later graded with group input.

MBO Process

Establish or Alter –  Organization goals with respect to mission and vision

Communicate – to employees about goals and their priority

Encourage- The participation of the staff in setting individual goals.

Monitoring  – the progress made by the staff.

Evaluation and reward – the progress.

MBO ADVANTAGES

TEAMWORK – It drives each member of staff towards business- focused objectives, it can lead to improved communication and teamwork.

CLARITY – MBO sets business goals and objectives and gives clarity of tasks to each staff member.

EMPOWERMENT – Staff at all levels of the organization feel involved, empowered and indispensable.

EFFICIENCY – Managers know all staff are facing the same direction with goals geared towards business success.

CUSTOMIZATION – Based on the specialization of individual staff skills such as qualifications and career goals managers set objectives for them.

MBO DISADVANTAGES

HIGH-PRESSURE – With a business-aligned set of goals, staff can feel under pressure.

IMPERSONAL – Goals can omit personal and career development considerations.

LACK OF CONTEXT – Factors like motivation, resources and buy-in are not considered in MBO.  Work culture, conditions or ethos are also not reflected in MBO.

OVER-FOCUSED – Focusing exclusively on business goals can detract from other important elements of your operations.

 PLAN COMPONENTS–

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

ENVIRONMENTAL ANALYSIS

• It refers to the process of examining all the factors, both internal and external, that have an impact on the performance of the organisation.
• SWOT ANALYSIS (INTERNAL AND EXTERNAL FACTORS THEN GENERAL AND SPECIFIC)
• The information gleaned from conducting an environmental analysis is what strategic planners use when trying to make predictions about future trends.

ADVANTAGES OF THE ENVIRONMENTAL ANALYSIS

• Contributes to the accomplishment of goals
• Identifies and analyses potential dangers
• Helps to understand the developments in the commercial environment
• Creates awareness of impending dangers of every prospective opportunity
• Makes predictions about the future
• Helps recognition of potential dangers and potential benefits

ENVIRONMENTAL ANALYSIS STEPS

• Identifying
• Scanning
• Analysing
• Forecasting

PESTLE ANALYSIS (Acronym)

It is a method for evaluating the business environment and the potential impact that it could have on the performance of the organisation. The acronym PESTLE refers to the following 6 internal factors that can have an impact on your company:

• Political
• Economic
• Social
• Technological
• Legal
• Environmental

These factors may also impact changes, both positive and negative, as well as any others and might also result in positive or negative changes in credit ratings.

PESTEL ANALYSIS INVOLVES 3 STEPS

1. Identify the relevance of each of the PESTEL factors to the firm
2. Identify and categorize the information for each factor
3. Analyse the data and draw conclusions

ADVANTAGES OF PESTLE ANALYSIS

1. Cost-effectiveness
2. Easy framework
3. Deep understanding
4. Development of alertness
5. Opportunities exploitation

POLITICAL FACTORS

1. the stability in the political environment. Critical for companies entering new markets.
2. Government laws affect the state of the banking sector. The government can intervene in the matters of banking whenever it wants to, leaving the industry susceptible to political influence.
3. This leads to corruption amongst political parties, or specific legislative laws such as labour laws, trade restrictions, tariffs, and political stability.

ECONOMIC FACTORS

1.These have a direct impact on the potential attractiveness of various strategies.

2. For example, if interest rates rise, then funds needed for capital expansion become costlier or unavailable.
3. Macroeconomic factors will have short- and long-term effects on the success of their strategies

4.These include inflation rates, interest rates, tariffs, growth rates of the local and foreign national economies, exchange rates, unemployment, and availability of critical labour.

SOCIO-CULTURAL FACTORS

1. These vary from country to country
2. These may include local languages, dominant religions, leisure time, age, lifespan demographics, attitudes toward consumerism, environmentalism, and the roles of men and women.

3.Cultural influences, such as buying behaviours and necessities, affect how people see and use banking options.

4.People turn to banks for advice and assistance for loans related to business, home, and education.

5.Consumers seek information from bank staff regarding saving accounts, bank related credit cards, investments, and more.

TECHNOLOGICAL FACTORS

1.Technology may lower production costs and/or improve quality

2.create product and service innovations

3.reduce communication costs and increase remote working; and alter distribution

ENVIRONMENTAL FACTORS

1.Environmental factors now go beyond access to raw materials.

2.Consumers can apply for credit cards online, buy gift cheques and gift cards online, and have many of their banking questions answered online or on the phone by catboats. All these measures help in reducing individual environmental footprints.

LEGAL FACTORS

1.Legal factors reflect the laws and regulations relevant to the region and the organization.

2.These factors include whether or not the rule of law is well- established how they change, and the costs of regulatory compliance.

INTERNAL ENVIRONMENT ANALYSIS

1.Physical resources like plant and machinery, technology, etc.;

2.Financial resources;

3.Distribution network;

4.Possession of strategic assets, such as access to raw material, locational advantage, regulatory protection, etc.;

5.Network/    contacts        with    outside         organizations (suppliers, customers, government, distributors, etc.);

6.Intangibles, like brand equity, goodwill, reputation, etc.;

7.Human resources-profile, skill, managerial competencies; organizational structure and administrative system, culture and values, and employee motivation/relationship.

