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Planning in simple is looking ahead. It is preparing for the future. It involves outlining a future course of action. Planning makes the things to happen. Therefore, it is needless to say that in the absence of planning, things are left to chance. Planning is unique in that it precedes all the other managerial functions. It involves deciding the objectives and formulating the policies and procedures to achieve them. Effective planning provides answers to questions like – what to do? How to do? Who is to do? And when to do? Planning is a function performed by managers at all levels. Though every manager plans, the plans developed by different managers may vary in respect of scope and importance. For example, plans made by top managers have a wider scope with a focus on the organization as a whole and normally cover a longer period. On the other hand, plans developed by middle and lower level managers relate to the divisions or departments and usually cover a short period. Systematic planning helps in facing the uncertainties of future with less embarrassment. It helps in making things happen in the expected way. Planning is deciding in advance what is to be done. It involves the selection of objectives, Functions of Management policies, procedures and programmes from among alternatives. A plan is a predetermined course of action to achieve a specified goal. It is a statement of objectives to be achieved by certain means in the future. In short, it is a blueprint for action.
According to Louis A Allen – “Management planning involves the development of forecasts, objectives, policies, programmes, procedures, schedules and budgets”.
According to Theo Haimann – “Planning is deciding in advance what is to be done. When a manager plans, he projects a course of action, for the future, attempting to achieve a consistent, co-ordinated structure of operations aimed at the desired results”.
According to Koontz O’ Donnel – “Planning is an intellectual process, the conscious determination of courses of action, the basing of decisions on purpose, acts and considered estimates”.
It bridges the gap between where we are and where we want to go. It involves visualizing a future course of action and putting it in a logical way. Let us look at the following observations about planning:
1. “Failure to plan is planning to fail”.
2. “Planning is outlining a future course of action in order to achieve objectives”
3. “Planning is looking ahead”.
4. “Planning is getting ready to do something tomorrow”.
5. “Plan is a trap laid down to capture the future”.
It is no exaggeration that in the absence of planning events are left to chance. In such a case, you as a manager are depending on luck. You may, as a result, in all probability end up in frustration. Organizations often fail not because of lack of resources, but because of poor planning. Whatever the resources you have, in the absences of systematic planning, the resources may not help you in achieving the objectives. The following factors further highlight the importance of planning:
1. To Achieve Objectives: While developing a plan, you have to ask yourself a few questions. Why am I making this plan? What am I trying to accomplish? What resources do I need to execute the plan? Objectives are the ends sought to be achieved by the organizations. The above questions, if properly answered provide lot of clarity to the objectives. In other words, they force you to be clear about the objectives, the time frame required to achieve them and the resources required. It forces you to visualize the future in an organized manner. The saying that “when a man doesn’t know what harbour he is making for, no wind is the right wind” is quite appropriate in the case of planning. Systematic planning, thus, starts with a clear statement of objectives. All the important inputs necessary to achieve the objectives are carefully thought of. The uncertainties of the future, if any, are also taken into consideration.
2. Plans Make The Things Happen: Effective managers anticipate future and prepare themselves to meet the challenges of the future. They are rather pro-active. They influence the outcome of the events in a significant way. In any modern business, the interests of many people are involved. The shareholders, employees, creditors, consumers and the Government are the major interest groups in any organization. Further, the interests and expectations of all these groups are varied and at times are in conflict. That apart, they constantly change in a dynamic business environment. In the light of the uncertainties involved in the environment, your job, as a manager, is to foresee the future and predict the consequences of actions. In other words, you have to look down the road into future and prepare yourself to meet the uncertainties ahead. A well thought out plan solves many of the problems associated with the future.
3. Plans Double Up As Tools To Control The Events: Planning and control are often described as the ‘Siamese’ twins of management. When you plan the events, you make them happen in a particular way. The specific objectives decided in advance themselves become the standards. Therefore, it goes without saying that plans provide mechanism to know whether the events are happening in the way expected. Planning ensures the events to conform to plans. Thus, if you do not plan (no clear objectives), you do not know what to control. Control assumes significance in a dynamic environment as of today, where several forces push you away from reaching the goal. Appropriate control devices help you to check the course from time to time, so that you will be able to take the appropriate corrective measures
4. Plans Help To With Change: Organizations are products of environment. The ability to deal with the environment has enabled many an organization to survive, despite other weaknesses. Alert managements continually tune in to the environmental forces. On the other hand, managements which fail to adapt would eventually fall on the way side. Therefore, in the managerial job, you have to constantly analyse the impending changes in the environment and assess their impact on your business. For instance, the liberalization policies pursued by the government have, of late, brought in too many changes. Markets are shifting due to increased competition. Pressure on the existing resources is increasing. Expectations of the employees as well as the consumers are changing. Product life cycles are becoming shorter due to rapid technological changes. All these changes exert a tremendous pressure on the management.
