Class12 BusinessStudies1 Unit04 NCERT TextBook EnglishEdition

7/30/2019 Class12 BusinessStudies1 Unit04 NCERT TextBook EnglishEdition

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PlanningCHAPTER

Gas Authority of India (GAIL) New PlansGas Authority of India (GAIL) New Plans

GAIL India, which has had a monopoly in the gas transmission

sector is set to see some tough competition in the coming days.

While Reliance is poised to get into the trunk pipeline segment,

British Gas is trying to get into the city gas distribution sector.GAILs new chairman, shares his thoughts on how he plans to

take the company ahead.

What are GAILs main priorities?

Going by its business strategy, the focus areas are gas sourcing,

transmission, marketing, processing, petrochemicals, globalisation

and city gas distribution. We are focussing on sourcing of gas from

indigenous finds and through LNG and crossborder pipelines. We

intend to develop the gas market by extending our gas grid from

5,600 km to 10,000 km. The city gas project is expected to rise

from 6 to 45 by the end of the 11th five year Plan.What are GAILs plans for acquiring an exploration and

production (E&P) company abroad?

GAIL has plans to strengthen its exploration and production

activities. To become a formidable company, GAIL is exploring

options - acquiring an E&P company is one such option.

What are your Capex plans and how do you plan to fund it?

GAILs budgeted Capex plan for FY 06-07 is Rs. 2967.28 crore.

This includes capital expenditure of Rs. 2579.58 crore on pipeline

and other projects and Rs. 387.7 crore on petrochemical projects.

This will be funded through internal reserves.What are your plans on city gas distribution? Will GAIL

continue with its plans on fuel management?

We have already established the business successfully in Mumbai,

Delhi, Vadodara, Vijaywada, Agra, Lucknow, Kanpur. Till date GAIL

has formed eight joint venture companies to implement city gas

projects. The projects have had an impact on the pollution levels.

GAIL is in the process of forming state-wise Joint Ventures with oil

marketing companies to implement city gas projects in Rajasthan.

What are GAILs plans to diversify into telecom and what is

the current status?

4After studying thischapter, you will be

able to:

n State the meaning

of planning;

n Describe the

features and

importance of

planning;

n Explain the

limitations of

planning;

n Analyse the steps

in the planning

process; and

n Identity the

different types of

plans.

L E A R N I N G

O B J E C T I V E S


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96 Business Studies

IntroductIon

You have just read about the plans ofGas Authority of India Limited (GAIL),It is one of our leading public sectorcompanies. The plans discussed bythe Chairperson, GAIL are real plansof the company and how they

would like to go about achievingtheir objectives. Of course, theseare broad statements given by the

company and they have to be brokendown into steps for implementation.This is an example of a companyin the public sector with a nation-

wide reach striving to be one of thetop companies in India. Furthermore, every organisation whetherit is government-owned, a privatelyowned business or a company in theprivate sector requires planning. Thegovernment makes five year plansfor the country, a small businesshas its own plans, while othercompanies have big plans, salesplans, production plans. All of themhave some plans.

All business firms would like to besuccessful, increase their sales andearn profits. All managers dream

of these and strive to achieve theirgoals. But to turn these dreams into

reality managers need to work hard inthinking about the future, in making

business predictions and achievingtargets. Dreams can be turned intoreality only if business managersthink in advance on what to do andhow to do it. This is the essence ofplanning.

MeanIng

Planning is deciding in advance whatto do and how to do. It is one of the

basic managerial functions. Beforedoing something, the manager mustformulate an idea of how to work ona particular task. Thus, planning isclosely connected with creativity andinnovation. But the manager wouldfirst have to set objectives, only then

will a manager know where he has

to go. Planning seeks to bridge thegap between where we are and where

we want to go. Planning is whatmanagers at all levels do. It requirestaking decisions since it involvesmaking a choice from alternativecourses of action.

Planning, thus, involves settingobjectives and developing appropriate

courses of action to achieve these obj-ectives. Objectives provide direction

Gailtel, the telecom service arm of GAIL, offers telecom servicescommercially to lead telecom operators across India. Gailtel

owns and operates approximately 13,000 route km of fibre optic

network, GAIL is evaluating various options to work out its future

growth plans.

