CHAPTER 3

BUSINESS ENVIRONMENT

INTRODUCTION

Business may be understood as the organized efforts of enterprise to supply consumers with
goods and services for a profit. Businesses vary in size, as measured by the number of employees
or by sales volume. But, all businesses share the same purpose: to earn profits.
The purpose of business goes beyond earning profit. There are:
It is an important institution in society.
Be it for the supply of goods and services
Creation of job opportunities
Offer of better quality of life
Contributing to the economic growth of the country.

Hence, it is understood that the role of business is crucial. Society cannot do without
business. It needs no emphasis that business needs society as much.

Environment refers to all external forces, which have a bearing on the functioning of business.
Environment factors are largely if not totally, external and beyond the control of individual
industrial enterprises and their managements.
The term business environment means the sum total of all individuals, institutions and
other forces that are outside the control of a business enterprise but that may affect its
performance. Thus, the economic, social, political, technological and other forces which operate
outside a business enterprise are part of its environment. So also, the individual consumers or
competing enterprises as well as the governments, consumer groups, competitors, courts, media
and other institutions working outside an enterprise constitute its environment. The important
point is that these individuals, institutions and forces are likely to influence the performance of a
business enterprise although they happen to exist outside its boundaries. For example, changes in
government s economic policies, rapid technological developments, political uncertainty,
changes in fashions and tastes of consumers and increased competition in the market all
influence the working of a business enterprise in important ways.
On the basis of the foregoing discussion, it can be said business environment, has the following
features:

1. All the external forces:

Business Environment includes all the forces, institutions and factors which

directly or indirectly affect the Business Organizations.

2. Specific and general forces:

Business environment includes specific forces such as investors, customers,

competitors and suppliers. Non-human or general forces are Social, Legal,

Technological, Political, etc. which affect the Business indirectly.

3. Inter-relation:

All the forces and factors of Business Environment are inter-related to each

other. For example with inclination of youth towards western culture, the

demand for fast food is increasing.

4. Uncertainty:

It is very difficult to predict the changes of Business Environment. As

environment is changing very fast for example in IT, fashion industry frequent

and fast changes are taking place.

5. Dynamic:

Business environment is highly flexible and keep changing. It is not static or

rigid that is why it is essential to monitor and scan the business environment

continuously.

6. Complex:
It is very difficult to understand the impact of Business environment on the

companies. Although it is easy to scan the environment but it is very difficult to

know how these changes will influence Business decisions. Some-time

change may be minor but it might have large impact. For example, a change

in government policy to increase the tax rate by 5% may affect the income of

company by large amount.

7. Relativity:

The impact of Business environment may differ from company to company or

country to country. For example, when consumer organisation CES published

the report of finding pesticides in cold drinks, resulted in decrease in sale of

cold drinks, on the other hand it increased the sale of juice and other drinks.

IMPORTANCE OF BUSINESS ENVIRONMENT

(i) Identify the opportunities and getting the first mover advantage by being
aware of the changes in business environment, enterprises can identify opportunity
and strategize ways to capitalize on them.

(ii) Identify threats and early warning signals environment scanning helps in
detecting possible threats in future.

(iii) Basis for planning and policy for formulation identification of threats and
opportunity serves as basis for deciding the future course of action.

(iv) Tapping use full resources the resources are required to carry on a
successful business enterprise. These have to be procured from the business
environment.
(v) Helps in coping with rapid changes turbulent markets, less brand loyalty,
divisions and sub-divisions (fragmentation) of markets, more demanding
customers, rapid changes in technology and intense global competition combined
with complex business environment calls for a flexible planning to cope with the
changes.

(vi) Improvement in organization performance- continuous and constant

monitoring and adapting suitable business practices result in improved business
performance.

DIMENSION OF BUSINESS ENVIRONMENT

The various dimensions of business environment in terms of general environment are:

1. Economic Environment:

Refers to all those forces that have economic impact on the business activity components of
economic environment are GDP, Inflation rate, interest rate, Rupee value, stock exchange
index, tax rate.For example, in case of construction companies and automobile manufacturers,
low longer-term rates are beneficial because they result in increased spending by consumers
for buying homes and cars on borrowed money.

