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Planning

Planning

Planning is the management function that involves setting goals and deciding how to best achieve them. Setting goals and developing plans helps the organization to move in a focused direction while operating in an efficient and effective manner. Long-range planning essentially is the same as strategic planning; both processes evaluate where the organization is and where it hopes to be at some future point. Strategies or plans are then developed for moving the organization closer to its goals. Long-range plans usually pertain to goals that are expected to be met five or more years in the future.

People often confuse the roles of planning and scheduling. They are different methodologies and utilize different sets of tools. Planning takes a futuristic view and sets anticipated timelines, while scheduling focuses on an organization's day-to-day activities. For example, most enterprise

resource planning (ERP) systems are good at the planning function, but are very poor at the scheduling function. A tool like finite capacity scheduling (FCS) is necessary to facilitate the daily tracking of material and labor movements.

LONG-RANGE PLANNING AND STRATEGIC MANAGEMENT

Since the purpose of strategic management is the development of effective long-range plans, the concepts often are used interchangeably. The traditional process models of strategic management involve planning organizational missions; assessing relationships between the organization and its environment; and identifying, evaluating, and implementing strategic alternatives that enable the organization to fulfill its mission.

One product of the long-range planning process is the development of corporate-level strategies. Corporate strategies represent the organization's long-term direction. Issues addressed as part of corporate strategic planning include questions of diversification, acquisition, divestment, and formulation of business ventures. Corporate strategies deal with plans for the entire organization and change relatively infrequently, with most remaining in place for five or more years.

Long-range plans usually are less specific than other types of plans, making it more difficult to evaluate the progress of their fulfillment. Since corporate plans may involve developing a research-intensive new product or moving into an international market, which may take years to complete, measuring their success is rarely easy. Traditional measures of profitability and sales may not be practical in evaluating such plans.

Top management and the board of directors are the primary decision makers in long-range planning. Top management often is the only level of management with the information needed to assess organization-wide strengths and weaknesses. In addition, top management typically is alone in having the authority to allocate resources toward moving the organization in new and innovative directions.

WHY ENGAGE IN LONG-RANGE PLANNING?

Research has found that firms engaged in strategic planning outperform firms that do not follow this approach. Because planning helps organizations to consider environmental changes and develop alternative responses, long-range planning seems particularly useful for firms operating in dynamic environments.

A review of studies regarding long-range and strategic planning and performance allows a number of generalizations to be made about how long-range planning can contribute to organizational performance.

  1. Long-range plans provide a theme for the organization. This theme is useful in formulating and evaluating objectives, plans, and policies. If a proposed objective or policy is not consistent with the existing theme, it can be changed to better fit the organization's strategies.
  2. Planning aids in the anticipation of major strategic issues. It enhances the ability of a firm to recognize environmental changes and begin courses of action to prevent potential problems. Rewarding employees for recognizing and responding to environmental changes sensitizes employees to the need for planning.
  3. Planning assists in the allocation of discretionary resources; future costs and returns from various alternatives can be more easily anticipated. Strategies also reflect priorities resulting from multiple objectives and business-unit interdependencies.
  4. Plans guide and integrate diverse administrative and operating activities. The relationship between productivity and rewards is clarified through strategic planning, guiding employees along the path to the desired rewards. Strategies also provide for the integration of objectives, avoiding the tendency for subunit objectives to take precedence over organizational objectives.
  5. Long-range planning is useful for developing prospective general managers. Strategic planning exposes middle managers to the types of problems and issues they will have to face when they become general managers. Participation in strategic planning also helps middle managers to see how their specialties fit into the total organization.
  6. Plans enable organizations to communicate with groups in the environment. Plans incorporate the unique features of the product or company that differentiate it from its competitors. Branding communicates to the public an image of product attributes (e.g., price, quality, and style). Similarly, dividend policies make a difference in the attractiveness of a stock to blue-chip, growth, and speculative investors.