1. Planning is Goal-Oriented: Every plan must contribute in some positive way towards the accomplishment of group objectives. Planning has no meaning without being related to goals.
2. Primacy of Planning: Planning is the first of the managerial functions. It precedes all other management functions.
3. Planning Is Pervasive: Planning is found at all levels of management. Top management looks after strategic planning. Middle management is in charge of administrative planning. Lower management has to concentrate on operational planning.
4. Efficiency, Economy and Accuracy: Efficiency of plan is measured by its contribution to the objectives as economically as possible. Planning also focuses on accurate forecasts.
5. Co-ordination: Planning co-ordinates the what, who, how, where and why of planning. Without co-ordination of all activities, we cannot have united efforts.
6. Limiting Factors: A planner must recognise the limiting factors (money, manpower etc) and formulate plans in the light of these critical factors.
7. Flexibility: The process of planning should be adaptable to changing environmental conditions.
8. Planning is an intellectual process: The quality of planning will vary according to the quality of the mind of the manager.
As a managerial function planning is important due to the following reasons:-
1. To Manage By Objectives: All the activities of an organisation are designed to achieve certain specified objectives. However, planning makes the objectives more concrete by focusing attention on them.
2. To Increase Organisational Effectiveness: Mere efficiency in the organisation is not important; it should also lead to productivity and effectiveness. Planning enable the manager to measure the organisational effectiveness in the context of the stated objectives and take further actions in this direction.
3. To Help In Co-ordination: Co-ordination is, indeed, the essence of management, the planning is the base of it. Without planning it is not possible to co-ordinate the different activities of an organisation.
4. To Offset Uncertainty and Change: Future is always full of uncertainties and changes. Planning foresees the future and makes the necessary provisions for it.
5. To Secure Economy In Operation: Planning involves, the selection of most profitable course of action that would lead to the best result at the minimum costs.
6. To Make Control Effective: The controlling function of management relates to the comparison of the planned performance with the actual performance. In the absence of plans, a management will have no standards for controlling other’s performance.
1. All efforts are directed towards desired objectives or results. Unproductive work and waste of resources can be minimised.
2. Planning enables a company to remain competitive with other rivals in the industry.
3. Through careful planning, crisis can be anticipated and mistakes or delays avoided.
4. Planning can point out the need for future change and the enterprise can manage the change effectively.
5. Planning enables the systematic and thorough investigation of alternative methods or alternative solutions to a problem. Thus we can select the best alternative to solve any business problem.
6. Planning maximises the utilisation of available resources and ensures optimum productivity and profits.
7. Planning provides the ground work for laying down control standards.
8. Planning enables management to relate the whole enterprise to its complex environment profitably.
1. Environmental factors are uncontrollable and unpredictable to a large extent. Therefore planning cannot give perfect insurance against uncertainty.
2. Planning is many times very costly.
3. Tendency towards inflexibility to change is another limitation of planning.
4. Planning delays action.
5. Planning encourages a false sense of security against risk or uncertainty.
Systematic planning is essential for the success and survival of any organization. Organizations fail not because they don’t plan, but because they don’t plan in an effective way. An understanding of the following principles helps one to achieve effectiveness in planning, so that you can guard yourself against the possible mistakes that are often committed by managers.
Principles of planning are as follow:
1. Plans must be flexible and dynamic: Your managerial career indeed would b a “bed of roses” if there are no unexpected changes in the environment. Day in and day out, you are confronted with too many changes forcing you into so many dilemmas or problems. Most of such problems are caused by unexpected events in the environment. If the plan is rigid with less scope for modifications as required by the changes in the environment, the organization would ultimately sink. In a static environment, of course, there may not be a problem with a rigid plan. But in a dynamic environment, to meet the unexpected changes, adequate flexibility has to be built into the plan. Otherwise, the plan itself becomes a limiting factor.