2. Political environment: includes political conditions such as political leadership, political

stability, and practices of the ruling party, nature and extent of government interference,
international relations.The significance of political conditions in business success lies in the
predictability of business activities under stable political conditions. On the other hand, there
may be uncertainty of business activities due to political unrest and threats to law and order.

3.Legal environment : refers to the framework of laws and various legislations within which
the business activities take place Components of legal Environment are Government
legislation, court judgments, Decision of various commissions. For example, the
advertisement of alcoholic beverages is prohibited. Advertisements, including pac- kets of
cigarettes carry the statutory warning Cigarette smoking is injurious to health . Similarly,
advertisements of baby food must necessarily inform the potential buyer that mothers milk is
the best. All these regulations are required to be followed by advertisers.

4.Social Environment: represents the customs and traditions, values, culture, social trends,
beliefs, norms and ethics of a society in which business enterprises operate. Components of
social Environment are customs traditions, social expectations, lifestyles, values, literacy level
 .For example, the celebration of Diwali, Id, Christmas, and Guru Parv in India provides
significant financial opportunities for greetings card companies, sweets or confectionery
manufacturers, tailoring outlets and many other related business. Values refer to concepts that
a society holds in high esteem. In India, individual freedom, social justice, equality of
opportunity and national integration are examples of major values cherished by all of us.

5.Technological Environment: refers to the influence of the changes in the technology on

the business environment .For example, recent technological, advances in computers and
electronics have modified the ways in which companies advertise their products.

Components of Technological Environment: new methods and techniques of business

operations, scientific improvements and innovations,

As a part of economic reforms the Government of India announced New industrial policy in
July 1991 which emphasized on three major elements which were:

Liberalization from the clutches of licensing policy. Therefore, removal of entry and
growth restrictions on the private sector enterprises.
Globalization encouragement of foreign private participation in industrial
development. This step mainly intended at integrating the national economy with the
world economy through the removal of barriers on international trade and capital
movements.
Privatization - drastic reduction in the role of public sector. Future it aimed at transfer of
ownership, management and control of the public sector enterprise to the private sector.
The new industrial policy aimed at created a more competent environment in the economy so as
to strengthen the process of industrialization. Its features are as follows
Delicensing of all projects except six industries
Decreased role of public sector to merely 4 industries
Disinvestment: selling of a part or whole of the shares of the public sector undertaking
Liberalization of Foreign capital
Setting up of foreign Investment board (FIPB)
Liberal policy for technical collaboration
IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND INDUSTRY:
Increase in competition
Demanding customers
Technical changes and increased investment in R and D
Necessity of change
Development of human resource
Market orientation
Loss of budgetary support to the public sector.
 SUMMARY

Meaning of business environment: The term business environment means the totality of all
individuals, institutions and other forces that are outside a business but that potentially affect its
performance. Business environment can be characterised in terms of
(a) totality of external forces
(b) specific and general forces
(c) inter-relatedness
(d) dynamic nature
(e) uncertainty
(f ) complexity
(g) relativity

Importance of business environment: Business environment and its understanding are

important for (i) enabling the identification of opportunities and getting the first mover
advantage, (ii) helping in the identification of threats and early warning signals, (iii) coping with
the rapid changes, (v) assisting in planning and policy and (vi) improving the performance.

Elements of business environment: Business environment consists of five important

dimensions including economic, social, technological, political and legal.

Economic environment includes such factors as interest rates, inflation rates, changes in
disposable income of people, stock market indexes and the value of rupee.

Social environment includes social forces like traditions, values, social trends, society s
expectations of business, and so on. Technological environment includes forces relating to
scientific improvements and innovations which provide new ways of producing goods and
services and new methods and techniques of operating a business.

Political environment includes political conditions such as general stability and peace in the
country and specific attitudes that elected government representatives hold toward business.