Source: The Economic Times, October 2006


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Planning 97

for all managerial decisions andactions. Planning provides a rationalapproach for achieving predeterminedobjectives. All members, therefore,need to work towards achievingorganisational goals. These goalsset the targets which need to beachieved and against which actualperformance is measured. Therefore,

planning means setting objectivesand targets and formulating anaction plan to achieve them. It isconcerned with both ends and meansi.e., what is to be done and how it isto be done.

The plan that is developed has tohave a given time frame but timeis a limited resource. It needs to be

utilised judiciously. If time factoris not taken into consideration,

conditions in the environment maychange and all business plans maygo waste. Planning will be a futileexercise if it is not acted upon orimplemented.

Do you think from the above we canformulate a comprehensive definitionof planning? One of the ways to doso would be to define planning as

setting objectives for a given timeperiod, formulating various coursesof action to achieve them, and thenselecting the best possible alternativefrom among the various courses ofaction available.

IMportanceof plannIng

You must have seen in films and

advertisements how executivesdraw up plans and make powerful

Planning: Keeping the

objective in view and

being in action


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98 Business Studies

presentations in boardrooms. Dothose plans actually work? Doesit improve efficiency? After all whyshould we plan? These are numerousquestions to which we would like tofind solutions. Planning is certainlyimportant as it tells us where to go,it provides direction and reducesthe risk of uncertainty by preparing

forecasts. The major benefits ofplanning are given below:(i) Planning provides directions:

By stating in advance how workis to be done planning providesdirection for action. Planning ens-ures that the goals or objectivesare clearly stated so that theyact as a guide for deciding whataction should be taken and in

which direction. If goals are welldefined, employees are aware of

what the organisation has to doand what they must do to achievethose goals. Departments andindividuals in the organisationare able to work in coordination.If there was no planning, empl-oyees would be working in different

directions and the organisationwould not be able to achieve itsdesired goals.

(ii) Planning reduces the risks ofuncertainty:Planning is an activity

which enables a manager to lookahead and anticipate changes.By deciding in advance the tasksto be performed, planning shows

the way to deal with changesand uncertain events. Changes

or events cannot be eliminatedbut they can be anticipated andmanagerial responses to themcan be developed.

(iii) Planning reduces overlappingand wasteful activities: Plan-ning serves as the basis ofcoordinating the activities andefforts of different divisions,

departments and individuals. Ithelps in avoiding confusion andmisunderstanding. Since plan-ning ensures clarity in thoughtand action, work is carried onsmoothly without interruptions.Useless and redundant activitiesare minimised or eliminated. Itis easier to detect inefficienciesand take corrective measures todeal with them.

(iv) Planning promotes innovativeideas: Since planning is thefirst function of management,new ideas can take the shapeof concrete plans. It is the mostchallenging activity for themanagement as it guides allfuture actions leading to growth

and prosperity of the business.(v) Planning facilitates decision

making: Planning helps themanager to look into the futureand make a choice from amongst

various alternative courses ofaction. The manager has to eva-luate each alternative and selectthe most viable proposition.

Planning involves setting targetsand predicting future conditions,


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Planning 99

thus helping in taking rationaldecisions.

(vi) Planning establishes standardsfor controlling: Planning inv-olves setting of goals. The entiremanagerial process is concerned

with accomplishing predeter-mined goals through planning,organising, staffing, directing and

controlling. Planning provides thegoals or standards against whichactual performance is measured.By comparing actual performance

with some standard, managers canknow whether they have actually

been able to attain the goals. Ifthere is any deviation it can becorrected. Therefore, we can saythat planning is a prerequisitefor controlling. If there were nogoals and standards, then findingdeviations which are a part ofcontrolling would not be possible.

The nature of corrective actionrequired depends upon the extent

of deviations from the standard.Therefore, planning provides thebasis of control.

featuresofplannIngIt the example of Polaris, the companyhas plans of expansion. Theirobjective is to increase their capacityso that they can employ 800 more

professionals. Their target time is sixmonths. The objective of the currentyear has also been clearly stated whichis to increase capacity by 1500-2000more professionals. Since planning isthe primary function of managementthey have set their objectives first.

Thus, all businesses follows a setpattern of planning. You will be ableto find some similarities in the featuresof planning and what you see in reallife. Try and identify those.

The planning function of themanagement has certain specialfeatures. These features throw lighton its nature and scope.

IT Company Polaris Software Lab is planning a new facility in Mumbai with a capacity

for 800 professionals.The company currently has 1,200 professionals across its three centers in Mumbai,

and the new facility is expected to come up in the next six months.