THE STRATEGIC MANAGEMENT/ LONG-RANGE PLANNING PROCESS

The first basic step in long-range planning, is the definition of the organization's mission. Essentially, the mission is what differentiates the organization from others providing similar goods or services. Strategies are developed from mission statements to aid the organization in operationalizing its mission.

Long-range planning primarily is the responsibility of boards of directors, top management, and corporate planning staffs. Strategic decision makers are responsible for identifying and interpreting relevant information about the business environment. Thus, a key part of strategic management involves identifying threats and opportunities stemming from the external environment and evaluating their probable impact on the organization.

Environmental analysis, another key component of long range-planning, identifies issues to be considered when evaluating an organization's environment. The environment consists of two sets of factors. These include the macro-environment, consisting of factors with the potential to affect many businesses or business segments, and the task environment, with elements more likely to relate to an individual organization. Industry analysis is an especially important part of analyzing the specific environment of an organization.

Internal characteristics of an organization must be thoroughly identified and accounted for in order to effect long-term planning. Internal factors can represent either strengths or weaknesses. Internal strengths provide a basis upon which strategies can be built. Internal weaknesses represent either current or potential problem areas that may need to be corrected or minimized by appropriate strategies. Internal planning issues commonly involve the functional areas of finance, marketing, human resource management, research and development, operations/production, and top management.

Once the organization's mission is determined and its internal and external strengths and weaknesses are identified, it is possible to consider alternative strategies that provide the organization with the potential to fulfill its mission. This process essentially involves the identification, evaluation, and selection of the most appropriate alternative strategies. Strategic alternatives include strategies designed to help the organization grow faster, maintain its existing growth rate, reduce its scope of operations, or a combination of these alternatives. Corporate grand strategies are evaluated later in this discussion.

Strategy implementation is another important part of long-range planning. Once a strategic plan has been selected, it must be operationalized. This requires the strategy to be implemented within the existing organizational structure, or the modification of the structure so that it is consistent with the strategy. Implementing a strategy also requires integration with the organization's human component.

A final element of long-range planning is strategic control, which evaluates the organization's current performance and compares this performance to its mission. Strategic control essentially brings the strategic management process full circle in terms of comparing actual results to intended or desired results.

CORPORATE-LEVEL PLANS

Corporate-level plans are most closely associated with translating organizational mission statements into action. In a multi-industry or multiproduct organization, managers must juggle the individual businesses to be managed so that the overall corporate mission is fulfilled. These individual businesses may represent operating divisions, groups of divisions, or separate legal business entities. Corporate-level plans primarily are concerned with:

  1. Scope of operations. What businesses should we be in?
  2. Resource allocation. Which businesses represent our future? Which businesses should be targeted for termination?
  3. Strategic fit. How can the firm's businesses be integrated to foster the greatest organizational good?
  4. Performance. Are businesses contributing to the organization's overall financial picture as expected, in accordance with their potential? The business must look beyond financial performance to evaluate the number and mix of business units. Has the firm been able to achieve a competitive advantage in the past? Will it be able to maintain or achieve a competitive advantage in each business in the future?
  5. Organizational structure. Do the organizational components fit together? Do they communicate? Are responsibilities clearly identified and accountabilities established?

CORPORATE PORTFOLIO ANALYSIS

The Boston Consulting Group (BCG) Model is a relatively simple technique for helping managers to assess the performance of various business segments and develop appropriate strategies for each investment within the corporate portfolio.

The BCG Model classifies business unit performance on the basis of the unit's relative market share and the rate of market growth. Products and their respective strategies fall into one of four quadrants. The typical starting point for a new business is as a question mark. If the product is new, it has no market share but the predicted growth rate is good. What typically happens is that management is faced with a number of these types of products, but with too few resources to develop all of them. Thus, long-range planners must determine which of the products to attempt to develop into commercially viable products and which ones to drop from consideration. Question marks are cash users in the organization. Early in their life, they contribute no revenues and require expenditures

for market research, test marketing, and advertising to build consumer awareness.