Legal environment includes various legislations passed by the government, administrative

orders issued by government authorities, court judgments as well as decisions rendered by
various commissions and agencies at every level of the government center, state or local.

Economic environment in India: The economic environment in India consists of various

macro-level factors related to the means of production and distribution of wealth which have an
impact on business and industry. The economic environment of business in India has been
steadily changing since Independence mainly due to government policies. In order to solve
economic problems of our country at the time of Independence, the government took sever steps
including control by the state of key industries, central planning and reduced importance of the
private sector. These steps delivered mixed results until 1991 when Indian economy happened to
face serious foreign exchange crisis, high government deficit and a rising trend of prices despite
bumper crops.

Liberalisation,privatisationand globalisation:As a part of economic reforms, the Government of

India announced a new industrial policy in July 1991 which sought to liberate the industry from
the shackles of the licensing system (liberalisation), drastically reduce the role of the public
sector (privatisation) and encourage foreign private participation in industrial development
(globalisation).

QUESTION BANK

VERY SHORT ANSWERS

Que1. Business environment keeps on changing whether in terms of technological

improvements shift in consumer preferences etc. identify the characteristic of
business environment.

Ans. Dynamic nature.

Que2. Business environment consists of numerous interrelated and dynamic

conditions which arise from different source and hence it becomes difficult to judge as
to what constitutes a business environment. Identify the characteristic of business
environment.

Ans. Complexity.

Que3. India food is popular in India as compared to china japan etc. identify the
characteristic of business environment.

Ans. Relativity.

Que4. In fashion industries, it is difficult predict what is going to happen in future.

Identify the characteristic of business environment.

Ans. Uncertainty.
Que5. What do you mean by first mover advantages?

Ans .Early identification of opportunities.

Que6. How can environment awareness help managers?

Ans. various threats are identified in time.

Que7. How can political stability be beneficial to the economy?

Ans. confidence among the business people is built up to invest and take up new ventures.

Que8.which policy moved India to globalization pattern?

Ans. Industrial policy 1991.

Que9. Govt. of India is seriously thinking to allow oil marketing public sector
understanding to fix their own price for petrol and diesel. Which economic reform is
the reason of this change in government policy?

Ans. The reason for this change in the governments policy is liberalization.

Que10. Just after declaration of LokSabha elections 2009 results, the Bombay stock
exchanges price index (Sensex) rose by 2100 points in a day. Identifies the
environment factor which leads to this size.

Ans. Political environment.

SHORT ANSWERS.

Q.1. Briefly explain the following.

1. Liberalization
2. Privatization
3. Globalization.
ANS. Liberalization- freeing the Indian business and industry from all unnecessary
government controls and restrictions

Privatization- giving greater role to the private sector in the nation building process and
drastically reducing the role of the public sector.
 Globalization- it means the integration of our economy to the world economy.

LONG QUESTION ANSWERS

Que 1 State any five features of Business Environment.

OR

Describe any five features of Business Environment.

Ans. Following are the main features of the business environment

i. Totality of External forces: Business environment is the sum total of all the external factors
that influence the functioning of the business. Hence it can be called as the comprehensive
mega force consisting of all external inputs.
ii. Specific and general forces: Business environment is made up of both specific and general
force. Specific forces directly affect the working of the business. Customers, investors etc
come under specific forces while social conditions etc. belong to general forces.
iii. Inter- relatedness: Various element of environment are very closely related to each other .
For example arrival of large number of health product in Indian market have influenced our
lifestyles.
Que2. Why understanding of Business Environment important for managers? State any five
points.

OR

How does understanding of Business Environment help managers? Explain with the help of
any five points.

Ans. The benefits of understanding business environment are as under:

(i) Identification of opportunities and getting the first mover advantage Environment
understanding help the business firm to take advantage of early opportunities. Such
business firm likely to stay ahead of their competitors.

(ii) Warning signal or Rader effect.

