Planning premises are basic assumptions about the environment in which plans are expected to be implemented. Certainly, planning has to take into account numerous uncertainties in its environment. Premises guide effectively planning. As pointed out by Harold Koontz, planning premises spell out stage of the expected future event which is believed will exist when plans operate. They are the expected environment of plans. Planning premises are largely derived from forecasting. The effectiveness of planning to a great extent, depends on how accurately the premises are developed from out of the forecasting data. Though it is not possible to predict accurately future environmental conditions, planning has necessarily to be based on certain assumptions about the environment. These assumptions are captured in the form of planning premises.
Planning premises can be categorized into three heads –
(a) Internal and External premises : The factors which exist within the business organisation furnish the basis for internal premises. These include sales forecast, cash flows, capital budgeting, advertising expenditure, product line, marketing mix, competence of the managerial personnel etc. On the other hand external premises are concerned with the general business climate comprising of economic, social, political, technological conditions in the economy.
(b) Controllable, semi-controllable and uncontrollable premises : The premise which can be controlled by the management are known as controllable premises, These include the internal policies, credit policies, investment plans, research projects, rules.etc. which are within the jurisdiction of management. Semi-controllable premises are those over which the management has some control. Some of the examples of these premises are union management relations, firm’s share in the market, market strategies, labour turnover etc. Finally premises over which a firm has no control are known as uncontrollable premises. Examples in this category include the natural calamities, wars, strike, innovations, emergency legislation etc.
(c) Tangible and intangible premises : The premises that can be expressed in tangible physical terms (monetary units) such as labour hours, production units are knows as tangible premises. On the other hand, intangible premises are those that defy quantification! Examples of intangible premises are public relations, employee morale, reputation of the firm, competitive strength of the firm, etc. though the intangible premises cannot be quantified in specific terms, these cannot be ignored while planning.