If the correct decision is made and the product selected achieves a high market share, it becomes a star in the BCG Model. Star products have high market share in a high growth market. Stars generate large cash flows for the business, but also require large infusions of money to sustain their growth. Stars often are the targets of large expenditures for advertising and research and development in order to improve the product and to enable it to establish a dominant industry position.

Cash cows are business units that have high market share in a low-growth market. These often are products in the maturity stage of the product life cycle. They usually are well-established products with wide consumer acceptance and high sales revenues. Cash cows generate large profits for the organization because revenues are high and expenditures are low. There is little the company can do to increase product sales. The plan for such products is to invest little money into maintaining them, and to divert the large profits generated into products with more long-term earnings potentials (i.e., question marks and stars).

Dogs are businesses with low market share in low-growth markets. These often are cash cows that have lost their market share or are question marks the company has elected not to develop. The recommended strategy for these businesses is to dispose of them for whatever revenue they will generate and reinvest the money in more attractive businesses (question marks or stars).

Another, later form of the BCG Model is the GE/ McKinsey Matrix, which differs in three ways from the BCG Model: (1) a broader measurementcompetitive strengthis used instead of market share in order to assess the business unit's relative industry performance; (2) market industry attractiveness is used as a measurement of the product's performance, instead of just market growth; and (3), instead of using a two-by-two matrix in which to place the productas used in the BCG Modelthe GE/McKinsey Matrix uses a three-by-three matrix, which allows for a middle category for measuring product attractiveness.

CORPORATE GRAND STRATEGIES

Corporate strategies can be classified into three groups or types. Collectively known as grand strategies, these involve efforts to expand business operations (growth strategies), maintain the status quo (stability strategies), or decrease the scope of business operations (retrenchment strategies).

Growth Strategies. Growth strategies are designed to expand an organization's performance, usually as measured by sales, profits, product mix, or market coverage. Typical growth strategies involve one or more of the following:

  1. Concentration strategy, in which the firm attempts to achieve greater market penetration by becoming very efficient at servicing its market with a limited product line.
  2. Vertical integration strategy, in which the firm attempts to expand the scope of its current operations by undertaking business activities formerly performed by one of its suppliers (backward integration) or by undertaking business activities performed by a business in its distribution channel.
  3. Diversification strategy, which the firm moves into different markets or adds different products to its mix. If the products or markets are related to its existing operations, the strategy is called concentric diversification. If the expansion is in products and markets unrelated to the existing business, the diversification is called conglomerate.

Stability Strategies. When firms are satisfied with their current rate of growth and profits, they may decide to employ a stability strategy. This strategy basically extends existing advertising, production, and other strategies. Such strategies typically are found in small businesses in relatively stable environments. The business owners often are making a comfortable income operating a business that they know, and see no need to make the psychological and financial investment that would be required to undertake a growth strategy.

Retrenchment Strategies. Retrenchment strategies involve a reduction in the scope of a corporation's activities. The variables to be considered in such a strategy primarily involve the degree of reduction. Retrenchment strategies can be subdivided into the following:

  1. Turnaround strategy, in which firms undertake a temporary reduction in operations to make the business stronger and more viable in the future. These moves are popularly called downsizing or rightsizing. The hope is that a temporary belt tightening will allow the firm to pursue a growth strategy at some future point.
  2. Divestment, in which a firm elects to spin off, shut down, or sell a portion of its business. This strategy would commonly be used with a business unit identified as a dog by the BCG Model. Typically, a poor performing unit is sold to another company and the money is reinvested in a business with greater potential.
  3. Liquidation strategy, which is the most extreme form of retrenchment. Liquidation involves the selling or closing of the entire business operation, usually when there is no future for the business. Employees are released, buildings and equipment are sold, and customers no longer have access to the product. This generally is viewed as a strategy of last resort, and is one that most managers work hard to avoid.