INTERNAL ANALYSIS TOOLS

1.GAP ANALYSIS: It is a tool for conducting assessments that give organisations the ability to analyse and identify internal weaknesses as well as performance deficiencies.

2.STRATEGY EVALUATION: In the process of carrying out the evaluation, it is very useful and helpful to check that everybody understands the business strategy and works well with it.

3.SWOT Analysis: SWOT stands for Strengths Weaknesses, Opportunities and Threats. The SWOT analysis is a useful model for conducting evaluations as it considers both internal and external factors simultaneously.

PLANNING PREMISES AND CONSTRAINTS

1. The planning principles that serve as the basis for the activity of planning are referred to as premises.
2. It is a projection of variables such as the current trend in population, the political and economic climate, the cost of production, advertising policy, the availability of labour, material, and electricity, and many other conditions.

EVALUATION OF ALTERNATIVE COURSES OF ACTION

Evaluating is done primarily with the intention of choosing the course of action that will prove to be the most fruitful and easily achievable.

CRITERIA FOR EVALUATING ALTERNATIVES

1. Cost, Profitability, Break-even Point
2. Market, Sales potential, Competitive reaction
3. Ability to meet corporate objectives
4. Strengths and weaknesses
5. Timing
6. Intuition about success
7. Selecting the Alternative:

FINALIZATION OF THE PLAN

This final phase of the vision phase develops project planning that will give “process-in-focus” performance improvement.

• What are the necessary steps?
• Who exactly is going to undertake the work?
• How much time will it take to complete the work?
• Where exactly will all of the action take place?
• How exactly will the work be completed?

CONTINGENCY PLANNING: Alternative plans that can be brought into action if certain key events do not occur as per expectations, for example, COVID.

FORECASTING AND DECISION-MAKING

1. FORECASTING: The process of predicting or estimating the future based on the evidence from the past and the present is referred to as forecasting. Forecasts may be comprehensive or limited in scope.

• It is not possible for forecasting to lessen the complexities and unpredictability of the future.
• Prediction is the foundation for premises.

TYPES OF FORECASTS

LONG TERM FORECASTS: Forecasting for the long term typically covers a period of time ranging from 3 to 5 years

Advantages

• Systematic leveraging and deleveraging
• Multiplication of earnings through the maintenance of cash reserves
• Evaluation of variances to monitor performance

Disadvantages

• The unpredictable nature of the economy
• The absence of historical knowledge
• The deficiency of the appropriate range of technologies
• The limits imposed by silent data on excel

MEDIUM-TERM FORECASTS:

For making relatively minor strategic decisions pertaining to the functioning of the firm, projections over the medium term are generated. Useful for operational budgeting as well as 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 1 to 6 months.

Advantages

• Reduced need for both time and money to complete the project
• Assessing the current state of the company’s finances
• Conducting a performance scenario analysis in order to take preventative action

Disadvantages

• The technology has a very high starting price tag due to its complexity.
• The payable account and the receiver account are both quite difficult to understand.
• Precision down to the granular level is needed
• Late decision owing to limited collaboration

Decision making

1. Actual selection of one course of action, from among several alternatives, is called decision-making.
2. It is one of the most prominent functions of the management.
3. Decision-making is not confined to planning alone but also embraces other aspects of management like organising, staffing, controlling etc.

Hierarchy of Decision makers

1. Top level
2. Middle level
3. Lower level.

Decision-Making by Groups

Whenever a group of people makes decisions, the process becomes more comprehensive compared to the way decisions are made by individuals.

ADVANTAGES OF GROUP DECISIONS DECISION

1.Thorough evaluation:. This increases the probability of decisions being better and practical.

2.Implement of decisions is easier

3.Enhanced team spirit: The members of an organization, which involves groups in decision making, are better motivated and have a better sense of unity of purpose amongst them, as they make decisions collectively.

Disadvantages of Group Decisions:

1. Time consuming and costly
2. Disagreements and indecisions
3. No-participation or domination: if one group member is of dominating nature, the views of others do not get reflected in the result.

VARIOUS CONDITIONS FOR DECISION-MAKING

• Certainty: if the decision maker knows exactly what is going to happen, it is the condition of certainty.
• 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.
• Uncertainty: When the decision maker feels that probabilities for various estimated outcomes cannot be assigned, it is called the situation of uncertainty.

PRINCIPLES OF DECISION MAKING

1. The effectiveness of the process of decision-making mainly relies on the quality of data available, analytical, and judgmental skills and experience of the decision-makers.
2. Correct identification of issues involved goes a long way in arriving at a better decision.
3. 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.
4. 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.

So, this article covers the comprehensive topic “Planning” in the syllabus of “Advanced Business and Financial Management (ABFM)” for the upcoming CAIIB Exam 2024. Apart from this, candidates can get free CAIIB ABFM pdf notes, study material, to know about syllabus, and paper pattern at Learning Session’s website. For a more detailed understanding of all concepts, you can also check CAIIB ABFM video by Learning Sessions’s expert professional Mr. Ashish Jain.