2. Take Time to Plan: As the plan is a decision regarding a future course of action, it specifies the sequence of events to be performed. It involves the commitment of organizational resources in a particular way. Therefore, if a plan is not conceived well, the resources would be put to wrong use. It becomes a wasteful exercise resulting in agony and frustration. To avoid such unpleasant outcomes, several probing questions have to be asked. Planning in haste with incorrect information, unsound assumptions and inadequate analysis of the environment has to be avoided by all means. Otherwise, you may save some time in quickly developing a plan, but in the event of things going wrong, you are hard pressed for time and resources to correct yourself. It not only lands you in trouble, but the organization as well.
3. Planning can be top down and bottom up: Normally in any organization major enterprise plans are developed by the top management. These plans are wider in scope and provide the direction to the whole organization. They spell out what the organization wants to achieve over the years. The overall plan thus formulated by the top management is split into departmental plans. Accordingly, plans for production, marketing, finance, personnel and so on, stem from the basic plan of the organization. The other operational plans at various levels down the organization flow from the departmental plans. This approach is called top-down approach to planning. In contrast, bottom-up approach involves information emanating from the lower levels – that is, top management collects information from lower levels. On the basis of such information, plans are formulated. The underlying assumption is that people at the operational level are closer to the action and they possess valuable information. In this approach, the initiative for planning comes from the lower levels in the organization. This approach makes use of the rich experience of the subordinates. It also helps to motivate the people and elicit commitment from them. However, the choice of the method depends on the size of the organization, the organizational culture, the preferred leadership style of the executive and the urgency of the plan.
4. Involve and communicate with all those concerned: Modern business organizations are so complex that various operations are highly interrelated. Such an interrelation of activities requires the involvement of all the people concerned with the achievement of goals. For instance, a plan to improve the quality of the products (Quality control plan) may require the cooperation of the people in the production. Such participation helps in instilling a sense of commitment among the people. They also in turn gain a sense of pride for having been a party in deciding the plan. Such an involvement makes possible the process of sharing information. If concerned people are not involved, there may be unnecessary gaps in the execution because of lack of understanding of the plans.
5. Evaluate and revise: While building into the plans the required flexibility, you should not lose sight of the additional costs involved to buy such flexibility. You must also remember that flexibility in plans may not be possible always. For example, a plan for a petroleum refinery may not offer any flexibility because the machinery can hardly be used for any other purpose. Evaluation of the plan at regular intervals is necessary to make sure that it is contributing to the objectives. Like a pilot, who in the high skies checks the course to make sure that he is flying in the right direction and at the right altitude, the manager has to evaluate and review the plan. Such an exercise enables to initiate the corrective measures at the right time before it is too late. This depends on the accuracy of the information systems in the organization.
The planning process involves the following steps:
1. Analysis of External Environment: The external environment covers uncontrollable and unpredictable factors such as technology, market, socio-economic climate, political conditions etc., within which our plans will have to operate.
2. Analysis of Internal Environment: The internal environment covers relatively controllable factors such as personnel resources, finance, facilities etc., at the disposal of the firm. Such an analysis will give an exact idea about the strengths and weakness of the enterprise.
3. Determination of Mission: The “mission” should describe the fundamental reason for the existence of an organisation. It will give firm direction and make out activities meaningful and interesting.
4. Determination of Objectives: The organisational objectives must be spelled out in key areas of operations and should be divided according to various departments and sections. The objectives must be clearly specified and measurable as far as possible. Every member of the organisation should be familiar with its objectives.
6. Forecasting: Forecasting is a systematic attempt to probe into the future by inference from known facts relating to the past and the present. Intelligent forecasting is essential for planning. The management should have no stone unturned Functions of Management in reducing the element of guesswork in preparing forecasts by collecting relevant data using the scientific techniques of analysis and inference.
7. Determining Alternative course of Action: It is a common experience of all thinkers that an action can be performed in several ways, but there is a particular way which is the most suitable for the organisation. The management should try to find out these alternatives and examine them carefully in the light of planning premises.
8. Evaluating Alternative Courses: Having sought out alternative courses and examined their strong and weak points, the next step is to evaluate them by weighing the various factors.
9. Selecting the Best: The next step – selecting the course of action is the point at which the plan is adopted. It is the real point of decision-making.
10. Establishing the sequence of activities: After the best programme is decided upon, the next task is to work out its details and formulate the steps in full sequences.
