7 planning cb gupta.pptx

Part II
Planning and Decision-making
7) Nature, Process and Types of Planning
8) Forecasting
9) Management by Objectives
10) Decision-making
11) Strategic Management Process
12) Problem Solving

7. Nature, Process and Types of Planning
CHAPTER OUTLINE
7.1 Meaning of Planning
7.2 Nature of Planning
7.3 Importance of Planning
7.4 Limitations of Planning (Problems in Planning)
7.5 Making Planning Effective
7.6 Essential of a Sound Plan
7.7 Principles of Planning
7.8 Types of Planning
7.9 Steps in Planning Process
7.10 Planning Premises
7.11 Types of management Plans (Components of Planning)

7.11.1 Objectives
7.11.2 Strategies
7.11.3 Policies
7.11.4 Procedures
7.11.5 Rules
7.11.6 Methods
7.11.7 Tactics
7.11.8 Budgets
7.11.9 Projects
7.11.10 Programmes
7.11.11 Schedules
• Points to Remember • Review Questions • Case Study

Planning is the most fundamental function of
management.
It is basic to all other management functions.
It provides the foundation upon which organizing,
staffing, directing and controlling functions can be
carried out.
Action follows Planning and there is nothing to do
unless the goals and ways of achieving them are
decided.
Whenever a number of individuals join together and
decide to achieve a common goal, Planning
becomes necessary.

7.1 Meaning of Planning
• In simple words, planning is deciding in advance
what to do it, when to do it and who is to do it.
• In involves anticipating the future and consciously
choosing the future course of action.
• According to Haimann, “Planning is the function
that determines in advance what should be
done.
• It consists of selecting the enterprise objectives,
policies, programmes, procedures and other
means of achieving these objectives”.

• In the words of koontz and O’Donnell, “Planning
involves selecting enterprise objectives,
departmental goals and programmes and
determining the ways of reaching them.
• Planning thus provides a rational approach”.
• Planning is a process and a plan is the outcome
of this process.
• Planning is the process of deciding how the
organization can get where it wants to go and
what it will do to get there.

7.2 Nature of Planning
The main features of planning are as fallows:
1. Planning is Goal-oriented.
2. Planning is a Primary Function.
3. Planning is All-Pervasive.
4. Planning is an Intellectual or Rational Process.
5. Planning is a Continuous Process.
6. Planning is Forward-looking.
7. Planning Involves Choice.
8. Planning is an Integrated Process.
9. Planning is Directed Towards Efficiency.

1. Planning is Goal-oriented.
• Planning is not an end in itself.
• Rather, it is a means towards the accomplishment
of objectives.
• Planning has no meaning unless it contributes in
some positive way to the achievement of
desired goals.
• All plans emanate from objectives.

2. Planning is a primary Function.
• Planning is the basis or foundation of the
management process.
• All other functions of management are designed
to attain the goals set under planning.
• Planning provides the basis for efficient
organizing, staffing, directing and controlling.
• Without planning, there is nothing to organize,
no one to actuate and no need to control.

Achieving Objectives
Planning
Organizing
Staffing
Directing
Controlling
Fig.7.1. Planning as the Foundation of Management.

3. Planning is All-Pervasive.
• Planning is the function of each and every manager
irrespective of the level and area of his/her
operation.
• It is the job of all managers in all types of
organizations.
• However, the scope, extent and the nature of planning
tend to decrease as we descend towards the
lower levels of management.
• Managers at the top level prepare long-term plans for
the company as a whole, middle-level managers
formulate departmental and functional plans for
medium-term.
• At the lowest level, managers prepare operating and
short-term plans.

4. Planning is an Intellectual or Rational
Process.
• Planning is a mental exercise involving
imagination, foresight and sound
judgment.
• It requires a mental disposition of thinking
before doing and acting in the light of
facts, rather than guess.

5. Planning is a Continuous Process.
• Planning is an On-going and dynamic exercise.
• As the assumptions and events on which plans
are based change, old plans have to be
revised or new ones have to be prepared.
6. Planning is Forward-looking.
• Planning involves anticipating the future course of
events.
• Therefore, forecasting is the essence of planning.
• Forecasting involves assessing the uncertain future
and making provisions for it.

7. Planning Involves Choice.
• Planning is essentially choosing among alternative
courses of action.
• Planning presupposes the existence of alternatives.
• There is no need for planning if there is only one way
of doing something.
8. Planning is an Integrated Process.
• Planning is a structured process and different
plans constitute a hierarchy.
• Every lower-level plan serves as a means
towards the end of higher plans.
• This is known as the ‘ends-means chain’.

9. Planning is Directed Towards Efficiency.
• Planning has no relevance if it does not
facilitate the achievement of objectives
economically and efficiently.
• The efficiency of plans is measured by how
much they contribute to the objectives.

7.3 Importance of Planning
• Sound plans are essential to effective
management, because they serve as
guides to all management functions.
• Planning does not guarantee success.
• But companies which plan perform better than
those which do not
• Lack of well-defined objectives and priorities is
the common cause of failure.
“Failure to plan is planning to fail”.
• Planning is useful to an organization in the
following ways:

i. Focuses Attention on Objectives and Results.
ii. Reduces Uncertainty and Risk.
iii. Provides Sense of Direction.
iv. Encourages Innovation and Creativity.
v. Helps in Coordination.
vi. Guides Decision-making.
vii. Provides a Basis for Decentralization.
viii.Provides Efficiency in Operations.
ix. Facilitates control.

i. Focuses Attention on Objectives and
Results.
• Every Organization exists to achieve certain
objectives.
• Planning concentrates attention on the dominant
goals of the Organization.
• If forces the members of the organization not to
get lost in the maze of routine activities and
lose sight of the broad objectives for which the
organization was established.

ii. Reduces Uncertainty and Risk.
• Uncertainty and change are inevitable and
planning cannot eliminate them.
• But Planning enables an organization to cope
with uncertainty and change.
• With the help of Planning, an enterprise can
predict future events and make due
provision for them.

iii. Provides Sense of Direction.
• Planning directs human efforts into endeavors
that contribute to the accomplishment of
goals.
• “If you don’t know where you are going, any road
will get you there”.
• Planning makes work more meaningful and
activities more orderly.
• It bridges the gap between where we are and
where we want to go.
• Without Planning action is likely to become
random activity producing nothing but chaos.

iv. Encourages Innovation and Creativity.
• Innovation and creativity are prerequisites to
continuous growth and steady prosperity of
business.
• Planning is forward looking and it enables an
enterprise to cope with technological and other
developments.
• Planning requires continuous monitoring of
environment for new ideas and developments.
• As a result the enterprise becomes dynamic.
• Being anticipatory in nature, Planning improves the
adaptability of an organization to the changing
environment.

v. Helps in Coordination.
• Planning is the best stage for the integration of
diverse forces at work.
• Planning interrelates all the activities and
resources of an organization.
• It also helps to relate internal conditions and
processes to external events and forces.
• The activities and efforts of various departments
and divisions can be harmonized with the
help of an overall plan.

vi. Guides Decision-making.
• Planned targets serve as the criteria for the
evaluation of different alternatives so that
the best course of action may be chosen.
• Sound plans prevent hasty judgment and
haphazard action.
• “Without planning, business decisions would
become random ad hoc choices, as though
a pilot set out without knowing whether he
wished to fly to London, Hong Kong or
Johannesburg”.
• In the absence of plans, there is no sound basis
for making future-oriented decisions.

vii. Provides a Basis for Decentralization.
• Planning helps in the delegation of authority to
lower levels of management.
• Well-established plans serve as guides to
subordinates and reduce the risk involved in
delegation of authority.
• Planning also helps to improve the motivation
and morale of employees by providing
targets of performance.

viii. Provides Efficiency in Operations.
• Planning facilitates optimum utilization of
available resources.
• It helps to reduce costs and to increase
economy.
• It makes it possible for things to occur which
would not otherwise happen.
• It improves the competitive strength of an
organization by helping it to discover and
exploit opportunities.

ix. Facilitates control.
• Planning provides the basis for control.
• Plan serve as standards for the evaluation of
performance.
• Sound planning enables management to control
the events rather than be controlled by
them.
• It permits control by exception.

7.4 Limitations of Planning
(Problems in Planning)
Planning suffers from the following limitations:
1. Lack of Accurate Information.
2. Time and Cost.
3. Inflexibility.
4. Resistance to Change.
5. Lack of Ability to Plans.
6. False Sense of Security.
7. Environmental Constraints.

1. Lack of Accurate Information.
• Planning is done for future and the quality of
planning depends upon accuracy of
information.
• No manager can predict completely and
accurately the events of future.
• The accuracy and reliability of forecasts
diminishes as the forecasting period
increases.
• If reliable forecasts and data are not available,
planning premises cannot be realistic.

