Introduction to Planning in Co-operatives

What is planning?
Planning is the basic process of setting and selecting goals and determining how to achieve them. It is about pre-determining where you want to go and laying strategies of how to get there even before the journey starts.
Why do we plan?
Everybody in every organisation makes some kind of plan. In most cases, however, it is poor planning rather than lack of it that results into poor results. Organizations are established for various purposes and to achieve them, planning is necessary. They are
established with a view of making profits, meeting customer needs, providing employment, growing and serving a multiplicity of other objectives. Planning therefore helps one to reduce chances of failure and instead increase chances of success.
Organizations are set up in environments that differ and today, business environment is dynamic with socio-political and technological changes taking place fast. In such environments, setting stable goals or objectives becomes difficult. While setting goals is difficult, achieving them is even more difficult. Planning enables us to:
 Look into the uncertain future and map out ways to achieve our purpose using various planning techniques
 Set realistic goals that have been thought out properly
 Focus on those aspects that are vital and possible within constraints of the environment
 Forecast future trends to some degree (since planning involves looking ahead)
 Identify the factors that affect our intended goals and work out mitigation measures
 Determine in advance how we are going to do the things we have envisaged to do
 Examine our resources and their adequacy for planned activities/ outcomes
Plans are therefore a key function of management, and are generally based on pillars illustrated below:
Who Plans?
Planning takes place all the time at all levels in any organization, whether conscious or not. Everybody in the organization should plan his or her work on a day to day basis or longer. Normally lower level managers and staff involved in operations plan within the
framework of broader, longer term plans. Middle level managers also plan within the framework of broad overall plans.
Good management tends to plan for long periods (three to five years). This is normally referred strategic planning. The shorter term plans (one year or less) are referred to as operational or annual plans, Middle level management tends to focus on operational plans while top level management focuses on strategic planning.
Types of plans
A typical MFI has different types of plans. Broadly, plans are of the following types:
(i) Strategic/ Business plans – these are of a long time nature. They are usually 3 to 5 years. Strategic plans define broadly where the organization wants to be in future. Some organizations have plans for longer periods up to 10 years. Due to the volatile nature of the environment organizations operate in, longer period plans beyond five years are not advisable.
(ii) Operational plans – these are of a short term nature. Operational plans are derivative plans. They are derived from the strategic plans and give details of how specific objectives will be achieved by aligning shorter term activities to the strategic plan. These plans are usually for one year. They may however range from 6-18 months.
There is also another set of plans described as standing plans. These are standardized approaches for handling recurrent and predictable situations. These include:
Policies: These are general guidelines for decision making. They set the limits or boundaries for taking a decision. A policy channels the thinking of people in an organization so that they take decisions consistent with objectives. For example a microfinance institution may have a policy of not exceeding a loan amount of 10million.
Standard procedures: A procedure is a detailed set of instructions for performing a sequence of activities that occur regularly or very often. For example a microfinance institution has standard procedures of approving a loan. Standard procedures are the
means of carrying out a policy.
Rules/ Regulations: These are statements stipulating specific actions that must or must not be taken in a given situation. They are either dos or don’ts.
Overview of the planning process
Planning gives purpose and direction to the organization. It helps decide what, when, how and why we do certain activities or tasks. Planning goes through a process that involves scanning the environment, establishing goals, developing premises /assumptions, determining alternative courses of action, evaluating the various alternative courses, selecting a course of action, formulating derivative plans and quantifying the plans into budgets.
Scanning the environment
Whether it is a new or an on going business the first step in the planning process is to scan the internal and external environments. Managers should take a preliminary look at possible opportunities that can be taken advantage of in light of the organization’s
strengths and weaknesses. Scanning the environment also reveals the threats.
Setting goals and objectives
The second step in the planning process is to set goals and objectives. Having realized the internal strengths and weaknesses as well as external opportunities and threats the environment the institution is operating in offers, the manager(s) establish organizational
goals. These are broad aims or statements of purpose. The goals provide the basic sense of direction that forms the activities of the organization.
An organization’s mission is the “unique aim” for its existence. This unique aim sets it apart from other Organizations. No two organizations can have a similar mission, though the wording of a mission for two organizations may be similar.  The term goal refers to the organization’s grand or long term purpose, which is derived from its mission and which in turn determines mid and short term objectives. Goal is a broad term that states what is to be achieved as a result of all the organization’s activities.