11. Formulation of Action Programmes: There are three important constituents of an action plan:
a. The time-limit of performance.
b. The allocation of tasks to individual employees.
c. The time-table or schedule of work so that the functional objectives are achieved within the predetermined period.
12. Reviewing the planning process: Through feedback mechanism, an attempt is made to secure that which was originally planned. To do this we have to compare the actual performance with the plan and then we have to take necessary corrective action to ensure that actual performance is as per the plan.
Managers follow various approaches to planning based on the extent of participation, authority delegation and competency level of managers working at various levels, namely:
1. Composite Approach: In this approach, a middle path is chosen to facilitate the smooth implementation of the plans. Here the top management offers guidelines, sets boundaries and encourages the middle and lower level executives to come out with tentative plans. These are put to discussion and debate. Once approved, such plans gain acceptance readily since everyone has been drawn into the exercise.
2. Top-Down Approach: In most family-owned enterprises, authority and responsibility for planning is centralised at the top. The top management defines the mission, lays down strategies, specifies action plans to achieve the stated goals. The blueprint is then passed on to the people working at lower levels, who have very little to contribute to the process of planning. The success of this approach is wholly dependent on the qualifications, experience and capabilities of people working at the top level.
3. Bottom-up Approach: Thinking and doing aspects in the planning process are two sides of the same coin. So, if lower level managers are drawn into the preparation and implementation of plans, their loyalty and commitment would go up automatically. Participation enables them to give their best to the plan document.
4. Team Approach: The team approach is slightly different from the composite approach. In this, the job of planning is assigned to a team of managers having requisite experience in various functional areas. They prepare the draft plans, taking internal as well as external factors into account. The tentative plans are forwarded to the top management for approval. The expertise, experience, and capabilities of functional heads are executed into action in such a participative climate.
Effective planning is not an easy task. There are a number of reasons for failure of plans in practice. Planning suffers from the following limitations.
1. Unrealistic Plans: The entire planning process may fail, if people involved in it do not formulate correct plans. The reasons for failure of people in planning may be due to a number of reasons like lack of commitment to planning, lack of delegation of authority, excessive reliance on past experience, tendency to overlook premises, etc.
2. Inflexibility: Planning becomes rigid at times because of internal inflexibilities. This reduces individual initiative and causes delay in decision making. Internal inflexibilities like rigid policies and procedures and limited resources affect planning process.
3. Cost and Time: Planning is quite a costly and time consuming process. Unlimited amount of time is spent on forecasting, evaluating alternatives etc. By the time a plan is established, the environment might change and this requires a complete revision of the plan. Besides this, cost also increases.
4. Validity Of The Forecasts: Planning is future oriented activity based on forecasts. As the period of planning increases, the accuracy of forecasting diminishes. Planning loses its value if reliable and adequate data is not available.
5. Resistance To Change: Another important limitation of planning is resistance to change. The human element in an organization always resists change. People are more concerned about the present rather than the future which is uncertain. Planning being forward looking is always affected by this resistance to change.
6. Influence Of External Factors: External factors beyond the control of an organization affect the effectiveness of planning. These are very difficult to predict and make execution of plans very difficult. External factors like government control, technological changes and trade unions affect the planning process.
To avoid the failure of plan, make sure of the following:
1. Set realistic and achievable goals;
2. Communicate the assumptions on which plans are formulated to all the people and departments concerned;
3. Encourage and make people participate in the planning program so as to ensure the right commitment;
4. Ensure proper coordination between the short-term and long term plans. They should not be viewed as mutually exclusive;
5. Encourage creativity in planning. Creativity helps in identifying the best alternatives; and
6. Pay attention to the resources position of the organization so as to ensure the availability as and when required.
A sound plan should have the following characteristics:
1. Primacy: Planning is an important managerial function that usually precedes other functions. Obviously, without setting the goals to be reached and the lines of actions to be followed, there is nothing to organize, to direct, or to control in the enterprise. But this should not lead us to think that planning is isolated from other managerial functions.
2. Continuity: Planning is a continuous and never ending activity of a manager to keep the enterprise as a going concern. One plan begets another plan to be followed by a series of other plans in quick succession. Actually, a hierarchy of plans operates in the enterprise at any time. Planning gets used up where tomorrow becomes today and calls for further planning day in and day out. Again, the incessant changes make re-planning a continuous necessity.