(iii) Environment awareness helps to recognize and make Use of qualitative information.This in
turn can make a business enterprise take necessary proactive measures well in time

i. Planning and policy formulation

Environmental awareness provides intellectual stimulation to planners in their decision
making. They can make changes in their plans efficiently and effectively.

i. image building
Environmental understanding generates a feeling among public that business is sensitive
and responsive to its environmental.

i. Coping with rapid changes

 It helps management become more sensitive to ever changing needs of customers. As a
result, they are able to respond to such changes effectively.

i. Improving performance
Environmental awareness provides a continuing, broad based education for management.
Objective qualitative information generated by such understanding provides a strong basis
for strategic thinking. The enterprises that monitor their environment closely can adopt
suitable business practices to not only their performance but also become leader in the
industry

Q3. What do you understand by economic environment? List the main aspects of
economic environment.

Ans- Economic environment consist s of factors likes inflation rates, interest rates, consumers,
incomes, economic policies, and market conditions etc. which affect the performance of a
business firm.

Following are the main aspects of economic environment:

1. The role of public and private sector in the existing structure of the economy.
2. The rate of increase in GNP and per capita income both at current and constant prices.
3. Quantum of exports and imports of different products.
4. Increase in transportation and communication facilities.
5. Trends in agricultural and industrial productions.
6. Amount of savings and investment.

Q4 Explain the changes imitated by the government of India since 1991?

Ans- Following changes have been observed since 1991

1. New industrial policy

a. Government has begun disinvesting in public sector undertaking
b. There are new schemes to attract foreign direct investment (FDI).
c. There is promoting clearance of foreign investment proposals.
d. Tax concession is given to units in special economic zones (sezs).
e. There is broadband facility in telecom sector
f. Abolition of industrial registrations scheme.
2. New trade policy

A. there is liberalization of import policy.

B. deemed exports are entitled to special import license,

C. there are greater concession to import organized unit(EOU).and unit in export

promotion zones(EPZ).

D. credited is now less expensive and many imports are duty free.
 E. simplification of procedures related to export promotion.

F. removal of export quotas and reduction in import duties.

3. Fiscal reforms

A. measures have been taken to bring down fiscal deficit

B. tax reforms have been entitled to increase revenue in tax complacence.

C. reduction in direct and indirect taxes.

E. decreases in subsidies.

4. Monetary reforms

A. phased reduction of statutory liquidity ratio(SLR).

B. private sectors banks allowed to set up new branches.

C. banks have now been allowed to access capital market for raising capital.

d. Permission for disinvestment (up to 49% of total equity).

5. Capital market reforms

a. ceiling on rate of interest on debenture and bonds abolished.

b. FIIs can access capital markets.

c. private sector can set up mutual funds.

d. bonus issues have been made more liberal.

e. security and exchange board of India(SEBI) has been made a statutory body.

Q5 Enumerate any ten positive impacts of Liberalization and Globalization.

Ans- the positive impacts of liberalization and globalization are as follows:

1. Opportunities for new entrepreneurs.

2. Latest technology becoming available.
3. Opening up of foreign markets.
4. Easy imports of capital goods.
5. Direct investment by Indian companies abroad.
6. Changed attitude of labour unions.
7. Easy inflow of foreign capital.
8. Freedom of expand and diversify.
9. Restricting of industries
10. Widening of product choices for consumers.

Q6. Explain five positive points of globalization and liberalization.

Ans. Following are the positive effects of globalization and liberalization:

 1. Merger and acquisitions
Many business enterprises are consolidating through mergers and acquisitions.

1. Global market
More and more Indian companies are directing three efforts towards global markets. Easy
flow of foreign capital and easy import of capital goods catalyze development of global
market.

1. Customer is the king

Business enterprises pay their attention to customer needs and their satisfaction.

1. New technology
Companies are upgrading their technologies. Producers are using world class technology.
This has led to more investment in research and development (R&D), innovation, product
development etc. resulting, cost of production reduces and efficiency increase.

1. Brand building
Business enterprises are emphasizing more on brand building. They are becoming more
aggressive towards brand building and are spending huge amounts on brand equity.

Q.7. discuss the impact of government policy changes on business and industry in
India.

Ans. 1. More demanding customers.