Organizational objectives are specific targets derived from its goal, which in turn flows from its mission. Objectives are usually quantitative or otherwise objectively measurable. Good organizational objectives should be: Specific, Measurable, Achievable,
Realistic and Time-bound (SMART). Setting organizational goals is the process that defines what the organization plans to
achieve. This is very important since deployment of organizational resources will respond to this goal definition. For an existing organization, the goal setting process involves assessing whether the organization is achieving its existing goals or not. To do
this, management asks questions like – What are the gaps? What elements of the goal(s) are no longer relevant and what new perspectives should be introduced into the goal? What should be done to address the gaps and challenges? Is it necessary to review the goals, reduce them or amend them? Are the existing goals achievable, given the environmental factors and dynamism? These will help the organization make decisions on what to do with its existing goal(s).
For a new organization or one without existing goals, the goal setting process involves examining the mission and based on it, determining the organization’s grand, long term purpose. In both cases (whether goals are being adjusted or formulated), mid and shorter term objectives are then derived from the goals.
Premising / developing assumption
The third step in planning is to establish forecasts and assumptions from the environment about the events that will affect the objectives and their achievement. For instance, what will the sales be, how will competition evolve? What might the ongoing regulatory trends do to the sector? Which factors will affect demand and supply volumes in the future? What effect might some or all of these have on prices, wages, rates and other revenue/expenditure elements? This step also involves assessing the present situation both in terms of the organization and also the environmental conditions. Forecasts or projections can be made if the
environment is known. Having established the goals and objectives showing what we want to achieve, we must make assumptions about what is likely to happen. We may, for instance assume that inflation and interest rates will be at certain levels in the future. This then enables organization to determine the activities to be undertaken in order to tap opportunities while controlling risks. Forecasts are not only made about the external environment but also about the environment internal to the organisation.
Determining Alternative Courses of Action
This is a stage of analysis. It involves using various analytical tools and skills to generate the different courses of action. When goals have been selected/ formulated and we know what we require to achieve them, then the various ways of achieving the goals can be logically determined. These are the strategies, policies and tactics. Strategies are broad programmes to achieve goals. Policies are broad frameworks to guide thinking and action, while tactics are operational decisions aimed at efficient resource utilization.
Different courses of action may be adopted to take full range of opportunities available and to boost organizational health.
Evaluating the various Alternative Courses of action Having generated the different alternatives the next step is to analyze and evaluate each in light of the available resources and objectives. This involves anticipating, for each probable course of action, what would happen if you took one particular course of action. The necessary factors are examined and likely outcomes assessed. At this stage also, scanning the environment and forecasting will be done.
Selecting a Course of Action
This is the actual point of adopting a plan or selecting a strategy, the point of decision making. As already said, a plan is a predetermined course of action. It is a process of deciding by selecting one or a few alternatives among many. At this stage, you actually generate the strategic plan if this process is at top level. If it is at a lower level, you generate an operational plan.
Formulating Derivative Plans
Once the basic (broader) plan has been made, derivative plans to support it must be made. If the basic plan was strategic, the operational plans will have to be made. Plans for each sub-unit in the organizations like product development, finance, personnel will also have to be made. For an organisation with branches/sub-units, sub-plans are necessary for each department and branch. This Aids budgeting which is the final stage of the planning process.
Budgeting is the final step in the planning process. Budgets are the quantitative expression of a plan. Budgets give meaning to plans because they show how and where the financial commitment is to be made, and what financial results are expected from this.
A budget is an estimation or projection of the financial performance and condition of an organization for a future time period. Therefore put in another way, budgeting is translating ones plans in monetary terms.
Purpose of budgeting
Budgets have five general purposes:
 They put business strategy into operation
 They allocate resources
 They provide incentives to managers
 They help in the control of spending
 They communicate plans and expectations
(i) Putting business strategy into operation
This can be achieved through the planning process that involves many people creating mission statements, analyzing strengths, weaknesses, opportunities and threats (SWOT analysis), prioritizing initiatives, determining courses of action and allocating resources to produce a comprehensive strategic plan document.
Budgets innovatively reflect the organizations’ real strategy-whether that strategy is implicit or explicit. It shows what the organization thinks is going to happen and what initiatives it is going to take to harness its external environment, improve internal
environment and thus improve its performance.
In some cases, the budget is the place where funds are set aside for new programs, capital investments, and all types of enhanced resources. The budget may incorporate new goals for the organization or deepen/ broaden existing ones.
(ii) Resource allocation
Budgets presume resources are limited. The budget process forces the organization to take stock of its resources and to determine their limits. It must identify the sources of funds it can tap and how they will best be used. An organization can structure its
allocations on the basis of units or departments, programs, activities, or managers. In some cases, particular resources will be tied to particular units or programs, as in grants or restricted gifts.
(iii) Incentives
Every budget is governed by rules, stated or not stated. These rules encourage certain behaviours on the part of people in the organization. The behaviours encouraged by the budget process can benefit or harm the organization, depending in part on how well they were thought, although unintended effects occur in even the most carefully designed
system. An organization therefore needs to design rules that provide incentives for managers to make more careful spending decisions throughout the year.