3. Flexibility: Planning leads to the adoption of a specific course of action and the rejection of other possibilities. This confinement to one course takes away flexibility. But if future and assumptions upon which planning is based prove wrong, the course of action is to be modified for avoiding any deadlock. Accordingly, when the future cannot be moulded to conform to the course of action, the flexibility is to be ingrained in planning by way of adapting the course of action to the demands of current situations.
4. Consistency: Planning is made by different managers at different times. Maintenance of consistency or the unity of planning is one of its essential requirements. Objectives provide the common focus for unifying managerial action in planning. Moreover, policies and procedures introduce a consistency of executive behaviour and action in matters of planning.
5. Precision: Planning must be precise with respect to its meaning, scope and nature. As guides to action, planning is to be framed in intelligible and meaningful terms by way of pinpointing the expected results. Planning must be realistic in scope rather than being dreams indicating pious desires. As planning errors are far more serious and cannot be offset by effective organizing or controlling, the accuracy and precision is of outmost importance.
6. Pervasiveness: Planning is a pervasive activity covering the entire enterprise and every level of management. Planning is not the exclusive responsibility of top management only. But it extends to middle and lower managements as well. Although top managers are mostly preoccupied with planning because of the wider scope of operational and decision making authority, planning is of equal importance to every manager.
Planning involves deciding a future course of action. Plans always has some time frame-the period in future that a plan covers. Based on the length of time involved, plans are usually classified as strategic or long range plans and operational or short range plans, strategic plans are designed to meet the broad objectives of the organisation to implement the mission that provides justification for the organisation’s existence. Operational plans provide details as to how strategic plans will be accomplished. However, it must be remembered that both strategic and operational plans are not mutually exclusive, but are complimentary. We will first discuss strategic planning and then proceed to operational planning.
The terms long range planning, Strategic planning, and corporate planning are used synonymously by many authors. Strategic planning has its origin in military organizations where the objective is to envisage a variety of contingencies that may arise when large forces move into operation. Viewed in this backdrop, strategic planning in a business organisation envisages a comprehensive study of the various external and internal parameters that affect a company in charting a course of action to achieve the goals.
Strategic Planning helps the Management in:
1. Coping effectively with future contingencies.
2. Providing an early opportunity to correct mistakes.
3. Making decisions about the right things at the right time: and
4. Understanding what actions to take in order to shape the future.
George Steiner has defined strategic planning as “the process of determining the major objectives of an organisation and the policies and strategies that will govern the acquisition, use and disposition of resources to achieve those objectives”. Strategic plans reflect the socio-economic
Strategic planning serves the following two functions:
1. Anticipates Future Opportunities and Threats: An accurate assessment of the future opportunities and threats is crucial to the success of any business. Business environment is changing so fast these days that a deliberate corporate effort is called for to keep abreast with the changes. The changes that occur may be precursors of future threats and opportunities. The investment in large business enterprise today runs into thousands of crores of rupees. The gestation period is too long. During this period many things may change. Effectiveness of the business organisation lies in converting the threats into opportunities. For instance, when the crude oil prices were hiked in 1973 by the OPEC countries, it created havoc on petro-based industries. Automobile companies as a result were forced to change to small fuel efficient cars. In this case, the threat was converted into an excellent opportunity. Small car thus has become the fashion of the day. Similarly, ITC in India, continuously hounded by excise levies and taxes on their main tobacco products cigarettes, had to think of diversification into hotels, paper, agro products and aquaculture – which ultimately turned out to be a God sent opportunity.
2. Provide Clarity of Purpose and Direction: As a result of the overall increase in the size of companies, the internal departments (production, marketing, finance, personnel etc.) have also become quite large. With growing specialization in each of these areas, these departments are prone to become watertight compartment giving rise to inter-departmental rifts. Corporate strategies spelt out clearly help in smoothening out some of the interdepartmental conflicts. Strategic planning provides unity of purpose and direction, the much emphasized management principle. For example it is not unusual, for instance, for marketing department to ask the production department to shorten their productions runs, to cater to the demands of various models which is normally resisted by the latter.