2. Time and Cost.
• Planning is a time-consuming and expensive
process.
• Collection of data and revision of plans involves
considerable time, effort and money.
• More detailed is the planning, greater is the time
and expense involved.
3. Inflexibility.
• Planning may result in internal rigidity in
managerial work.
• Detailed policies and procedures may curb
employee initiative and individual freedom.
• Such rigidity leads to delay in work performance.

4. Resistance to Change.
• Most people have regard for the present rather
than for future.
• They resist change due to fear of failure and
uncertainty.
• Unless the required changes are made, planning
may be ineffective.
• Planning requires a risk-taking attitude.
• Human psychology is such that people often resist
change.
• Sometimes, vested interests and powerful groups
in an organization may unduly stress their pet
projects.

5. Lack of Ability to Plans.
• Some managers do not believe in the worth of
planning.
• Very few managers are endowed with a
capacity for deep and rational thinking and
high degree of perception which are
necessary for formal planning.

6. False Sense of Security.
• Planning may create a false sense of security
in the enterprise.
• A manager may feel that once the plans are
formulated, action will automatically be
efficient.
• Once the policies and procedures are
established, they are considered sacred.
• Plans cannot replace intuition.

7. Environmental Constraints.
• Managers do not have control over social,
technological, legal, economic and other
outside forces.
• In a rapidly changing environment, planning
activities undertaken in one period may
not be relevant for another period.
• Emergent situations may require on-the-spot
decision and the course of action chosen in
advance may have to be abandoned.

Why Planning May Fail ?
1. Planning is not Simple and Understandable.
2. Management at all levels is not involved in planning.
3. Standards laid down are too easy or too difficult.
4. Corporate Planning is not integrated into the total
management system.
5. Plan is based on inadequate or incorrect information.
6. Plan is not balanced, i.e., too much emphasis is placed on
any single aspect of planning.
7. Planning does not possess in-built flexibility.
8. Plan is not well-coordinated.
9. A suitable internal climate for planning is not created.
10. Plans are formulated without proper assessment of the
external environment.

7.5 Making Planning Effective
Managers may use the following measures in order to
overcome the above limitations and to make planning
more effective:
1. Climate for Planning
2. Clear-cut Objectives
3. Management Information System
4. Careful Premising
5. Top Management Support
6. Participation in Planning
7. Sound Communication
8. Integration of Plans
9. Open Systems Approach
10. Cost Benefit Analysis

1. Climate for Planning
• A climate conducive to planning should be
established throughout the organization.
• Every superior manager should remove obstacles
to planning and provide facilities for planning.
• This can be done by setting clear goals,
establishing realistic planning premises, and
ensuring information and appropriate staff
assistance at all levels.
• A sound forecasting system must be developed
and planning must not be left to chance.

2. Clear-cut Objectives
• The existence of clear and specific objectives is
essential for efficient planning.
• The overall objectives of the enterprise serve as
guidelines for preparing plans at different
levels.
• This facilitates a coordinated structure of plans.
3. Management Information System
• An efficient system should be developed so that
relevant facts and figures are made available
to the managers at the right time.

4. Careful Premising
• Planning premises constitute the framework
within which planning is done.
• All relevant factors should be considered while
formulating planning premises.
• Accurate forecasting is essential for correct
premising.
• Availability of resources should be ensured
before a future course of action is charted
out.

5. Top Management Support
• Top Management is responsible for the success
or failure of the entire organization.
• Therefore, Planning can be effective only when
it has the initiative and support of the top
level.
• Top executives should vigorously review
subordinate plans and their performance to
generate interest in planning throughout the
organization.
• Planning must begin at the top.

6. Participation in Planning
• Planning should be collaborative or joint process.
• Planning is likely to be pragmatic and efficient when
managers at all levels are given an opportunity to
make suggestions.
• These consultations will improve their commitment
to planning.
• Participation in planning may be obtained by
constituting planning committees at various
levels.
• Another method of participative planning is
‘grassroots budgeting’ under which budgeting
process is started at the lowest level and then
carried upward to the top level.

7. Sound Communication
• Successful implementation of plans requires
complete understanding and motivation on
the part of employees at all levels.
• This is possible when various plans are
communicated clearly and in time. The
actions required to execute the plans should
be identified.
• A habit of planning every course of action can
be developed through understanding of
different facets of planning.

8. Integration of Plans
• Many a times a sound long-term plan fails
because there is lack of integrated
planning.
• Short-term operational plans are the means of
implementing long-term plans.
• Therefore, different plans must be properly
balanced and integrated with one another.
•Planning must be flexible and well-organized.

9. Open Systems Approach
• Plans should be kept up-to-date through
periodic review and revision.
• Therefore, managers must continuously
monitor the environmental changes and
their impact on the enterprise.
• Managers can better plan and execute their
actions when they keep their antenna fully
tuned up with the environment in which
the enterprise operates.
• An element of flexibility should be introduced
in planning.

10. Cost Benefit Analysis
• The planners should conduct from time to time a
cost-benefit analysis to ensure that the
benefits of planning are more than the costs
involved.
• Any plan which is not worth its costs should be
discarded.
• In addition to the above, use of right techniques
and proper timings increase the effectiveness
of planning.

Planning at Polaris
• Lakshya, Polaris’ annual goal-setting session,
where hundreds of key employees formulate
the Organisational goals for the year ahed.
• Thus December, when polaris employees assemble
in Bangalore for their next Lakshya session, its
Independent directors will also be participating
for the first time ever.
• Polaris is involving them for two reasons.
• One, a process by which directors can interact with
the employees gets established.
• Two, the culture of openness gets strengthened.

7.6 Essentials of a Sound Plan
A good plan should contain the following features:
i. It should be based on clearly defined objectives.
ii. It must be simple and easily understandable.
iii. It should be flexible or adaptable to changing conditions.
iv. It must be balanced in all respects and should be reasonably
comprehensive.
v. It should provide standards for the evaluation of performance and actions.
vi. It should be economical, i.e., permit optimum use of available resources
before creating new authorities and new resources.
vii. It should be practicable or action-oriented.
viii. It should be prepared with the consultation of concerned persons.
ix. Different plans must be properly integrated and harmonized with one
another.
x. It should provide for proper analysis and classification of actions.

7.7 Principles of Planning
• Over the years, a number of fundamental
principles have been developed to guide
the efforts of managers in preparing
effective plans.
• These principles relate to the nature, purpose,
process and structure of planning.
• A brief description of planning principles is
given below:

1. Principle of Contribution to Objectives.
2. Principle of Efficiency of plans.
3. Principle of primacy of planning.
4. Principle of planning premises.
5. Principle of policy Framework.
6. Principle of Timing.
7. Principle of Alternatives.
8. Principle of Limiting Factor.
9. Principle of Commitment.
10.Principle of Flexibility.
11.Principle of Navigational Change.
12.Principle of Competitive strategies.

1.Principle of Contribution to Objectives.
• Every major and derivative plan should contribute
positively towards the accomplishment of
enterprise objectives.
• The principle is derived from the raison d’etre of
the enterprise.
of Efficiency of plans.
y of a plan is measured by the amount
utes to objectives minus the costs and
desirable consequences involved in the
on and operation of the plans.

3. Principle of Primacy of Planning.
• This principle emphasizes that a manager can
hardly perform other managerial functions
without a road map of plans to guide him.
• Planning is the primary requisite of other
management functions because these functions
are designed to support the accomplishment of
enterprise objectives.
4. Principle of Planning Premises.
• Perhaps the main deficiency of planning arises from
poorly structured plans.
• A coordinated structure of plans can be developed only
when managers throughout the organization
understand and agree to utilize consistent planning
premises.

5. Principles of policy Framework.
• A consistent and effective framework of enterprise
plans can be developed if the basic policies
that guide thinking in decisions are expressed
clearly and are understood by managers who
prepare the plans.
• The decisions which lead to plans cannot be
accurately focused on enterprise objectives
without a framework of policies.

6. Principle of Timing.
• When the plans are structured to provide an
appropriately timed, intermeshed network of
derivative and supporting programmes, the
plans can contribute effectively and efficiently
towards the attainment of enterprise
objectives.
• Both premises and policies are useless without
proper timing.
7. Principles of Alternatives.
• In choosing from among alternatives, the best
alternative will be that which contributes most
efficiently and effectively to the
accomplishment of a desired goal.

8. Principle of Limiting Factor.
• While choosing from among alternatives, the
planner should focus on those factors which
are critical to the attainment of the desired
goal.
• This will help in selecting the most favorable
alternative.
9. Principle of Commitment.
• Logical planning should cover a time period
necessary to forecast the fulfillment of
commitment involved in a decision.
• This is necessary to make reasonably sure of
meeting commitments.

10. Principle of Flexibility.
• This principles deals with the ability to change
which is built into plans.
• The risk of loss due to unexpected events can be
reduced by building flexibility into the plans.
• However, the cost of flexibility should be weighed
against the dangers of future commitments
made.