The purpose of an organization is its role as defined by those who maintain authority over it. How the organization elects to fulfill this role constitutes its plan. Mission statements differentiate the organization from other organizations providing similar goods or services. Objectives are the intermediate goals or targets to be completed as the organization fulfills its mission. Plans outline how a firm intends to achieve its mission. Policies provide guidelines or parameters within which decisions are made so that decisions are integrated with other decisions and activities.

SEE ALSO Forecasting; Strategic Planning Tools; Strategy Formulation; Strategy in the Global Environment; Strategy Levels

BIBLIOGRAPHY

Cooper, Robert G., Edgett, Scott J., and Kleinschmidt, Elko J. Portfolio Management for New Products. 2nd edition. New York: Basic Books, 2001.

Plenert, Gerhard. The eManager: Value Chain Management in an eCommerce World. Dublin, Ireland: Blackhall Publishing Ltd., 2001.

. International Operations Management. Copenhagen, Denmark: Copenhagen Business School Press, 2002.

Plenert, Gerhard Johannes, and Bill Kirchmier. Finite Capacity Scheduling: Management, Selection, and Implementation. New York: John Wiley & Sons Inc., 2000.

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Planning

Planning

TYPES OF PLANNING

THE PLANNING PROCESS

PUBLIC-SECTOR PLANNING

BIBLIOGRAPHY

Planning represents the process of looking into the future, establishing something out there, creating a vision of a future state of affairs, and determining means of actualizing that state. A plan is something one intends to do or achieve, as when someone asks, Do you have any plans for the weekend? As a construct, a plan may mean activities that have to be performed to achieve something (objective). Plans therefore are predetermined, preceding action, and constitute programs of activities (means) considered valid for achieving predetermined aims and objectives.

TYPES OF PLANNING

Planning can take place in a variety of areas, for plans take varied forms: policy choice, manpower plans and incentive strategies, community action plans, site plans, comprehensive plans, building plans, economic development plans, disaster containment plans, housing and community development plans, and transportation plans, among others. However, urban planning has received attention in academic discussions perhaps because of its potential for improving the welfare of people and communities as well as the added impetus given to it since the nineteenth century by the formalized disciplines of architecture and engineering. Thus planning has tended to combine rationality and stylistic approaches to solving community problems by means of physical designs. Urban planning, city planning, regional planning, or community planning are concerned with ordering and designing human settlements with a view to creating more convenient, healthy, and aesthetically pleasing places for people.

Planning generally is people and community oriented. For instance, planning for economic development is vital to the process of building sustainable community. Housing and community development planning is concerned with creating accessible and equitable communities, sensitizing people to community and development issues, and generally seeking to develop strategies to address the needs of the homeless and the handicapped. Transportation planning also tends to show similar concerns for people and communities as it aims at revitalizing suburban commercial corridors to improve accessibility and mobility and, importantly, strike a balance between community needs and the interests of transporters.

Planners construct a broad vision of the community or help communities identify their goals or create a particular vision. They develop strategies by which communities can accomplish their goals and vision. They actively participate in the implementation of plans and monitor and coordinate the work of several groups of people.

THE PLANNING PROCESS

On plans and planning, Henri Fayol wrote The plan of action is, at the same time, the result envisaged, the line of action to be followed, the stages to go through and the methods to use (Fayol 1949, p. 130). George Steiner observed that planning is a process that begins with objectives, defines strategies, policies and detailed plans to achieve them (Steiner 1969, p. 20). It follows therefore that the planning process has three distinct phases, namely, definition of basic objectives and goals; developing strategies and means (or strategic plans) and policies to implement objectives; and developing detailed tactical and operational plans, such as work procedures and practices, time schedules, and budgets.