Strategic planning is the prerogative of the top management which is the highest policy making body in any organisation, where as operational planning is done at the lower levels. Strategic planning is mostly concerned with the “why” of the things, whereas operational planning is concerned with the “how” of the things. The focus in strategic planning is on long term, while it is on short-term in operational planning. Further, planning is less detailed in the former because it is not involved with the day-to-day operations whereas it is more detailed in the latter, considering its nature, operational planning is also called tactical planning. However, Operational plans stem or originate from strategic plans. In other words, strategic planning provides guidance and boundaries for operational planning. Effective management, therefore, must have a strategy and must operate on the day- to- day level to achieve it. Both should not be viewed as mutually exclusive because operational planning identifies the major activities to achieve the objectives of strategic planning. For example, if the strategic plan is to face competition with new and innovative products, major tasks to achieve this goal would be clarified by operational planning. The possible tasks at the operational level include:
1. Strengthening the research and development department;
2. Motivating the people to work on new products; and
3. Creating a climate in the organisation where people are willing to take risks.
Different types of plans are developed by an organisation, namely mission, strategies and policies, procedures, rules, programmes and budgets. One common thing is, they all refer to a future course of action. However, some variances in respect of the scope and operation are found in the implementation. Some are single-use plans while some are standing plans. They are discussed below:
Organisations exist in society. Therefore, it is appropriate to relate their existence to society by satisfying a particular need of the society. Mission may be defined as “a statement which defines the role that an organisation plays in the society”. The terms ‘mission’ or ‘purpose’ are often used interchangeably. An organisation’s mission statement includes its philosophy and basic purpose for which it exists. It establishes the values, beliefs, and guidelines that the organisation holds in high esteem. Mission statement suggests how an organisation is going to conduct its business. It defines the basic intentions of the firm.
1. The objectives must be predetermined.
2. A clearly defined objective provides the clear direction for managerial effort.
3. Objectives must be realistic.
4. Objectives must be measurable.
5. Objectives must have social sanction.
6. All objectives are interconnected and mutually supportive.
Objectives are the keystone of management planning. It is the most important task of management. Objectives are required to be set in every area which directly and vitally effects the survival and prosperity of the business. In the setting of objectives, the following points should be borne in mind.
1. Objectives are required to be set by management in every area which directly and vitally affects the survival and prosperity of the business.
2. The objectives to be set in various areas have to be identified.
3. While setting the objectives, the past performance must be reviewed, since past performance indicates what the organisation will be able to accomplish in future.
4. The objectives should be set in realistic terms i.e., the objectives to be set should be reasonable and capable of attainment.
5. Objectives must be consistent with one and other.
6. Objectives must be set in clear-cut terms.
7. For the successful accomplishment of the objectives, there should be effective communication.
1. Clear definition of objectives encourages unified planning.
2. Objectives provide motivation to people in the organisation.
3. When the work is goal-oriented, unproductive tasks can be avoided.
4. Objectives provide standards which aid in the control of human efforts in an organisation.
5. Objectives serve to identify the organisation and to link it to the groups upon which its existence depends.
6. Objectives act as a sound basis for developing administrative controls.
7. Objectives contribute to the management process: they influence the purpose of the organisation, policies, personnel, leadership as well as managerial control.
Koontz and O’Donnell define policy as “a general statement of understanding which guides the thinking and action in decision-making.” Policies provide the framework within which managers operate. Policies exist at all levels in the organisation. Some may be major policies affecting the whole organisation, while others may be minor or derivative policies affecting the functioning of departments or sections within the departments.
Policies are laid down by the management for all the important functional areas. As such, we hear about production policies, financial policies, marketing policies and personnel policies, to mention a few. For instance, in the personnel area, specific policies may be formulated for recruitment, training, compensation, etc. Accordingly whenever the need for recruitment arises, the personnel manager consults the existing recruitment policy of the company and initiates the steps necessary to fill the vacancies. Thus it is evident that the personnel manager operates within the broad policy of the company in recruiting the people. Thus, policy is a one-time standing decision that helps the manager in making day-to-day decisions in their operational areas.