11. Principle of Navigational Change.
• The manager should periodically check on events and
expectations and redraw plans to maintain a course
toward the desired goal.
• Unless plans have in-built flexibility, navigational
change is difficult or costly.
• But in-built flexibility should not be an excuse for
periodic revision of plans, if circumstances so
warrant.
12. Principle of Competitive Strategies.
• While formulating plans, a manager should take into
account the plans of rivals or competitors.
• The plans should be chosen in the light of what
competitor will do in the same situation.

7.8 Types of Planning
From the view point of scope, planning can be of the
following types:
1. Group or sectional Planning.
• Group or sectional planning refers to planning for specific
groups or sections with in a department or division.
• Such plans are prepared to implement departmental or
divisional plans.
• For example, the advertising section may prepare a
sectional plan to execute the sales plan of the
company.
• Such planning is also known as unit planning.
• It is action-oriented. Sectional plans are formulated mainly
at the operating level of management.
• But they have to be approved by higher authorities.

Corporate Planning
Divisional or Functional
Planning
Group or
Sectional
Planning
Fig. 7.2. Hierarchy of Planning.

2. Departmental or Divisional Planning.
• Such planning includes the plans formulated for various
departments or divisions of an enterprise.
• It determines the scope and activities of a particular department.
• For example, sales budget, production budget, finance budget are
departmental plans.
• In a multi-product company, there may be several product
divisions, e.g., sugar division, textile division, chemicals
division, etc.
• Each division formulates its overall plan by integrating all sectional
plans relating to that division.
• For instance, sales plan is a synthesis of advertising, sales
promotion, pricing, channel and product plans.
• Departmental or divisional plans are formulated at the middle level
of management and approved by the top management.
• These plans are also known as functional plans because every
department or division is concerned with one particular major
function of business.

3. Corporate Planning.
• Planning for the company as a whole is known as
corporate planning. It lays down objectives,
strategies and policies for the entire organization.
• It is less detailed and specific than sectional planning
and divisional planning.
• Corporate planning is done at the top level of
management.
• It is very broad and general in nature, e.g., increasing
the company’s market share by ten per cent in next
five years, becoming a technological leader in
industry, earning, a 25 percent rate of return on
investment, etc.
• Such planning serves as the basis for departmental or
divisional planning.

• Thus, corporate planning may be defined as a “systematic
and comprehensive process of laying down the
objectives, strategies and policies for the organization
as a whole in the light of the capabilities of the
organization and its environment.”
• According to the time span, planning may be divided into
the following categories:
i) Long –range Planning (LRP).
• Long-term planning or strategic planning covers a long
period in future.
• It is prepared for a period of s, or years or more.
• It provides the overall targets towards which all activities
of the organization are to be directed.
• It results in long-term commitment of resources.
• It involves a great deal of uncertainty because the period
involved is several years.

• The primary aim of strategic planning is to enable
the enterprise to affect rather than accept the
future.
• According to Steiner, “Strategic planning is the
process of determining the fundamental or
central concept of the corporation describing its
mission or creed, major corporate objectives,
policies and strategies that will govern the
acquisition, use and disposition of resources to
achieve the overall corporate objectives and
goals”, Strategic planning is the planning for
unpredictable contingencies about which
fragmentary information is available.

ii) Medium-term or Intermediate Planning.
• Such planning covers a period of more than one year but
less than five years.
• It is more detailed and specific than long-range strategic
planning.
• Intermediate or tactical plans are designed to implement
strategic plans by coordinating the work of different
departments.
• Such planning is coordinative in nature.
• A tactical plan is drawn up for short-term moves and man
oeuvres within the broader and more stable
strategic plans.
• For example, a tactical plan may be drawn up to meet a
sudden slump in demand, shortage of power, etc.
• Tactical plans are less detailed than operational plans.

Basis of Distinction Strategic Planning Operational Planning
1. Time Span It covers a long period of time of
more than one year
It covers a short period of time
upto one year
1. Scope It covers the whole enterprise It covers a specific department
or functional area of the
enterprise
1. Level of Management It is formulated at the top level
of management
It is formulated at the middle
and lower levels of management
1. Basis It is based on organizational
objectives
It is based on strategic plans
1. Nature It is relatively broad and general It is relatively detailed and
specific
1. Resources It involves acquisition and
allocation of resources
It involves the utilization of given
resources efficiently
1. Environment It involves analysis and
forecasting of external
environment
It involves analysis of the internal
environment
Table 7.2: Distinction between Strategic Planning and Operational Planning
Basis of Distinction Strategic Planning Operational Planning
1. Time Span It covers a long period of time of
more than one year
It covers a short period of time
upto one year
2. Scope It covers the whole enterprise It covers a specific department
or functional area of the
enterprise
3. Level of Management It is formulated at the top level
of management
It is formulated at the middle
and lower levels of management
4. Basis It is based on organizational
objectives
It is based on strategic plans
5. Nature It is relatively broad and general It is relatively detailed and
specific
6. Resources It involves acquisition and
allocation of resources
It involves the utilization of given
resources efficiently
7. Environment It involves analysis and
forecasting of external
environment
It involves analysis of the
internal environment

iii) Short-term Operational Planning.
• Operational plans are prepared for a period up to
one year.
• They are generally specific and detailed.
• These plans provide form and content to long-term
plans.
• Such plans are prepared on the basis of strategic
and tactical plans.
• The main purpose of operational planning is to
maximize efficiency in day-to-day operations
and to ensure uniformity of action.
• Repairs and maintenance plan, purchase plan,
product plan are typical examples of operational
planning or activity planning.

7.9 Steps in planning Process
• Organizations differ in terms of their size and
complexity.
• Therefore, there is no single planning procedure
applicable to all organizations.
• However, the main steps in planning process are as
follows:
1. Identify Goals.
2. Develop Planning Premises.
3. Determine Alternative Courses of Action.
4. Evaluate the Alternatives.
5. Select a Course of Action.
6. Formulate Derivative Plans.

1. Identify Goals.
• Plans are formulated to achieve certain objectives.
• Therefore, the first step in the planning process is to
identify the goals of the organization.
• Objectives set must be stated clearly and in
measurable terms.
• For example, quantity standards, cost targets and
quality specifications are measurable objectives.
• Objectives should be established in all key areas
where performance affects the health of the
organization.
• Objectives should be laid down after an analysis of the
external and internal environment of the organization.

2. Develop Planning Premises.
• Planning is done for future which is uncertain.
• Therefore, certain assumptions are made about
the future environment.
• These assumptions are known as planning
premises.
• Planning premises lay down the boundary or
limitations within which plans are to be
implemented.
• In order to develop good planning premises, it is
necessary to collect data on the current status
of the organization and to forecast future
changes.

3. Determine Alternative Courses of Action.
• Generally, there are alternative ways of achieving
the same goal.
• For example, in order to increase sales, an
enterprise may launch advertising campaign or
reduce price or improve the quality of products.
• Therefore, alternative course of action should be
determined.
• This requires imagination, foresight and ingenuity.
• In determining alternatives, the critical or limiting
factors must be kept in view.

4. Evaluate the Alternatives.
Once alternative courses of action have been
determined, they must be evaluated.
• Alternative courses of action can be evaluated
against the criteria of cost, risks, benefit and
organizational facilities.
• The strong and weak points of every alternative
should be analyzed carefully.
• Computer-Oriented mathematical techniques may
be used wherever necessary.

5. Select a Course of Action.
• The most appropriate alternative is selected as the plan.
• This is the point of decision where a plan is adopted for
accomplishing identified goals.
6. Formulate Derivative Plans.
• The final step in planning process is to develop sub-plans.
• In order to give effect to and support the basic plan,
several sub-plans are required.
• Once a choice is made and the master plan is adopted,
functional and tactical plans and action programmes
are decided.
• The break-down of the master plan into departmental and
sectional plan provides a realistic picture of the actions
to be taken in future. A time sequence of activities
should also be decided.

Determine Develop Formulate Choose
Objectives Planning Premises Strategies Policies
Review and Implement Integrate Develop
Revise Plans Plans Different Plans Derivative Plans
Fig. 7.3. The Planning Process.

7.10 Planning Premises
• Plans are prepared for future.
• But future is uncertain.
• Therefore, management makes certain assumptions about the
future.
• These assumptions about future derived from forecasting and used in
planning are known as planning premises.
• According to Koontz and O’Donnell, “Planning premises are the
anticipated environment in which plans are expected to operate.
• They include assumptions or forecasts of the future and known
conditions that will affect the course of plans, such as prevailing
policies and existing company plans that control the basic nature
of supporting plans,” Planning premises are the building blocks on
which the super-structure of planning is based.
• One of the major purposes of premises is to facilitate the planning
process by guiding, directing, simplifying and reducing the
degree of uncertainty in it, Developing sound premises is vital for
successful planning.