Polaris chairman and CEO said that the company was well on the track to meet its

earlier announcement to increase the headcount by 1,500-2,000 professionals in the

current year to reach the 9,000 mark by March 2007. We will look at acquisition of

small boutique consulting companies that are focused on banking, financial services

and insurance (BFSI) space. This will strengthen customer service and account

management capabilities.

Source: The Economic Times, October 06

Polaris Plans New Facility in MumbaiPolaris Plans New Facility in Mumbai


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100 Business Studies

(i) Planning focuses on achievingobjectives: Organisations areset up with a general purposein view. Specific goals are setout in the plans along with theactivities to be undertaken toachieve the goals. Thus, planningis purposeful. Planning has nomeaning unless it contributes

to the achievement of predet-ermined organisational goals.(ii) Planning is a primary function

of management: Planning laysdown the base for other func-tions of management. All othermanagerial functions are perfor-med within the framework ofthe plans drawn. Thus, planningprecedes other functions. This isalso referred to as the primacy ofplanning. The various functionsof management are interrelatedand equally important. However,planning provides the basis of allother functions.

(iii) Planning is pervasive: Planningis required at all levels ofmanagement as well as in all

departments of the organisation.It is not an exclusive functionof top management nor of anyparticular department. But thescope of planning differs at diff-erent levels and among differentdepartments. For example, thetop management undertakesplanning for the organisation

as a whole. Middle managementdoes the departmental planning.

At the lowest level, day-to-dayoperational planning is done bysupervisors.

(iv) Planning is continuous: Plansare prepared for a specific periodof time, may be for a month, aquarter, or a year. At the end ofthat period there is need for a newplan to be drawn on the basis of

new requirements and futureconditions. Hence, planning is acontinuous process. Continuityof planning is related with theplanning cycle. It means that aplan is framed, it is implemented,and is followed by another plan,and so on.

(v) Planning is futuristic: Planningessentially involves looking aheadand preparing for the future.

The purpose of planning is tomeet future events effectivelyto the best advantage of anorganisation. It implies peepinginto the future, analysing it andpredicting it. Planning is, therefore,regarded as a forward lookingfunction based on forecasting.

Through forecasting, future eventsand conditions are anticipated andplans are drawn accordingly. Thus,for example, sales forecasting isthe basis on which a businessfirm prepares its annual plan forproduction and sales.

(vi) Planning involves decisionmaking:Planning essentially inv-

olves choice from among variousalternatives and activities. If there


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Planning 101

is only one possible goal or apossible course of action, thereis no need for planning becausethere is no choice. The needfor planning arises only whenalternatives are available. In actualpractice, planning presupposesthe existence of alternatives.

Planning, thus, involves thoroughexamination and evaluation ofeach alternative and choosingthe most appropriate one.

(vii) Planning is a mental exercise:Planning requires applicationof the mind involving foresight,intelligent imagination and sound

The Essar group is looking to step up its global operations by entering the riskier but

profitable markets of Africa, eastern Europe and the Middle East.

In its core business of steel, the Essar group is also looking at a proposal to acquirean integrated steel plant in Eastern Europe.

The group has also announced its intention of setting up Greenfield steel

manufacturing operations in Sharjah, Qatar and Iran. It has plans to set up a 50-50

joint venture with state-owned Qatar Steel Company for a 1.5 million ton steel plant

along with a 1 million ton steel rolling plant on the outskirts of Sharjah and another

ton per annum steel plant in Iran, according to a recent Essar newsletter. Even the

Indonesia branch of Essar, where the group runs a cold-rolling complex, is expected

to look for merger and acquisitions (M & A) opportunities in the region.

Source: Business World, 25th September 06

International Ambitions of EssarInternational Ambitions of Essar

Planning: the first

step to management


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kind of rigidity in plans maycreate difficulty. Managers needto be given some flexibility to beable to cope with the changedcircumstances. Following apre-decided plan, when circum-stances have changed, may notturn out to be in the organisationsinterest.

(ii) Planning may not work in adynamic environment: Thebusiness environment is dyn-amic, nothing is constant. Theenvironment consists of anumber of dimensions, economic,political, physical, legal and socialdimensions. The organisationhas to constantly adapt itself tochanges. It becomes difficult toaccurately assess future trendsin the environment if economicpolicies are modified or politicalconditions in the country arenot stable or there is a naturalcalamity. Competition in themarket can also upset financialplans, sales targets may have to

be revised and, accordingly, cash

budgets also need to be modifiedsince they are based on salesfigures. Planning cannot foreseeeverything and thus, there may beobstacles to effective planning.