The essentials of policy formation may be listed as below:
1. A policy should be definite, positive and clear. It should be understood by everyone in the organisation.
2. A policy should be translatable into the practices.
3. A policy should be flexible and at the same time have a high degree of permanency.
4. A policy should be formulated to cover all reasonable anticipatable conditions.
5. A policy should be founded upon facts and sound judgment.
6. A policy should conform to economic principles, statutes and regulations.
7. A policy should be a general statement of the established rule.
Policies are useful for the following reasons:
1. They provide guides to thinking and action and provide support to the subordinates.
2. They delimit the area within which a decision is to be made.
3. They save time and effort by pre-deciding problems and
4. They permit delegation of authority to mangers at the lower levels.
The term ‘Strategy’ has been adapted from war and is being increasingly used in business to reflect broad overall objectives and policies of an enterprise. Literally speaking, the term ‘Strategy’ stands for the war-art of the military general, compelling the enemy to fight as per out chosen terms and conditions. A strategy is a special kind of plan formulated in order to meet the challenge of the policies of competitors. This type of plan uses the competitors’ plan as the background. It may also be shaped by the general forces operating in an industry and the economy.
Edmund P Learned has defined strategies as “the pattern of objectives, purposes or goals and major policies and plans for achieving these goals, stated in such a way as to define what business the company is in or is to be and the kind of company it is or is to be”.
Haynes and Massier have defined strategy as “the planning for unpredictable contingencies about which fragmentary information is available”.
According to David I Cleland and William R King, “Strategy is the complex plans for Functions of Management bringing the organisation from a given posture to a desired position in a further period of time”.
According to Koontz and O’ Donnell “Strategies must often denote a general programme of action and deployment of emphasis and resources to attain comprehensive objectives”.
Strategies are plans made in the light of the plans of the competitors because a modern business institution operates in a competitive environment. They are a useful framework for guiding enterprise thinking and action. A perfect strategy can be built only on perfect knowledge of the plans of others in the industry. This may be done by the management of a firm putting itself in the place of a rival firm and trying to estimate their plans.
1. It is the right combination of different factors.
2. It relates the business organisation to the environment.
3. It is an action to meet a particular challenge, to solve particular problems or to attain desired objectives.
4. Strategy is a means to an end and not an end in itself.
5. It is formulated at the top management level.
6. It involves assumption of certain calculated risks.
There are three phases in strategy formation:
1. Determination of objectives.
2. Ascertaining the specific areas of strengths and weakness in the total environment.
3. Preparing the action plan to achieve the objectives in the light of environmental forces.
Policies are subdivided and stated in terms of procedures – A series of related steps or tasks to be performed in a sequential way. For example: A company’s policy may be to sell old stock at a discount. The procedure may explain how to decide which product is obsolete and what percentage of discount is to be offered. But procedures, if simple and clear would ensure order in the performance of operations. Though procedures exist at all levels in an organisation, they are more detailed at the lower levels. In common parlance, they are called ‘Standard Operating Procedures’ (SOPs). Procedures for placing orders for material and equipment, for sanctioning different types of employee’s leave, for handling grievances at the shop floor level, etc., suggest how each of these has to be handled. Policies and procedures are closely interrelated. For instance, a company may follow time-bound promotion policy to promote people from within. But the operational part of the policy is specified by the procedure – the formalities to be fulfilled to effect the promotion are dictated by the procedure.
1. Procedure specifies the steps to be taken and tells the time and order of performance of the task.
2. Procedure facilitates control by exception.
3. Procedure integrates the efforts of different people.
4. Procedure improves efficiency by providing best manner of doing work.
5. Procedure facilitates control by exception
A rule is also a plan. A rule is a prescribed course of action that explicitly states what is to be done under a given set of circumstances. Rules are plans in that they suggest the required actions. A rule requires that a definite action has to be taken in a particular way with respect to a situation. Some definiteness is associated with rules. For example, ‘no smoking’ is a rule. The essence of the rule is that it reflects a managerial decision that certain actions be taken – or not be taken. Rules should not be confused with policies and procedures. Policies contain some operational freedom or discretion while rules allow no discretion in their application. Similarly, procedures though different form rules may contain rules regarding the do’s and don’ts. For example, there may be a procedure to attend to customer grievances in respect of post-sale service. The procedure may contain a rule that free service is available only for a period of two years after the sale.
A programme is a broad term which includes goals, policies, procedures, rules and steps to be taken in putting a plan into action. Terry and Franklin define program as “a comprehensive plan that includes future use of different resources in an integrated pattern and establishes a sequence of required time schedules for each in order to achieve stated objectives”. Thus, a programme includes objective, policies, procedures, methods, standards and budgets. For instance, launching Prithvi satellite is a program “Jawahar Rojgar Yojana” is a programme. Program may be major or minor. For instance, a company may embark upon modernization program of the plant and machinery and other manufacturing systems in a big way. By all means such an effort is a major program. Similarly, a large organisation may start computerizing all its activities.