Planning premises may be classified as under:
1. External and Internal Premises.
• External premises are those which lie outside the firm.
• These are of many kinds:
• (a) general business environment including economic,
technological, political and social conditions,
• (b) the product market consisting of the demand and
supply forces for the product or service, and
• (c) the factor market, for land, labour, capital, etc.
Internal premises refer to the factors within the
enterprise.
• These include sales forecast, capital investment in
plant and equipment, competence of management
personnel, skills of labour force, etc.

2. Tangible and Intangible Premises.
• Tangible premises are those which can be
quantified, e.g., money, time, units of
production, etc.
• On the other hand, intangible premises refer to the
qualitative factors like public relations,
company’s reputation, employee morale, etc.
• These cannot be expressed in quantitative terms.
• However, such premises play an important role
in planning.

3. Controllable and Uncontrollable Premises.
• Those premises which are entirely within the control
and realm of management are known as
controllable premises.
• These include the policies, programmes and rules of
the enterprise. Premises over which an enterprise
has absolutely no control are uncontrollable
premises, War, natural calamities, new inventions,
population trends etc., are examples of such
premises.
• Some premises are such over which the
management has partial control, e.g., union-
management relations, supply position in the
industry, etc. Such premises are called semi-
controllable premises.

7.11 Types of Management Plans
(Components of Planning)
Depending on their use, management plans may be
classified into two broad categories as shown in Fig7.4:
Plans
Multi-use Plans Single-use Plans
Objectives
Strategies
Policies
Procedures
Rules
Programmes
Budgets
Schedules
Projects
Methods
Fig. 7.4. Types of Plans.

Multi-use or standing plans are used repeatedly in
situations of a similar nature.
• They are long-term in nature and represent standing
answers to recruiting problems.
• They serve as ready guides to action.
• These plans help in training of employees and in job
rotation.
• They enable the performance of work by persons with less
experience.
• These plans help to save time and effort of executives.
• They facilitate delegation of authority, coordination and
control.
• Objectives, strategies, policies, procedures and rules are
standing plans or repeated use plans.
• Standing plans facilitate delegation of authority to lower
levels.

• Standing plans help to operationalise goals of an
organization.
• They provide a ready reference for executive
action.
• Standing plans are useful in ensuring unity of effort
and coordination.
• If well-communicated and well-understood, they
ensure uniformity of action.
• Standing plans become the habit pattern for
guiding and specifying human behaviour in
organizations.

Single-use or ad hoc plans are formulated to meet
novel, unique and non-repetitive situations.
• These are tailored to fit specific situations.
• A single-use plan is used up once the objectives are
achieved.
• It Is of short duration and non-recurring in nature.
• Programmes, budgets, schedules, projects and
methods are examples of single-use plans.

Table 7.3: Distinction between Standing plans and single use plans
Basis of Distinction Standing Plans Single Use Plans
1. Type of Situation
These are made to
meet situation of
recurring nature
These are made to
meet a particular
situation
2. Use
These are used in time
and again
These are used for
specific purpose only
3. Object
These are made to
achieve uniformity of
actions and unity of
efforts
These cease to exist
after the purpose is
served
4. Examples
(a)Policies
(b)Procedures
(c)Rules
(a)Programme
(b)Budget
(c)schedule

7.11.1 Objectives
• Every organization exists to achieve some purposes
which are called its objectives.
• Objectives may be defined as the ends, purposes or
aims which an organization wants to achieve
over varying periods of time.
• According to Allen, “Objectives are goals established
to guide the efforts of the company and each of
its components.”
• The terms, objectives, missions, goal, target,
standard, quota, deadline, etc. are used
interchangeably in management literature.
• Some distinction can, however, be made between
these terms.

Mission.
• Mission is broad term reflecting idealism.
• It represents the overall philosophy of an organization.
• It indicates the end which is to be achieved over the whole
life of an organization or at least over a long period.
• The term mission is used generally in non-business
organizations like a college, a religious trust, a club, a
government, etc.
• For example, elimination of poverty is the mission of the
Government of India.
• It is generally difficult to achieve.
• Mission serves as the reason (raison detre) for the existence
of an organization.
• Mission is the central guiding concept that makes an
organization meaningful.
• It indicates the line of business of an enterprise and its long- term

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Goals and Objectives of Reliance Industries
• Build a core-team of young, multi-skilled, globally-oriented managers to lead the
group;
• Entrust complete operational freedom to empowered executives sharing the
corporation vision;
• Create a framework that shuns hierarchical structures and uses teams to
accomplish tasks speedily;
• Replace the ad hoc methods of the past with systems that can be followed
independent of individuals.

Goal.
• A goal is a desired state of affairs which an organization wants to
realize.
• Goals are collective ends towards which organizations direct their
energies and activities.
• Goals legitmise the role of an organization in society and provide a
motive for its activities.
• For example, the goal of Maruti Udyog is to provide low cost,
economical and quality automobiles to the public.
• Goals may be short-term and long-term in nature.
• Short-term goals are supposed to support and merge into long-
term goals.
• In reality, a conflict may arise between the two types of goals. Such
conflict arises due to two reasons: First, there may be a
trading off between immediate profit (short-term goal) and
growth (long-term goal).
• Secondly, management priorities may change, e.g., quick gains and
lasting yields.

Targets.
• A target is a plan stated in concrete measurable terms.
• It is a specific and quantitative objective.
• For example, the total output in one year, the total sales
which a salesman is expected to make in one day, etc. a good
target must possess the following qualities:
i. A target must be clearly defined in concrete and unambiguous
words.
ii. It must be dovetailed or balanced with the goal set for the higher unit.
iii. It must be consistent with the facilities available.
iv. A target should be challenging but not impossible.
v. It must be realistic and flexible so as to be adjustable in the
changing environment.
vi. It should be specific and measurable.
vii. The time period within which the target is to be achieved should
be specified.
viii. As far as possible, a target should be set with the consultation or
participation of the person concerned.

Standard.
• Generally speaking, all plans are considered as standards.
• A standard is a norm or criteria against which performance
can be compared and evaluated.
• Standards indicate anticipated or desired results.
• Standards may be of two types:(i) Quantitative, and (ii) Qualitative.
• Quantitative standards are those expressed in numerical
terms.
• Such standards may be physical standards ( units of output,
units of sales, etc.), monetary standards (e.g., sales of
Rs.50 lakh, profits of Rs. 10 lakhs, etc.), financial ratios
(e.g., current assets/current liabilities or current ratio).
• Qualitative standards are those indicating standards of
service, standards of conduct, quality standards, etc.
• For example, a budget is a quantitative standard while a
rule is a qualitative standard.

Quota.
• A quota is a form of target stated in quantitative terms.
• It is generally associated with planning of scarce inputs
like raw materials, machine time, labour hours, etc.
it serves as a constraint that the organization must
satisfy.
• For example, producing the specified output within the
constraint of 5,000 labour hours.
• Quotas may also be fixed for marketing activities like
number of retail point’s sales figure of each retail
point etc.
• The main considerations in planning or fixing different
types of quotas are as follows:

i. Quotas must be need based;
ii. Limiting Factor principle should be considered;
iii. Quotas should be matched with resources;
iv. Individual quotas should be balanced with the total target; and
v. Quotas should be acceptable to the persons concerned, etc.
Deadline.
• Time is a crucial but elusive element in planning.
• It is freely available but runs through all inputs.
• At the same time, it is one of the most neglected elements in
management.
• In order to make best utilization of time, it is necessary to lay
down and adhere to time limits for the completion of various
tasks.
• Such time limits are known as deadlines.
• For example, supplying an order by December 31, 2009 is a
deadline.
• Thus, a deadline shows the time limit for the completion of a task.

Characteristics of Organizational Objectives
• Organizational objectives are characterized by the
following features:
1. An organization has multiple or several objectives, e.g.,
profits, survival, growth, service to society, etc.
• This multiplicity of objectives creates the problem of fixing
priorities among different objectives and of harmonizing
them.
• Profitability, competitiveness, flexibility and quality are
examples of objectives.
2. Objectives have a time span. Short-term and medium-
term objectives are means of achieving long-term
objectives.
• All these objectives need to be integrated so that they
reinforce each other.

3. Objectives from a hierarchy.
• There is a graded series or continuum of objectives.
• Objectives of each lower unit contribute to the
objectives of the next higher unit.
• Each level of objectives stands as ends relative to
the level below it and as a means relative to the
level above it.
• Such a hierarchy is known as end-means chain as
shown in Fig 7.5.
4. Objectives may be tangible or intangible.
5. Objectives may be of short run or long run.

Means
Ends
Overall Corporate
Objectives
Departmental or Divisional
Objectives
Sectional or Group Objectives
Individual Objectives
Fig. 7.5. Hierarchy of Objectives as Ends-means Chain.

Importance of Objectives
• Effective management is management by objectives.
• According to Luther Gullick, “In administration, God
helps those who have a clearly defined objective.”
• Objectives determine largely the size, shape and
design of an organization.
• Objectives serve the following functions:
1. Legitimacy.
• Objectives embody the basic philosophy and
mission of an organization.
• They help to legitimize its existence and provide a
unique identity to it. Objectives help to link the
organization with various groups in its environment.