Planning, no matter in what area it takes place, generally follows this characteristic pattern. The first and basic aspect of planning is setting objectives. While it is possible for individuals and organizations to have goals and objectives, it is equally possible for them not to have any. Peter Drucker highlighted the importance of objectives: Few companies have any clear idea of what their mission is and that is one of the major causes of their worst mistakes. Managers have no feeling for what the company is really good at and conversely what it is not good at (Drucker 1954, p. 4). Aims and objectives are necessary not only to ensure effective performance by focusing energies, time, and other resources but also to ensure that strategies are related to objectives. Goals and objectives vary, however, and depend on the planning area and institution concerned. Common institutional goals include profitability, growth, market share, innovation, survival, social responsibility, worker and employee welfare and development, service to customers, and provision of public services.

Planning is also concerned with decisions about methods, that is, about means or strategies for achieving identified aims and objectives. Strategic planning (or developing strategies and policies for achieving objectives) describes processes involved in producing plans, often called strategies, that identify the basic objectives and concrete actions necessary to implement them. This aspect of planning calls for auditing of the planning environment to identify needs, constraints, opportunities, and the organizations internal strengths, weaknesses, resources, and capabilities.

The experience of California Union Bank provides apt example of a firm scanning its rather crowded competitive environment. When Harry Volk accepted an offer to become president of the bank in 1957, he surveyed the banking industry and perceived a vigorous race to create more retail or consumer-oriented branches. Rather than join the race, he decided to pursue a different strategy. Volk had observed that no bank concentrated exclusively on businesses, particularly fairly risky business loans. He reasoned that if he charged higher-than-normal interest rates on weaker credit risks, it was possible to suffer higher-than-normal loan losses and yet have a profitable business. Consequently, Union Bank opted to pursue a strategy of becoming a wholesale- or business-oriented bank.

Another aspect of planning is determination of the manner in which plans must necessarily be carried out. This is essentially a matter of conduct generally governed by such written documents as mission statements, policy statements, customer charters, and the like. Policies provide guides to decision-making, reflect company objectives, and generally guide managers and employees toward objectives in situations where judgment and discretion are required. However, conduct may also either be determined by influence or by informal standards that lie beneath organizational behavior.

The next phase preceding action in the planning process is developing tactical plans, which involves making specific commitments and providing details for methods (work practices and procedures), money (budgets), and time (time schedules). While policy provides guides for deciding, procedures provide guides for doing, for concrete actions. Procedures refer to methods of carrying out activities and might prescribe steps to be followed in doing work a kind of checklist for action. Procedures produce programmed responses to organizational problems and apply mainly to routine repetitive work.

PUBLIC-SECTOR PLANNING

Planning in the public sector is essentially embodied in public budgets, so public-sector planning emphasizes project-based financial plans. Because plans are problem-solving mechanisms, they design solutions to public-sector problems. The process in the public sector presents a distinctively different scenario from private-sector or business planning. While mathematical optimization models and computer formulations and simulations may be developed under the philosophy of obtaining the answer, that is, the best or optimal solution for business problems, such models, including multiobjectives models, when applied to public-sector planning, may not be useful because there is a multitude of local optima and because important planning elements are not captured in the formulations. The omitted elements may actually imply that the optimal planning solution lies within the inferior region of multiobjective analysis rather than along the noninferior frontier. The choice of action, selection of public programs, or decision option may be far from the best, what is most rational, or what makes an economic sense, but it remains a political choice. The roles of these optimization methods have been to generate planning alternatives and to facilitate their evaluation and elaboration as well as to provide useful insights and to serve as catalysts for human creativity.

Business planning is relatively new to public-sector and nonprofit organizations. Approaches to business planning in provincial, municipal, federal, or board-governed organizations are different from those in the private sector, although the language and concepts remain the same. The emphasis remains on establishing the vision, goals, strategies, and performance measures for high-performance organizations.

Such plans develop strategies for performance measurement, create benchmarks, and set standards. They may also include implementation strategies with emphasis on service excellence and must necessarily involve people in the decisions that affect them. However, many rational planning models applied in the public sector appear to focus on efficiency objectives and suffer from two lingering limitations: failure to consider equity or distribution of income and the empirical limitation of calculating costs and benefits. This has meant that achieving plannings intended roles in the public domain may require the use of several models as well as new types of optimization formulations and modified algorithms and computer codes. Optimization models are important because they help generate planning alternatives and facilitate comparison between them. Thus in the public sector it may be desirable to use several different models to aid the planning process.

