A Dissertation Submitted to the School of Business in partial fulfilment of the requirements for the award of the Degree of Master of Business Administration (Corporate Management) of Mzumbe University.The objective of this study was to evaluate the effectiveness of strategic planning in the performance of SMEs in Ilala Municipality. The specific objectives are focused to find out factors which influenced SMEs to adopt strategic planning in their operations, to describe the contributions of the strategic planning in SMEs performance, to examine factors influencing effectiveness of strategic planning and to determine challenges faced by SMEs in the adoption and implementation of strategic planning. The methodology adopted was a case study with the sample size of 50 respondents of different categories of SMEs in Ilala Municipality from whom data were collected using questionnaires, interviews and focused group discussions. Data were analysed by using Statistical Package for Social Science (SPSS) version 20 and thematic approach analysis. Findings from the study revealed that there are various factors which influenced SMEs to adopt strategic planning in their operations such as organizational complexities, environment dynamics and external constraints. Many people seem not to be familiar with the process as they could not differentiate it from business plan. Strategic planning is considered to be effective only if it is well formulated and properly implemented to attain the desired goals regardless of the challenges in the process and this can happen when; resources are adequate, management supports team work and also the plans are flexible. It is regarded as a factor for success through its contribution in better decisions and solutions, satisfaction to the customers, competitive advantage and market recognition which they all facilitate the chances of success and improve performance. It is concluded that there is a positive relationship between effective strategic planning and performance improvement hence the study recommends a need for providing training to the entrepreneurs concerning proper formulation and implementation of strategic plans; also it is important to improve legal frame work and development of internal experts for SMEs to ensure that SMEs adopt and become able to continuously apply effective strategic planning in their operations