2. Direction.
• Objectives give a meaning to the activities of an
organization.
• They provide direction to thinking and actions.
• They serve as the pole star towards which all organizational
efforts are directed.
• Objectives facilitate delegation and decentralization of
authority.
3. Unified Planning.
• Objectives are the key to planning.
• Objectives serve as the basis or reference points for the
formulation of policies, strategies, procedures,
programmes and other plans.
• They help to develop an integrated structure or network of
plans.

4. Individual Motivation.
• Objectives make clear to every individual what he is
expected to achieve.
• Specific and challenging goals stimulate employees to work
hard and be innovative.
• They enable managers to secure appropriate responses
from employees.
• Objectives make jobs meaningful and worthwhile.
5. Coordination.
• Objectives serve as the center around which executive can
integrate the efforts of their subordinates.
• Mutually agreed objectives promote voluntary coordination
by stimulating a sense of unity and mutual cooperation.

6. Performance Control.
• Objectives help to keep the activities on the right track.
• They serve as benchmarks for success.
• Objectives are performance standards against which actual
performance can be checked.
Essentials of valid Objectives
1. Objectives must be clear and specific.
2. They should be stated in measurable terms – in terms of
outcomes not actions.
3. Objectives must be result-oriented and time bound.
4. Objectives must be mutually supportive.
5. Objectives should be challenging but attainable or realistic.

6. Objectives must be acceptable to employees.
7. Objectives should be communicated to all members of
the organization.
8. Objectives must have social sanction.
9. Objectives should be interconnected and mutually
supported.
10. Objectives should be laid down in all the key result
areas (KRAs) of business.
11. Objectives should provide some flexibility.
12. Sub-goals should be laid down for every objective.
13. Objectives should be based on mission and resources
of the organization.

7.11.2 Strategies.
• The concept of strategy in business has been borrowed
from military science where it implies the art of the
military general to fight the enemy.
• The term ‘strategy’ begin to be used in business with
increase in competition and complexity of operations.
• “Strategy is the complex plan for bringing the organization
from a given posture to a desired position in future
period of time.”
• It is essentially a response to external environmental forces.
A strategy provides answers to the fallowing questions:
i. What business are we in?
ii. What should be our business?
iii. Who are our customers?
iv. What do they buy and why?
v. Why should society accept us?

• A strategy is different from tactics which are specific ways of
executing a strategy.
• Tactic have short-term orientation while strategies have
along-term perspective.
Evaluation of a Strategy (Essentials of a Good Strategy)
The fallowing criteria may be used to evaluate a strategy:
1. Internal Consistency.
• A business strategy must be consistent with the goals and
policies of the organization.
• There should be perfect coordination between objectives
and strategies.
• Strategies in different areas of business should be
integrated into a strategic framework.
• Lack of consistency will make implementation of strategies
difficult.

2. Consistency with Environment.
• A strategy is basically a response to cope with changes in
the external environment.
• Therefore, it should be designed to fit the opportunities and
threats of external environment.
• It should be based on reliable forecasts of future trends.
3. Appropriate Time Horizon.
• Time is a crucial element of a strategy.
• A longer-time span improves flexibility and reduces
accuracy of forecasting.
• Environmental conditions, objectives to be achieved and
judgment of management should be considered in
deciding the optimal-time span.
• Timing of the action must be appropriate.

4. Realistic.
• A strategy should reflect the strengths and weaknesses of
the enterprise.
• It should be appropriate in the light of available resources.
5. Acceptable degree of risk.
• Every strategy contains an element of risk and uncertainty.
• But the degree of risk inherent in a strategy should be such
that the enterprise can bear it.
• Resources should not be committed irrevocably nor they
should be concentrated on a single activity.
• A proper match should be created between risk and return.
6.Feasibility.
• A strategy should be workable and capable of producing
results within the constraints and parameters known to
management.
7. Social Sanction. Strategy must fulfill ethical and social
responsibilities.

Need and Importance of Strategies.
A strategy contributes to the success of an organization in the
following ways :
1. Helps in Facing Environmental Challenges.
• Every organization operates within the overall socio-
economic and political environment of a country.
• Business environment has become increasingly turbulent.
• The long-term success of a business enterprise depends, to
a great extent, upon how it responds to the changes in
its environment.
• Strategies are helpful in facing environmental challenges.
• While formulating strategies, an organization identifies the
threats and opportunities posed by the likely future
environment.
• It prepares itself to successfully face the threats and exploit
the opportunities by formulating strategies.

2. Provides Direction.
• Corporate strategy serves as the long-term guide
towards the achievement of objectives.
• It provides answers to some vital and crucial
questions such as: (a) what business are we in?
(b) What business should we be in? (c) Who
are our customers? etc.
3. Optimum Utilization of resources.
• Corporate strategy indicates how the resources of
the organization should be marshaled and
deployed for best results.
• It ensures more efficient and effective utilization of
organizational resources, e.g., time, money,
talents etc.

4. Facilitates Coordination and Control.
• Master strategy interrelates the different
departments and groups of the organization.
• It provides a unifying force by focusing attention on
common objectives.
• Strategy also simplifies control by prescribing broad
standards of performance.
5. Competitive Strength.
• Strategies are specifically designed to counter the
actions of competitors.
• A competitive strategy is formulated keeping in view
the likely moves of competitors.
• It helps in maintaining or increasing the firm’s
market share in the face of competition.

Steps in Strategy Formulation (Strategic Planning Process)
The process of strategy formulation consists of the following
steps:
1. Mission and Objectives.
• Strategic planning process begins with the determination of
the mission for the organization.
• The basic purpose for which the organization has been
established should be clearly defined.
• Strategic planning focuses on an organisation’s long-term
relationship to its external environment.
• Therefore, the business mission should be formulated in
terms of social impact of the organization.

Mission
Environmental Analysis
Opportunities & Threats
Self-appraisal
Strengths & Weakness
Strategic Decision-making
Strategy Implementation & Control
Fig. 7.6. Strategic Planning Process

2. Environmental Analysis.
• The external environment of the organization is
analyzed to identify opportunities and threats.
• A list of important factors likely to affect the
organisation’s activities is prepared.
• Environmental analysis permits the organization to
influence the shape of events to come.

3. Self-appraisal.
• The strengths and weaknesses of the organization are then
analysed.
• Such a ‘resources analysis’ will enable the enterprise to capitalize
on its strengths and to minimize its weaknesses.
• By matching its strengths with environmental opportunities, an
enterprise can develop a suitable niche for itself to face
competition and to achieve growth.
• For instance, Reliance Industries Limited established a textile mill
when a large number of textile mills had become sick.
• The company adopted the niche of high quality and high
priced suiting and sarees.
• It marshalled its resources to produce and sell to select
group of customers.
• Within a short period, the company achieved unparalleled
success.

4. Strategic Decision-making.
• Strategic alternatives are generated and evaluated.
• Then a strategic choice is made to reduce the
performance gap.
• For example, in order to grow, an enterprise may
enter new markets or develop new products or
sell more in the present markets.
• The organization must select the alternative that is
best suited to its capabilities and that offers a
distinctive edge over its rivals.
• Choice of strategy depends upon several factors,
e.g., management perceptions, external
environment, management attitude towards
risk, past strategies and management power.

5. Strategy Implementation and Control.
• Once the strategy is formulated, it must be translated into
tactical and operational plans.
• Programmes and budgets are developed for each function.
• Short-term operational plans are prepared to utilize the
resources.
• Proper sequence and timing of efforts is decided so that
every step is taken at the right time.
• Controls should also be developed to evaluate performance
as the strategy is put into use.
• Wherever actual results are below expectations, the
strategy should be reviewed or reappraised. It must be
modified and adapted to changes in the external
environment.

Types of Strategies
According to William F. Glueck, there are following strategies:
1. Stability Strategy.
• Where the environment is stable and the firm is doing well,
it may fallow the strategy of status quo.
• It may be satisfied with present products and market share.
• This is a less risky strategy but unsuitable in a changing
environment.
2. Growth Strategy.
• Many firms follow the strategy of expansion and
diversification.
• It is risky and requires accurate forecasting and resource
mobilization.
• Growth must be properly planned and controlled.

3. Retrenchment Strategy.
• It implies reduction in operations and personnel. It may be
followed by struggling firms who want to survive
severe competition and depression.
4. Combination Strategy.
• It is often used by large firms who want to cut back in some
areas and to expand in others.
5. Competitive Strategy.
• It refers to a ‘game plan’ that is designed for outdoing the
actions of the competitors.
• Formulation of a competitive strategy involves knowing the
likely moves of competitors and then concentrating or
overcoming those moves effectively.