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A budget is a plan statement for a given period of time in future expressed in financial or physical units. Budget contains expected results in numerical terms. A budget is a quantitative expression of a plan. Organizational budgets vary in scope. Master budget which contains the consolidated plan of action of the whole enterprise is in a way the translated version of the overall business plan of the enterprise. Similarly, production budget represent the plan of the production department. Again, capital expenditure budget, raw material budget, labour budget, etc. are a few minor budgets in the production department. One of the advantages of budgets is they facilitate the comparison of actual results with the planned ones by providing yardsticks for measuring performance.
1. Master Budget: This is the budget that contains the summary of all the functional budget and gives the detailed picture of all the proposed activities and it’s anticipated results. It has to be approved by Top Management.
2. Functional Budget: it is also known as operating budget. It describes the programme of every individual department of an enterprise. It includes:
a. Sales Budget: This budget shows total volume of sales both product-vise and area-wise. It shows the type of particular commodity with it’s price and quantity.
b. Production Budget: It estimates the quantity of output differentiated on the basis of sales budget, plant capacity, inventory policy etc.
c. Material Budget: It helps in scheduling the material to be purchased in specific quantity.
d.Labour Budget: It is helpful in manpower planning, recruitment, selection and training of workers.
e. Cash budget: It estimates cash receipts, cash payment and overall cash requirement. It ensures that there is sufficient cash and is utilised in more efficient manner.
3. Capital And Revenue Budget: Capital expenditure budget gives estimated expenditure on fixed assets like buildings, plant and machinery, furniture, etc. On the other hand, revenue budget shows estimates of income and expenses on routine operations.
Different tools and techniques used in implementing and formulating plans are as follows:
1. Theory Of Probability – This technique of planning and decision making is used by managers to evaluate and reduce the amount of risk involved in the plan. This theory is based on pattern of the future events but does not determines anything.
2. Queuing Theory– This is a mathematical technique of planning and decision making in bank, petrol pumps, hospitals and public transport system. In this technique balance is found in cost of making the customers wait and serving them more quickly. This helps you decide how long can one make customers wait in line. In other words, this technique aims at finding out the optimum rate of customer flow through service point by balancing the cost of waiting line and cost involved in providing services at optimum level. This helps in solving the problem of waiting line of customers.
3. Network Techniques-PERT and CPM are network techniques used in planning, decision making and controlling. PERT stands for Programme Evaluation and Review Technique. CPM stands for Critical Path Method. These schedule complex project involving many techniques. In this, network diagram is prepared to show sequence activities to be completed and time and cost associated with each activities. They help to monitor progress of the project and identifies possible obstacles and ensures all the activities of project are completed on time.
4. Forecasting – It is the process of predicting the future event that will affect the functioning of an organisation and future problems and opportunities are identified. The two techniques of forecasting are qualitative techniques and quantitative techniques.
Qualitative techniques: It uses the judgement and knowledge of the people. This technique is used when sufficient reliable data is not available.
Quantitative technique of mathematical and statistical technique it uses the past data so protecting the future trains and evening. This technique is used when sufficient reliable data is available
1. Budgeting– Project is prepared by the managers that each level of organization Budget is numerical statement which shows anointment of resources in specific activities manager prepare various types of budget in the process of planning such as to the new budget capital budget project budget it’s extra.
2. Break Even Analysis- This technique of planning and controlling identify number of units of product that must be sold in order to generate enough revenue to cover the cost. It estimates the relation among number of sales and its cost. This technique is useful for the following reasons:
a. It help us to know the effect of increase or decrease of units sold and determine the amount of profit.
b. It help us to identify break even point where there is no profit no loss.
c. It identifies the number of units which has to be sold to cover the cost.
Formula of Break Even Point:
Total Fixed Cost or TFC…..
Per unit price – per unit variable cost
1. Linear Programming- A technique for determining optimum combination of limited resources to obtain desired goal is called linear programming. The conditions to apply linear programming are as follows:
a. The problem state line relationship among the variables.
b. The basic functional should be defined as objective function and limiting function. Where objective function maximizes or minimises one objective function define the limitations or restrictions associated. There must be several alternative ways to solve the problem.
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