(iii) Planning reduces creativity:Planning is an activity which isdone by the top management.Usually the rest of the members

just implements these plans. Asa consequence, middle manage-

judgment. It is basically anintellectual activity of thinkingrather than doing, becauseplanning determines the actionto be taken. However, planningrequires logical and systematicthinking rather than guess workor wishful thinking. In other

words, thinking for planning

must be orderly and based on theanalysis of facts and forecasts.

lIMItatIonsofplannIngWe have seen how planning isessential for business organisations.It is difficult to manage operations

without formal planning. It is impo-rtant for an organisation to movetowards achieving goals. But we haveoften seen in our daily lives also, thatthings do not always go accordingto plan. Unforeseen events andchanges, rise in costs and prices,environmental changes, governmentinterventions, legal regulations, allaffect our business plans. Plans thenneed to be modified. If we cannotadhere to our plans, then why do

we plan at all? This is what we needto analyse. The major limitations ofplanning are given below:

(i) Planning leads to rigidity: Inan organisation, a well-definedplan is drawn up with specificgoals to be achieved within aspecific time frame. These plansthen decide the future course of

action and managers may not bein a position to change it. This


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Planning 103

ment and other decision makersare neither allowed to deviatefrom plans nor are they permittedto act on their own. Thus, muchof the initiative or creativityinherent in them also gets lostor reduced. Most of the time,employees do not even attemptto formulate plans. They only

carry out orders. Thus, planningin a way reduces creativity sincepeople tend to think along thesame lines as others. There isnothing new or innovative.

(iv) Planning involves huge costs:When plans are drawn up hugecosts are involved in theirformulation. These may be interms of time and money forexample, checking accuracy offacts may involve lot of time.Detailed plans require scientificcalculations to ascertain factsand figures. The costs incurred

sometimes may not justify thebenefits derived from the plans.There are a number of incidentalcosts as well, like expenses on

boardroom meetings, discussionswith professional experts andpreliminary investigations to findout the viability of the plan.

(v) Planning is a time-consuming

process: Sometimes plans to bedrawn up take so much of timethat there is not much time leftfor their implementation.

(vi) Planning does not guaranteesuccess: The success of anenterprise is possible only whenplans are properly drawn up andimplemented. Any plan needsto be translated into action orit becomes meaningless. Mana-gers have a tendency to relyon previously tried and testedsuccessful plans. It is not alwaystrue that just because a plan has

To give a boost to the financial health of state electricity boards (SEBs), the power

ministry has outlined an 11-point agenda to initiate their financial turnaround by

2007-08. Suggestions include changes in the way distribution utilities submit tariff-fixation petitions to the regulators and introduction of the concept of a proper time-

bound business plan.

The ministry has asked all utilities to adopt a multi-year tariff approach while

filing the next tariff petition for 2007-08 before the state regulator. This must be

undertaken before December 2006. It has also asked utilities to have a state-

approved business plan with identifiable goals for a three, six and 12-month period.

Also, approval needs to be sought from the state regulator for automatic tariff

adjustment to recover additional fuel and other unanticipated costs.

Source: The Economic Times, September 06

Ministry Draws up Plan to Turn Around SEBs by 08Ministry Draws up Plan to Turn Around SEBs by 08


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worked before it will work again.Besides, there are so many otherunknown factors to be considered.

This kind of complacency andfalse sense of security may act-ually lead to failure instead ofsuccess. However, despite itslimitations, planning is not auseless exercise. It is a tool to beused with caution. It provides a

base for analysing future coursesof action. But, it is not a solutionto all problems.

plannIng processPlanning, as we all know is decidingin advance what to do and how to do.It is a process of decision making.How do we go about making a plan?

Since planning is an activity thereare certain logical steps for everymanager to follow.

(i) Setting Objectives: The firstand foremost step is settingobjectives. Every organisationmust have certain objectives.Objectives may be set for theentire organisation and each

department or unit within theorganisation. Objectives or goalsspecify what the organisation

wants to achieve. It could meanan increase in sales by 20%

which could be objective of theentire organisation. How all dep-artments would contribute tothe organisational goals is the

plan that is to be drawn up.Objectives should be stated clearly

for all departments, units andemployees. They give direction toall departments. Departments/units then need to set theirown objectives within the broadframework of the organisationsphilosophy. Objectives have topercolate down to each unitand employees at all levels. Atthe same time, managers mustcontribute ideas and participatein the objective setting process.