6. Grand or Master Strategy.
• It determines the picture of the kind of enterprise
that is envisaged.
• It is the overall strategy of an organization.
• The purpose of grand strategy is to determine and
communicate the probable shape which the
organization Is likely to take in future.
• Strategy may be designed to fight the general forces
operating in an industry and the economy.
• For example, if management anticipates an
economic recession, it may decide upon a
strategy of reduced stocks, fewer staff, reduced
expenses, etc.

7.11.3 Policies
• A policy is a broad statement formulated to provide
guidance in decision-making at lower levels of
management.
• It defines the area or limits within which decisions
can be made.
• For example, a policy that “promotions will be
based on merit only” tells that while deciding
promotions merit criteria is to be adopted.
• Thus, “policies are planned expressions of the
company’s official attitudes towards the range
of behavior within which it will permit or desire
its employees to act.” A policy reflects the

Need and Importance of Policies
Clear-cut and sound policies serve the following functions:
1. Operationalise Objectives.
• Objectives are expressed in general terms having little
significance for rank and file of employees.
• It is the policies which translate them into concrete
terms.
• For example, employees may understand little from
the objective “to achieve sales target of fifty
million rupees”.
• The implication becomes clear when the policy is
formulated ‘to open as many retail outlets as
possible.’
• Thus, policies give practical shape to objectives.

2. Save Time and Effort.
• Policies provide guidelines to the lower-level
managers for repetitive situations.
• They avoid the need for frequent reference to
higher managers for advice.
• The expensive analysis need not be carried out
again and again.
• Policies provide guide to thinking and decision-
making.
• In this way, policies save valuable time and effort.
• They are standing answers to recurring problems.
• They build confidence among employees to solve
problems.

3. Facilitate Delegation of Authority.
• Policies help in making the actions of each manager
more predictable to others.
• They ensure that decisions made by different
managers will be consistent, fair and in keeping
with the objectives and interests of the
organization as a whole.
• Unwarranted deviations from planned operations
can be minimized and coordination becomes
easier.

4. Speed up Decision-making.
• Policies facilitate quick decisions, by providing a
framework within which decisions can be made.
• They avoid the need for repeated analysis and tend
to predecide problems.
• Policies delimit the area within which a decision is
to be made and assure that the decision will be
consistent with and contribute to objectives.
5. Administrative Control.
• Policies facilitate administrative control by providing
a rational basis for evaluating results.

Limitations of Policies
• Policies, however, provide only the broad framework and
cannot be readymade answers for all kinds of detailed
situations.
• They summarise past experience and have to be adjusted to
changes in the environment.
• Policies are no substitute for individual judgment of managers.
• It applied without discretion and understanding, the
policies may lead to friction and confusion.
• A policy is only a blueprint and requires managerial action
for its implementation.
• It cannot be substitute for human judgement.
• Detailed and rigid policies may stifle initiative and creativity.
Policies are needed in each area of management.
• A few examples of policies in various functional areas are
given below.

Production.
• Purchase policy, repairs and maintenance policy, inspection
and quality control policy, research and development policy.
Marketing.
• Product policy, price policy, distribution policy, advertising
policy, policy on discounts, etc.
Finance.
• Credit policy, capital structure policy, dividend policy.
Accounting.
• Inventory valuation policy, depreciation policy, treatment of
deferred revenue expenditure, policy on provision for
doubtful debts, etc.
Personnel.
• Recruitment policy, training policy, wage and salary policy,
promotion policy, transfer policy.

Types of policies
• On the basis of source of formulation or origin, policies may
be classified as follows:
1. Originated policy.
• It is a policy deliberately formulated by top management on
their own initiative in order to guide decision-making at
lower levels.
2. Appealed policy.
• It is a policy formulated on the request or appeal of lower
level managers.
• Subordinates may make a request for policy to deal with an
issue not covered by originated policies.
• It is formulated when existing policies are insufficient to
solve the problem.

3. Imposed policy.
• Such a policy is adopted due to the pressure of outside
forces like government, trade unions, trade
associations, etc.
4. Written and Implied Policies.
• Written policies are formal and explicit declarations in
writing.
• On the other hand, implied policies are oral understandings
that can be inferred from the decisions of managers.
• Written policy statements are generally better than oral
understandings.

Characteristics of a Sound Policy (Principles of Policy Making)
i. Policies should be based on objectives and should
contribute towards the attainment of objectives.
ii. A policy should be clear, definite and explicit leaving no
room for misinterpretation. It should be easily
understandable.
iii. A policy must prescribe the criteria for current and future
action. It should lay down limits and yardsticks for action.
iv. As far as possible, policies should be written and precise
covering all anticipatable conditions.
v. All policies should be based on careful consideration of
resources and environment of the organization.
vi. A policy must be reasonable and capable of being
accomplished. It should make for consistency in
operations and should be practicable.

vii. Policies should be stable as well as flexible. It should be stable
enough to assure people that there will be no drastic
overnight change. It should be amenable to change so as to
keep the organization in tune with the times. It should be a
broad outline.
viii. A policy should be planned development rather than
opportunistic or spur of the moment decision.
ix. All policies should conform to the norms of ethical behaviour
and standards.
x. All policies should be communicated to the people who are to
implement them and should be formulated in consultation
with them.
xi. Policies should be just, fair and equitable to internal as well as
external groups. They should not discriminate among
employees on the basis of religion, sex, caste or race.
xii. Policies should be reviewed and revised periodically to keep
them up-to-date.

Policy Manual.
• It is a checklist or written record of the policies of an
organization.
• It serves as an instructional device and as a frame of reference
and guidance.
Factors Influencing Policy making
Some of the important factors influencing policy making are as
follows:
1. Values and beliefs of management.
2. Goals of the Organisation.
3. Availability of finance.
4. Prevailing technology.
5. Reactions of employees.
6. Policies of competitors.
7. Government regulations and control.
8. General business environment.
9. Level of Prices.
10. Public attitudes and behaviour.

Steps in Policy Formulation
Policy formulation process involves the following steps:
1. Definition of Policy Area.
• The first step in policy making is to specify the areas in
which policies are required.
• In defining areas for policy making, the objectives, needs
and environment of the organization should be kept in view.

Definition of
Policy Area
Generation of
Policy Alternatives
Generation of
Policy Alternatives
Review of
Policy
Application
of policy
Choice of
Policy
Communication
of Policy
Fig. 7.7. Policy Formulation Process.

2. Identification of Policy Alternatives.
• The internal and external environment of the
enterprise is carefully analysed to identify
opportunities and constraints, strengths and
weaknesses, etc.
• On the basis of such analysis, policy alternatives
are identified for each objective.

3. Evaluation of Alternatives.
• Each of the Policy alternatives is evaluated in terms of its
contribution to objectives.
• The costs, benefits and resources required should be
considered in evaluating alternatives.
4. Choice of Policy.
• After evaluation, the most appropriate alternative is
selected.
• This is the point of policy making.
5. Communication of Policy.
• The chosen policy is communicated to those responsible for
its application.
• Policy manuals, company handbooks, written
memorandums are used to disseminate policy and to
educate people in the application of the policies.

6. Policy Application.
• The chosen policy is then put into operation by
converting it into operational plans.
• Application and promulgation of a policy requires
policy education, interpretation and acceptance.
7. Policy Review and Appraisal.
• Periodic review of policies is necessary due to rapid
changes In the environment.
• Without such review, policies are likely to become
obsolete leading to complacency and stagnation
in the organization.

7.11.4. Procedures
• A procedure is a chronological sequence of steps to
be undertaken to enforce a policy and to achieve
an objective.
• It lays down the specific manner in which a task is
to be performed.
• It is a planned sequence of steps for performing
repetitive activities in a uniform manner.
• According to George R. Terry, “A procedure is a
series of related tasks that make up the
chronological sequence and the established way
of performing the work to be accomplished.”

• Procedures are used in all functional areas of business.
• They exist throughout an organization.
• In business procedures are laid down for purchase of raw materials,
processing of orders, selection of employees,
redressal of grievances, etc. Procedures are derived from policies.
• For most policies, there is an accompanying procedure to show
how the policy should be carried out.
• A policy lays down the broad area while a procedure prescribes
the path to be followed in that area.
• For example, an organization may accept the policy of recruiting
employees through the personnel department.
• In order to implement this policy, the personnel department may
develop a selection procedure consisting of inviting
applications, taking tests and interviews, checking references
and preparing a list of selected candidates.
• Thus, a policy is wider in scope and more flexible in nature as
compared to a procedure.