Because plans are strategic instruments for goal attainment, their nature and form tend to be determined by the type and nature of objectives and goals established. While goals tend to differ from one individual and organization to another and while individuals and groups generally operate under varying conditions, the effectiveness of plans and planning appears to depend on the total planning situation, consisting of several sometimes complex variables, such as the knowledge, skill, and expertise of planners, available resources and technology, and the nature of the environment, among others. It means that plans must be related to objectives and adapted to the circumstances of the planning institution. Therefore plans that enable organizations to cope with relatively stable conditions will differ in significant respects from plans that suit relatively unstable conditions. For instance, extrapolative planning may be appropriate for stable conditions, enabling forecasts of revenue and expenditure to be made based on current conditions that are assumed to remain unchanged from the previous planning period. While its major purpose may be to ensure control over costs and legality of action, extrapolative planning is unsuitable for long-range planning and incapable of dealing with turbulence and the constraints of unstable conditions. On the contrary, unstable conditions, where there are uncertainties and where the environment is characterized by turbulence and complexities, warrant a rational comprehensive planning approach able to address longterm goals and contend with the various environmental forces. Planning, programming, and budgeting systems, one approach often used in the public sector, offer great potential for dealing with the present-day world of uncertainties. It is an integrated planning-budgeting system that is program based and relates expenditures to performance and outcomes.

Public-sector planning calls for access to budget information and the ability to understand that such information is capable of promoting public involvement in and scrutiny of the budget process. Public access to government policy initiatives, priorities, and implementation can promote popular participation. Public planners therefore necessarily need to look out for and respond to forces from the popular sector if social rationality in the public planning process is to be achieved. While the aim of rational public planning may be economic prosperity, the elimination or reduction of poverty, and the provision of public goods, good health, environmental sanity, and security, or in a nutshell, provision of general happiness, to exclude the public in this process totally contradicts the requirements of long-term comprehensive planning, which calls for active participation, cooperation, and the support of all stakeholders and clientele groups in society. In a democratic society, a theoretical and empirical if not political question has often remained: Who determines or takes part in determining what constitutes general interests? The public will probably remain indispensable in answering these questions.

Public access to information on public policy issues recommends itself for effective national comprehensive planning because it guarantees both government accountability and civil society participation in the budget process. This enables planners to use feedback arising from internal and external sources to bring about necessary adjustments in plans and, through public criticism or external performance evaluation, to remain focused.

SEE ALSO Cities; Development Economics; Metropolis; Policy Analysis; Public Policy; Regions; Regions, Metropolitan

BIBLIOGRAPHY

Brill, D. E., Jr. 1979. The Use of Optimization Models in Public Sector Planning. Management Science 25 (5): 413-422.

Drucker, Peter. 1954. The Practice of Management. New York: Harper.

Fayol, Henri. 1949. General and Industrial Management. Trans. Constance Storrs. London: Pitman.

Hampton, D. R. 1977. Contemporary Management. New York: McGraw-Hill.

Steiner, George. 1969. Top Management Planning. New York: Macmillan.

Frederick Ugwu Ozor

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planning

planning Given a description of a set of actions and a desired goal state, a plan is a specified sequence of the actions that will allow an agent to move from a starting state to achieve the goal state. Planning is a major branch of artificial intelligence and planners are often implemented as a heuristic search process, the synthesis of a plan being seen as finding a path from start to goal through a search space.

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planning

planning (plan-ing) n. the stage of the nursing process in which an individual care plan is produced, stating the patient's problem(s), the objective, the goal or expected outcome, the nursing intervention, and the time or date by which the objective is expected to be achieved or by which the problem should be reviewed.

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