They must also understandhow their actions contribute toachieving objectives. If the endresult is clear it becomes easierto work towards the goal.

(ii) Developing Premises: Planningis concerned with the future

which is uncertain and everyplanner is using conjucture about

what might happen in future.Therefore, the manager is requiredto make certain assumptionsabout the future. These assum-ptions are called premises. Assu-mptions are the base materialupon which plans are to be

drawn. The base material may bein the form of forecasts, existingplans or any past informationabout policies. The premisesor assumptions must be thesame for all and there should

be total agreement on them. Allmanagers involved in planningshould be familiar with and

using the same assumptions. Forexample, forecasting is important


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Planning 105

in developing premises as it is atechnique of gathering inform-ation. Forecasts can be madeabout the demand for a particularproduct, policy change, interestrates, prices of capital goods,tax rates etc. Accurate forecasts,therefore become essential forsuccessful plans.

(iii) Identifying alternative coursesof action: Once objectives are set,assumptions are made. Then thenext step would be to act uponthem. There may be many waysto act and achieve objectives.

All the alternative courses ofaction should be identified. Thecourse of action which may betaken could be either routine orinnovative. An innovative coursemay be adopted by involvingmore people and sharing theirideas. If the project is important,then more alternatives should

be generated and thoroughlydiscussed amongst the membersof the organisation.

(iv) Evaluating alternative courses:

The next step is to weigh the prosand cons of each alternative. Eachcourse will have many variables

which have to be weighed againsteach other. The positive andnegative aspects of each proposalneed to be evaluated in the lightof the objective to be achieved.In financial plans, for example,

the risk-return trade-off is verycommon. The more risky the

investment, the higher the returnsit is likely to give. To evaluate suchproposals detailed calculationsof earnings, earnings per share,interest, taxes, dividends aremade and decisions taken.

Accurate forecasts in conditionsof certainty/uncertainty then

become vital assumptions for

these proposals. Alternatives areevaluated in the light of theirfeasibility and consequences.

(v) Selecting an alternative: Thisis the real point of decisionmaking. The best plan has to

be adopted and implemented.The ideal plan, of course, wouldbe the most feasible, profitableand with least negative conseq-uences. Most plans may notalways be subjected to amathematical analysis. In suchcases, subjectivity and themanagers experience, judgmentand at times, intuition playan important part in selectingthe most viable alternative.Sometimes, a combination of

plans may be selected insteadof one best course. The manager

will have to apply permutationsand combinations and select the

best possible course of action.(vi) Implement the plan: This is

the step where other managerialfunctions also come into thepicture. The step is concerned

with putting the plan into actioni.e., doing what is required. For


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example, if there is a plan toincrease production then morelabour, more machinery will berequired. This step would alsoinvolve organising for labour andpurchase of machinery.

(vii) Follow-up action:To see whetherplans are being implemented andactivities are performed according

to schedule is also part of theplanning process. Monitoringthe plans is equally importantto ensure that objectives areachieved.

typesofplansBased on what the plans seeks toachieve and the method which theplan would like to adopt, plans can

be classified as different types Objectives, Strategy, Policy, Procedure,Method, Rule, Programme, Budget.

objectIvesThe first step in planning is settingobjectives. Objectives, therefore, can

be said to be the desired future positionthat the management would like to

reach. Objectives are very basic tothe organisation and they are definedas ends which the managementseeks to achieve by its operations.

Therefore, an objective simply statedis what you would like to achieve,i.e., the end result of activities. Forexample, an organisation may havean objective of increasing sales by

10% or earning a reasonable rate ofreturn on investment, earn a 20%

profit from business. They representthe end point of planning. Allother managerial activities are alsodirected towards achieving theseobjectives. They are usually set bytop management of the organisationand focus on broad, general issues.

They define the future state of affairswhich the organisation strives to

realise. They serve as a guide foroverall business planning. Differentdepartments or units in the organ-isation may have their own objectives.