Importance of Procedures.
Procedures play a vital role in the daily routine of an
organization. The main uses of a procedure are :
i. It relieves the manager of much of the detail in directing
subordinates by indicating the steps to be undertaken and
the time and order of performance.
ii. It routinises recurring jobs so that employees need not
invent original solutions to solve repetitive problems. It
thereby saves time and effort.
iii. It provides the most efficient and standard manner of
doing work thereby simplifying decision-making.
iv. It helps to ensure consistent and uniform actions for
routine work.
v. It helps to tie together and integrate efforts of different
individuals.

vi. It reduces the sphere of subjective judgement thereby
permitting wider delegation of work to lower
management levels.
vii. The establishment and use of procedures creates order,
tidiness and expediency in the enterprise. It removes
administrative bottlenecks. A streamlined set of procedures
accelerates clerical and paper work.
viii. Good procedures speed up flow of information and
facilitate control by exception.
ix. Procedures facilitate training of employees. They save the
new employee the expense and frustrating trial and error
method of finding the acceptable way of performing a task.
x. Procedures can be used to judge whether work is
proceeding as planned and can, therefore, serve as a basis
for control.
xi. Thus, procedures help to simplify and streamline administration.

Limitations of Procedures
i. Procedures bring about rigidity in the performance
of operations.
ii. A procedure lays down a flxed way of doing a
particular job.
It discourages the search for improvements.
A more effective way of doing the job may not be
given proper attention.
iii. Procedures need not be reviewed and updated
constantly because they become obsolete with
changes in business operations.

Characteristics of Good Procedures
i. Procedures should be based on adequate facts of the
particular situation rather than on guesses or wishes.
ii. Procedures should focus on desired objectives and
established policies.
iii. Procedures should be standardized so that responsibility
can be easily fixed.
iv. Procedures should be reasonably stable yet flexible
enough.
v. All procedures should be properly balanced to create a
system.
vi. Procedures should be reviewed periodically and should
be updated to changed conditions.
vii. Procedures should be kept to the minimum possible level.

7.11.5. Rules
• Rules are prescribed guides for conduct or action.
• They specify what should be done or not done in given situations.
• A rule is a rigid and definite plan leaving no scope for discretion or
deviation.
• Rules are established authoritatively and enforced rigorously.
• Rules help to ensure desired behavior on the part of employees
and make actions predictable.
• Rules also perform the function of communicating the obligations
of employees.
• They facilitate discipline and uniformity of action in the
organization.
• Most organizations, therefore, have a set of rules.
• The object of rules is to avoid repeated reference to higher levels
for authorization of routine matters.
• Rules serve as detailed instructions to regulate day-to-day conduct
of affairs.

• A rule is different from procedure though closely related with it.
• A set of rules systematically tied together may constitute a
procedure.
• A rule is related to a procedure in that it guides action but
specifies no time sequence.
• But a procedure prescribes a time sequence of operation. A rule
may or may not be part of a procedure.
• For example, the rule ‘No smoking in the factory’ is not a part of
any procedure.
• But the rule that ‘All orders must be acknowledged within 48
hours of their receipt’ is a part of the procedure for
processing orders.
• Rules should be so planned that they do not stifle initiative or
add paper work all around.
• They should smoothen the flow of work and standardize
routines.
• Rules should be not allowed to degenerate into hamstrings.

7.11.6. Methods.
• Methods are formalized and standardized ways of accomplishing
repetitive and routine jobs.
• They are designed to keep operations running on planned and
desired lines, to prevent confusion and adhocism and to
ensure economy and efficiency.
• Methods provide detailed and specific guidance for day-to-day
action.
• Methods are helpful in the simplification, standardization and
systematization of work.
• They serve as uniform norms to guide and control operations and
performance.
• Standard methods represent the best way of performing jobs.
• A method prescribes the manner of performing a task.
• Therefore, it is helpful in the use of a procedure with minimum
expenditure of time, money and efforts.
• A method is more limited in scope than a procedure. It is one step
of a procedure.

Sl.No Rules Methods
1. Taboos and norms Standard ways of doing things
2. Seek to ensure discipline Seek to increase efficiency of operation
3. No standerdisation required Standerdisation is essential
4. Based on common sense, objectives and
social values
Based on research and analysis
5 Penalty attached to violation No penalty for violation
6. Regarded as official and authoritative Regarded as logical or rational
7. Associated with control Not associated directly with control
8. Relate to behaviour of individuals and
groups
Relate to Physical and other tasks
Table 7.4: Rules and Methods –A Comparison

7.11.7. Tactics
• Tactics are short-term action plans designed to
handle specific situations.
• Tactics are formulated to implement strategy.
• These are formulated at lower levels of
management.
• Results of tactics are quickly evident and related to
specific actions.

7.11.8. Budget
• A budget is a plan which states expected results of a
given future period in numerical terms.
• It is a plan of action or blueprint designed to
achieve a specific goal.
• It may be expressed in time, money or other units.
• It is a projection defining the anticipated costs and
results and the allocation of resources.
• A budget may reflect capital outlay, cash flows,
production and sales targets.
• It expresses organizational objectives in financial
and physical units.

• Budgets may be prepared for production, sales,
materials, cash, capital expenditure, etc.
• A budget is an instrument of both planning and
control.
• As goals are expressed in numerical terms
coordination of departmental plans becomes
easier.
• Budgets serve as standards of performance.
• A budget is generally prepared for one year.
• Further details about budgets are given in the
chapter on ‘control aids’.

7.11.9. Project.
• A project is a complex scheme for the investment of
resources which can be analysed and evaluated
as an independent unit.
• The main features of a project are as follows:
i. It is a non-recurring plan.
ii. It has a specific mission or objective.
iii. It involves time bound plan with a long time.
iv. It involves considerable investment of resources
and is significant for the future of the organization.
v. It has a clear termination point.

• Project approach is needed when (a) the work to be
done is special requiring expertise from different
departments, (b) the work is very complex and
unfamiliar, (c) High cost is involved, (d) Errors
and omissions are to be minimized, (e) The work
is time bound.
• Project is helpful in precise allocation of duties,
effective control, easy implementation of the
plan and fixation of responsibility.
• It provides a sense of purpose.

7.11.10. Programmes
• A programme is a comprehensive plan designed to
implement the policies and accomplish the
objectives.
• It spells out clearly the steps to be taken, resources
to be used, and the time period within which
the task is to be completed.
• It also indicates who should do what and how.
• In business, programmes are used in various areas,
e.g., developing a new product, training
programme, advertising programme, expansion
programme, etc.

• Programmes may be of two types.
• A major programme is the basic plan, e.g.,
programme to eradicate poverty, programme to
reduce unemployment, programme for
modernization of plant, etc.
• A minor programme is a derivative programme
designed to implement the major programme.
• Programmes may be developed for both repetitive
as well as for novel situations.

Features of a Programme.
i. A programme is a single use but comprehensive plan.
ii. It is based on the objectives and policies of the
organization.
iii. It is an action plan indicating the activities to be
performed and time for each activity.
iv. It is designed ensure smooth and efficient functioning of
the organization.
• A programme serves as a useful guide in day-to-day
operations.
• It is action-based and result-oriented. It helps to maintain
the motivation among employees.
• But there is great risk of failure of a programme due to
changes in the environment.

Basic Steps in Programming
1. Division of work.
• Before developing a programme, the purpose of the
programme, the steps to be taken, the quantity
and quality of effort required for each step
should be clearly defined.
• Division of work facilitates proper assignment of
tasks to persons and facilitates review of
progress at each step.

2. Sequence between Steps.
• Assigning priority to different steps and developing
a chronological sequence is necessary.
• The work done and the time spent on one step
affect the subsequent steps.
• These relationships and sequential arrangements
should be observed carefully.
• Sequencing helps to overcome the problem of
coordination created by division of work.

3. Fixing Responsibility.
• After division of work and flow of work,
accountability for each step should be fixed on
specific individuals, i.e., who do what.
4. Arranging Resources.
• The success of a programme depends on the timely
availability of physical, financial and human
resource.
• Therefore, the resources required for the
programme should be determined.

5. Time Scheduling.
• In the last step, the date when an operation can
begin and the time needed for its completion are
decided.
• Availability of resources, delivery schedule,
processing time, etc. should be considered in
deciding time schedule.
• A definite date sheet for each part of the
programme will facilitate control.
• A sound programme should be stable enough to
meet internal demands and to install confidence.
• At the same time, it should be flexible enough to
take care of external changes.

7.11.11 Schedules
• A schedule is a time table of work. It specifies the
date when a task is to begin and the time
needed to complete each task.
• The starting and completion date for each part of
the programme are specified in the time schedule.
• Minimum and maximum time periods may be
specified to keep the schedule realistic and
flexible.
• Three main elements are involved in planning a
schedule : (a) identify activities or tasks, (b)
determine their sequence, and (c) Specify
starting and finishing dates for each activity as
well as for the sequence as a whole.

• Scheduling is the process of establishing a time
sequence for the work to be done.
• Scheduling is the process of establishing a time
sequence for the work to be done. Schedules
translate programmes into actions.
• Scheduling is necessary in all organizations to
provide for an even flow of operations and to
ensure completion of each task at the right time.
• While planning is schedule, the availability of resources,
processing time and the delivery commitments should
be kept in view.
• Due allowance should be made for delays created by
factors beyond the control of management as well
as for non-productive time.