(iv) Control
The traditional view of budgets considers them a tool for controlling spending. Departments receive budgets that tell them how much to spend, and the central offices do not let them spend more than what appears in their budget. The assumption here is that
spending will tend to be uncontrolled if it is not cut off and that managers or departments need a lot of help in knowing when to cut back on spending. In the modern context, budgets are planning tools that consider income generation, cost allocation and new
opportunity tapping. It is therefore important to remember that the budget is not only an expenditures control toll but also a tool for watch over the income generation process as well. The income generation is very important aspect of budgeting which many SACCO leaders and managers tend to forget and instead concentrate on expenditure variables yet
both sides require equal attention.
(v) Communication

Budgets are critical vehicles for internal and external communications. The budget process allows leadership to describe its plans, goals, and assessment of economic conditions for the rest of the organization. In soliciting budget proposals, leadership can
ask the various parts of the organization for their assessment of relevant conditions, thus providing new information about the organizations opportunities and threats and obtaining a reality check on leadership’s vision. Once the budget is set, managers can
take their guidance from it. External groups rely on budgets to understand the organization’s plans and expectations. Funders want to see budgets that show how the organization intends to use the money it receives.
The budget shows an organization’s Administrative Committee what management thinks is going to happen in the coming year and what management intends to do to boost its outcomes. At the intra institutional level, the branch or departmental budget tells senior management how the branch/ department heads thinks their units are going to fair. The budget also allows the Management Committee and external groups to assess management’s ability to oversee finances, serve as a steward for resources, and achieve objectives. If the budget is unrealistic, it suggests that management does not have a good plan for maintaining the organization’s financial health.
In summary, an effective budget should:
 State all of the assumptions
 Be understandable and simple
 Represent the combined judgment of staff and management
 Cover a period for which reliable estimates can be made
 Be flexible to permit adjustment
 Establish standards of performance
 Provide motivation and guide performance
 Guide management and staff towards objectives
Who should be involved?
Operational/ activity based budgets must be drawn up by people who have ground experience. Long term strategic budgets should be drawn by senior management. For an annual budget, both the strategic and operational angles are needed; therefore field staff,
departmental managers, accounts staff, and senior management should all be involved. A budget committee normally coordinates the process. The overall budget (Master Budget) should be approved by the Administrative Committee.
Budgeting Process
The budget process provides the vehicle for operationalising strategy by making decisions to allocate funds in line with the strategy. There are differences between organizations- size, type of mission, number of products/ programs/ projects, to name just
a few factors. Across the variety, the budget process maintains a remarkably consistent shape. Generally, the budget process consists of three basic phases:
 Budget development
 Budget monitoring, tracking, and adjustments
 Analysis of final results
These phases cross years: Budget development takes place before the budget year in question starts; Monitoring and adjustment occur throughout the budget year; Final results are analyzed after the year ends. In most healthy organizations, one of these three
phases is in progress at any given time, and the phases from different years feed back to each other.
(i) Budget Development
It should start with a set of activities to lay the ground for the next year’s budget. Managers of the organization should start the process by evaluating its financial position and reviewing the organization’s strategies. Managers usually begin by looking at the
results from the year that has just ended. Although another complete year-the one current underway-will occur between the period covered by those results and the year for which they are preparing a budget, this information is the best at this time, as it covers the most recent results realized.
(ii) Budget Monitoring, Tracking and Adjustments
Activity related to monitoring and tracking the current year budget usually consumes more time than budget development. The first task in managing the current year is to make sure that spending stays with in limits and that the revenue goals are achieved. If
revenues exceed plan, increased spending may be acceptable or necessary. In face of revenue shortfalls, it does not do the organisation any good to meet its expense budgets.
The process of comparing actual and budgeted outcomes periodically is known as budgetary control.
(iii) Analysis of Final results
When the year ends, the budgeted and actual results are tallied. At this point the budget process has completed the cycle. Only with the final results can the organisation judge whether its budgeting process has succeeded or failed. The following questions should be answered:
 Did the budgeting process succeed in anticipating events of the year?
 Did the process help the organisation identify and respond to conditions as they changed during the year?
 What do the final results tell us that we need to take into consideration for our planning for next year, and do they suggest an adjustments we need to make in our plans, goals, or actions during the year that just got started?Prior year budget versus actual analyses and full year forecast form the basis of the ensuing year’s budget.
Implementation/ execution of Plans
After going through the entire process of planning, the plan(s) should be executed or implemented. Even the most well thought out plan will remain useless if it is not executed. In implementing the plan(s), tasks are assigned with deadlines to responsible
individuals and progress is continually assessed against set goals and milestones.


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