Objectives need to be expressedin specific terms i.e., they should bemeasurable in quantitative terms,in the form of a written statement ofdesired results to be achieved withina given time period.

strategyA strategy provides the broad contoursof an organisations business. It willalso refer to future decisions definingthe organisations direction and scopein the long run. Thus, we can say astrategy is a comprehensive planfor accomplishing an organisation

objectives. This comprehensive planwill include three dimensions,(i) determining long term objectives,(ii) adopting a particular course ofaction, and (iii) allocating resourcesnecessary to achieve the objective.

Whenever a strategy is formulated,the business environment needs to

be taken into consideration. The

changes in the economic, political,social, legal and technological envi-


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Planning 107

ronment will affect an organisationsstrategy. Strategies usually take thecourse of forming the organisationsidentity in the business enviro-nment. Major strategic decisions

will include decisions like whetherthe organisation will continue to

be in the same line of business, orcombine new lines of activity with theexisting business or seek to acquirea dominant position in the samemarket. For example, a companysmarketing strategy has to addresscertain questions i.e., who are thecustomers? what is the demandfor the product? which channel ofdistribution to use? what is the pricingpolicy? and how do we advertisethe product. These and many more

issues need to be resolved whileformulating a marketing strategy forany organisation.

polIcyPolicies are general statements thatguide thinking or channelise energiestowards a particular direction. Policiesprovide a basis for interpreting strategy

which is usually stated in general terms.They are guides to managerial actionand decisions in the implementationof strategy. For example, the companymay have a recruitment policy, pricingpolicy within which objectives are setand decisions are made. If there is anestablished policy, it becomes easierto resolve problems or issues. As such,

a policy is the general response to aparticular problem or situation.

There are policies for all levelsand departments in the organisationranging from major company policiesto minor policies. Major companypolicies are for all to know i.e.,customers, clients, competitors etc.,

whereas minor polices are applicableto insiders and contain minute detailsof information vital to the employeesof an organisation. But there has to besome basis for divulging informationto others.

Policies define the broad param-eters within which a manager mayfunction. The manager may usehis/her discretion to interpret andapply a policy. For example, thedecisions taken under a PurchasePolicy would be in the nature of

manufacturing or buying decisions.Should a company make or buy itsrequirements of packages, transportservices, printing of stationery, waterand power supply and other items?How should vendors be selectedfor procuring supplies? How manysuppliers should a company makepurchases from? What is the criteria

for choosing suppliers. All theseanswers would be addressed by thePurchase Policy.

procedureProcedures are routine steps on howto carry out activities. They detailthe exact manner in which any

work is to be performed. They are

specified in a chronological order. Forexample, there may be a procedure for


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requisitioning supplies beforeproduction. Procedures are specifiedsteps to be followed in particularcircumstances. They are generallymeant for insiders to follow. Thesequence of steps or actions to betaken are generally to enforce apolicy and to attain pre-determinedobjectives. Policies and proceduresare interlinked with each other.Procedures are steps to be carried out

within a broad policy framework.

Method

Methods provide the prescribed waysor manner in which a task has to beperformed considering the objective.It deals with a task comprising one

step of a procedure and specifieshow this step is to be performed. TheMethods may vary from task to task.Selection of proper method savestime, money and effort and increasesefficiency. For imparting trainingto employees at various level fromtop management to supervisory,different methods can be adopted. Forexample for higher level managementorientation programmes, lectures andseminars can be organised whereasat the supervisory level, on the jobtraining methods and work-orientedmethods are appropriate.

rule

Rules are specific statements thatinform what is to be done. They do notallow for any flexibility or discretion.

It reflects a managerial decision thata certain action must or must not betaken. They are usually the simplesttype of plans because there is nocompromise or change unless a policydecision is taken.

prograMMe

Programmes are detailed statementsabout a project which outlines theobjectives, policies, procedures, rules,tasks, human and physical resourcesrequired and the budget to implementany course of action. Programmes

will include the entire gamut ofactivities as well as the organisationspolicy and how it will contributeto the overall business plan. Theminutest details are worked out i.e.,procedures, rules, budgets, withinthe broad policy framework.

budget

A budget is a statement of expectedresults expressed in numerical terms.It is a plan which quantifies futurefacts and figures. For example, asales budget may forecast the salesof different products in each area fora particular month. A budget mayalso be prepared to show the numberof workers required in the factory atpeak production times.

Since budget represents all itemsin numbers, it becomes easier tocompare actual figures with expectedfigures and take corrective actionsubsequently. Thus, a budget is also


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Planning 109

a control device from which deviations

can be taken care of. But making abudget involves forecasting, therefore,it clearly comes under planning. It isa fundamental planning instrumentin many organisations.