Name of
Plan
Definition Nature Example
Objectives
Goal or target
to be achieved
Basis of all plans
Increase sales
by 10 percent
Policy
General
statement or
understanding
to guide
thinking
Boundary within
which decisions
are to be made
Employees are
to be promoted
on the basis of
seniority
Strategy
Action plan to
face
environmental
uncertainties
Relates the
organization to
its environment
Combatitive
advertising to
face price cuts
by competitors
Table 7.5: Summary of Various Plans

Procedures
Manner in
which
activities are
to be
performed
Sequence of
steps
Purchase
procedure
Rule
States what
should or
should not be
done in a
given situation
Regid plan, no
scope for
discretion
No smoking in
the factory
Programme
Combination
plan for goal
achievement,
non-repetitive
States activities
and resources to
be undertaken
Installation of a
computer

Schedule
Time-table for
activities
Specifies Priority
of work and
time for each
activity
Complete
installation of
computer
within 3
months w.e.f.
Jan. 1989
Budget
Statement of
expected
results and
resources to
be used
Quantitative
and time bound
plan of action
Produce 10,000
tonnes of sugar
next year.
Project
Cluster of
Interrelated
activities –a
separate unit
Scheme for
deployment of
resources
Construction of a
flyover

Sl.
No.
Objectives Policies
1.
Ends towards which all
activities of an
organization are
directed
Guidelines which facilitate
the accomplishment of
predetermined objectives
2.
Determine what is to be
done
Determine how the work is
to be done
3. End-points of planning
Means by which objectives
are to be achieved
4.
Determined by top
management
Formulated at top and
middle levels
Table 7.6: Distinction between Objectives and Policies

5.
One objective may
require more than one
policy
Every policy related to one
particular objective
6.
Derived from philosophy
of business
Derived from objectives
7. Indicate the destination Provide the route
8.
Basic to the very
existence of an
organization
Not basic to existence

Sl.
No.
Policies Procedures
1.
General Guides to thinking
and decision-making
Operational guides to
action
2.
Expressions of
managements attitude
towards certain issues
Systematic way of handling
routine events
3.
Leave room for executive
discretion and judgement
Leave little room for
reflection and deviation
4. Lay down broad area
Provide route through the
area
Table 7.7: Difference Between policies and Procedures

5.
Provide bridge between
purpose and performance
Provide bridge between
activities and outcomes
6.
Provide norms for thinking
and discretion. Broad,
general and flexible
Detailed and rigid. More
specific, provide manner of
doing something
7. Form part of strategies Serve as tactical tools
8.
Formulated mainly by top
management
Laid down at middle and
lower levels
9.
Derived from objectives of
the organization
Specifies chronological
sequence of steps. Derived
from Policies

Sl.
No.
Policies Rules
1. A general statement A most specific statement
2. Guide to Decision-making Guide to behavior
3.
Lays down management
attitude
Indicates what should or
should not be done
4.
Flexible, may have some
exceptions
Rigid, no exceptions or
deviations
5.
Provides discretion
during implementation
Provide no scope for
discretion
Table 7.8: Difference between Policies and Rules

Sl.
No.
Policies Strategies
1.
Guides to thinking and
actions of those who make
decisions
Provide direction in which
human and physical
resources will be deployed
2.
Guidelines for making
decisions in repetitive
situations
Contingent decisions
3.
Taken for problems about
which facts are known.
Only time of occurrence is
not specific
Taken for problems where
alternatives cannot be
analysed in advance
Table 7.9: Difference between Policies and Strategies

4.
Implementation of policy
can be delegated
Implementation of strategy
cannot be delegated as it
requires last-minute
executive decision
5.
Standing plan or long
lasting
Non-repetitive plans, may
need frequent revision
6.
Not based specially on the
moves of competitors
Formulated in the light of
competitors moves

Sl.
No.
Strategies Tactics
1.
Long-term but flexible
time perspective
Short-term and definite time
perspective
2.
Formulated at top level
of management
Formulated at lower level of
management
3.
Continuous process but
irregular timing of the
decision
Continuous process and
periodic decision, e.g.,
budget preparation
Table 7.10: Difference between Strategies and Tactics

4.
Based on information
generated outside about
the external environment
Based on information
generated within the
organization, particularly
from accounting records
5.
Affected by personal
values of strategy makers
Taken within the control of
strategic decisions
6.
Critical importance for
the future of the
organization, concerned
with the total
organization
Less important as concerned
with specific parts of the
organisation

Points to Remember
1. Planning is deciding in advance what is to be done, how,
when, where, why and by whom.
2. Planning is a goal-oriented, continuous forward-looking,
mental, choice-making and integrated process.
3. Planning focuses attention on objectives, offsets
uncertainty and risk, provides guidance, helps
coordination, facilitates decision-making and control.
4. Lack of accuracy, time and cost, rigidity, resistance to
change and environmental change are the main
limitations of planning.
5. Planning may be of several types –group, sectional and
corporate, strategic and operational, long-term or short-
term

6. Goal-setting, premising, generation and evaluation of
alternatives, choice of a course of action, working out
details are main steps in the planning process.
7. Contribution to objectives, efficiency of plans, planning
premises, policy framework, timing, alternatives, limiting
factor, commitments, flexibility, navigational change and
competitive strategies are the principles of planning.
8. Planning premises may be internal or external, tangible or
intangible, controllable or uncontrollable.
9. Managerial plans may be standing plans or single-use
plans.
10. Objectives, strategies, policies, procedures and rules are
the standing plans.
11. Programme, budget, project, schedule and method are
the single-use plans.

REVIEW QUESTIONS
1. (a) Describe the major steps in the procedure of planning.
(b) What problems are likely to be faced by a planner in a
business organization?
2. What is planning? State what advantages does planning
confer to an organization?
3. (a) What is corporate strategy? Why is strategy necessary?
Narrate the steps in formulating strategy.
(b) What is Policy? Explain the need for policy in
management. State the important features of sound policy.
4. Explain the concept of planning. State its characteristics.
Discuss its benefits and limitations.
5. Discuss the process of corporate planning. What are the
limitations of planning? What actions can be taken to
make planning more effective?

6. “Planning as a managerial function consists of several
components as objectives, policies, programmes,
strategies, procedures and budgets.” Discuss.
7. “Planning is not an activity but a rational process.” Discuss
and give the various steps in planning process.
8. “Planning may be classified according to kinds, purposes
and uses.” Discuss.
9. “Planning is described as the selection from the
alternatives of policies, procedures and programmes.”
Examin this statement.
10. “Planning is mere ritual in a fast changing environment.”
Comment.
11. Why are strategies important? Can the organization be
successful without effective strategies? How do policies
differ from strategies?

12. “Planning is the primary requisite of every management
function whether it is organizing. Staffing, directing or
controlling.” Discuss and define Planning. Also give the
benefits of efficient planning.
13. Why is planning called the primary function of
management? Elaborately discuss the process of
planning in modern high-tech organizations.
14. “Planning has become essential today because of
frequency changes taking place in the external
environment.” Discuss.
15. What are standing Plans? How do they help in the
effective management of a business enterprise?
16. Why is Planning necessary in management? Discuss
limitations of planning.
17. “Policies are guide posts for managerial action.”
Comment.

18. What are Planning premises? Explain.
19. “Planning is a waste of time and money.” Comment.
20. What is planning? Discuss its nature and significance.
21. What is strategic Planning? State the Process of
strategic planning.
22. Distinguish between policies, procedures and
methods, giving one example of each. Explain why
they are necessary.
23. Define and distinguish between policies and
strategies.
24. Are there any limitations of planning? What steps can
be taken to make planning more effective?
25. What are corporate policies? How are they
formulated?

CASE STUDY
• At a planning meeting held by the directors of
Multi-Products Company Ltd., each director
presents his approach to profit and budget
planning within their divisions.
• Two of the directors, Mr. Vasudevan of the textiles
division and Mr. Ramachandran of the chemicals
division, spent about 20 minutes each
describing how their budgets and profits
projections were determined.
• Below are excerpts from their presentations:

• Mr. Vasudevan: “As divisional manager, I believe I
have the best picture of the capabilities of the
whole division.
• So I set the target profit and sales goals for my
managers.
• These goals present my expectations and simply call
in each of my managers and give them the sales
and profit goals for their departments.
• Their performance is then measured against the
goals I have set.
• If a manager has a question about the target, I
explain my reasons for setting the goals at a
particular level.”

• Mr. Ramachandran : “I feel my managers should determine
the goals for their departments.
• I ask each manager to submit to me his projections for sales
and profits.
•Once I receive these targets, I increase them by fifteen
percent to force creativity from my managers in order to
achieve these modified goals.
• In this way, I can identify my truly creative managers.”
Questions
1. Compare the approaches to planning adopted by
Mr. Vasudevan and Mr. Ramachandran .
2. Whose style do you consider more appropriate?
3. If you were a divisional manager which approach would
you choose?

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