Let us take an example of CashBudget. The cash budget is a basictool in the management of cash. It isa device to help the management to

plan and control the use of cash. It isa statement showing the estimatedcash inflows and cash outflowsover a given period. Cash inflows

would generally come from cash

sales and the cash outflows would

generally be the costs and expensesassociated with the operations of the

business. The net cash position isdetermined by the cash budget i.e.,inflows minus () outflows = surplusor deficiency.

The management has to holdadequate cash balances for variouspurposes. But at the same time, it

should avoid excess balance of cashsince it gives little or no return.

The business has to assess andplan its need for cash with a degreeof caution.

Planning Objectives Goals Decisions

Standards Controlling Premises Assumptions

Alternatives Strategy Policy Procedure

Rule Programme Budget

PlanningPlanning is deciding in advance what to do and how to do. It is oneof the basic managerial functions.Planning therefore involves setting objectives and developing anappropriate course of action to achieve these objectives.Importance of PlanningPlanning provides directions, reduces risks of uncertainty, reducesoverlapping and wasteful activities, promotes innovative ideas,facilitates decision making, establishes standards for controlling.Features of PlanningPlanning focuses on achieving objectives; It is a primary functionof management; Planning is pervasive, continuous, futuristic and

involves decision making; It is a mental exercise.

Key Terms

Summary


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Exercises

Limitations of PlanningPlanning leads to rigidity; reduces creativity; involves huge costs; Itis a time consuming process; Planning does not work in a dynamicenvironment; and does not guarantee success.Planning ProcessSetting objectives: Objectives may be set for the entire organisationand each department or unit within the organisation.Developing premises: Planning is concerned with the future which isuncertain and every planner is using conjucture about what mighthappen in future.

Identifying alternative courses of action: Once objectives are set,assumptions are made. Then the next step would be to act upon them.Evaluating alternative courses: The next step is to weigh the prosand cons of each alternative.Selecting an alternative: This is the real point of decision making.

The best plan has to be adopted and implemented.Implement the plan: This is concerned with putting the plan into action.Follow-up action: Monitoring the plans are equally important toensure that objectives are achieved.

Types of PlansObjectives:Objectives therefore can be said to be the desired futureposition that the management would like to reach.Strategy:A strategy provides the broad contours of an organisations

business. It will also refer to future decisions defining theorganisations direction and scope in the long run.Policy: Policies are general statements that guide thinking orchannelise energies towards a particular direction.Procedure:Procedures are routine steps on how to carry out activities.Rule:Rules are specific statements that tell what is to be done.Programme:Programmes are detailed statements about a project whichoutlines the objectives, policies, procedures, rules, tasks, human andphysical resources required and the budget to implement any courseof action.Budget:A budget is a statement of expected results expressed innumerical terms. It is a plan which quantifies future facts and figures.

Short Answer Type

1. What are the main points in the definition of planning.

2. How does planning provide direction?


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Planning 111

3. Do you think planning can work in a changing environment?4. If planning involves working out details for the future, whydoes it not ensure success?

5. Why are rules considered to be plans?

6. What kind of strategic decisions are taken by businessorganisations.

Long Answer Type

1. Why is it that organisations are not always able to accomplishall their objectives?

2. What are the main features to be considered by the manag-ement while planning?

3. What are the steps taken by management in the planningprocess?

4. Is planning actually worth the huge costs involved? Explain.

Interview a local small-business manager about how their objectivesare set and the time taken to achieve them. How do their answers

compare with what you have learnt in the chapter.

An auto company C Ltd. is facing a problem of declining marketshare due to increased competition from other new and existingplayers in the market. Its competitors are introducing lower pricedmodels for mass consumers who are price sensitive. For qualityconscious consumers, the company is introducing new models withadded features and new technological advancements.

Questions1. Prepare a model business plan for C Ltd. to meet the existing

challenge. You need not be very specific about quantitativeparameters. You may specify which type of plan you arepreparing.

2. Identify the limitations of such plans.

3. How will you seek to remove these limitations?

Activities

Case Problem

Class12 BusinessStudies1 Unit04 NCERT TextBook EnglishEdition

Documents

Transcript of Class12 BusinessStudies1 Unit04 NCERT TextBook EnglishEdition