1. Increased competition.
2. Need to develop human talent.
3. Rapidly changing technological environment.
4. Market orientation.

HOTS

1. It is the process by which government control over the industry, being loosened. Give the
term to which this statement is trying to indicate.

Ans Liberalization.

VALUE BASED QUESTIONS.

Q.1. Bhupesh , a manager of the firm always takes into account the changes taking
place in business enviornment while determing plans he accepts changes readily and
gives useful suggestions to his superiors. he enjoys coodial relations with his co
workers and make plans in consultaions with his team to achieve organisational
goals.which values are exhibited by bhupesh?

Ans. Value points.

 Adaptability
Receptive of new ideas.
Dynamic/futuristic approach.
Initiative.
Teamwork/ participative leadership.
Q.2. In recent times the Govt. has increased the prices of diesel and LPG. Which values is
being overlooked here?

ans.

Fall in standard of living.

Increase in domestic expenditure.

CHAPTER 4
PLANNING

INTRODUCTION

Every organization as part of its life cycle constantly engages in the four essential functions of
management planning, leading, organizing and controlling. The foremost of this is planning. It
is the part of management concerned with creating procedures, rules and guidelines for achieving
a stated objective. All other managerial functions must be planned if they are to be effective.
Managers at all levels engage in planning as objectives and goals have to be set up for the day-
to-day activities as well as the broader long-term initiatives.

Planning is deciding in advance what to do and how to do. It is one of the basic managerial
functions. Before doing something, the manager must formulate an idea of how to work on a
particular task. Thus, planning is closely connected with creativity and innovation. But the
manager would first have to set objectives, only then will a manager know where he has to go.
Planning seeks to bridge the gap between where we are and where we want to go. Planning is
what managers at all levels do. It requires taking decisions since it involves making a choice
from alternative courses of action.
Thus, It is the process of setting objectives and targets for a given time period and formulating an
action plan to achieve them effectively and efficiently. It concerns itself
With both ends and means that is what is to be done and how it is to be done.

DEFINITION OF PLANNING
According to Alford and Beatt, Planning is the thinking process, the organized foresight,
the vision based on fact and experience that is required for intelligent action.
 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 further attempting to achieve a
consistent co-ordinate structure of operations aimed at the desired results.

According to Billy E. Goetz, Planning is fundamentally choosing and a planning

problem arises when an alternative course of action is discovered.

According to Koontz and O Donnell, Planning is an intellectual process, conscious

determination of course of action, the basing of decision on purpose, facts and considered
estimates.

According to Allen, A plan is a trap laid to capture the future.

FEATURES OF PLANNING
The main characteristics or nature of planning is given below:

1. Planning is an Intellectual Process

Planning is an intellectual process of thinking in advance. It is a process of deciding the future on
the series of events to follow. Planning is a process where a number of steps are to be taken to
decide the future course of action. Managers or executives have to consider various courses of
action, achieve the desired goals, go in details of the pros and cons of every course of action and
then finally decide what course of action may suit them best.

2. Planning Contributes to the Objectives

Planning contributes positively in attaining the objectives of the business enterprise. Since plans
are there from the very first stage of operation, the management is able to handle every problem
successfully. Plan try to set everything right. A purposeful, sound and effective planning process
knows how and when to tackle a problem. This leads to success. Objectives thus are easily
achieved.

3. Planning is a Primary Function of Management

Planning precedes other functions in the management process. Certainly, setting of goals to be
achieved and lines of action to be followed precedes the organization, direction, supervision and
control. No doubt, planning precedes other functions of management. It is primary requisite
before other managerial functions step in. But all functions are inter-connected. It is mixed in all
managerial functions but there too it gets precedence. It thus gets primary everywhere.

4. A continuous Process
Planning is a continuous process and a never ending activity of a manager in an enterprise based
upon some assumptions which may or may not come true in the future. Therefore, the manager
has to go on modifying revising and adjusting plans in the light of changing circumstances.
According to George R. Terry, Planning is a continuous process and there is no end to it. It
involves continuous collection, evaluation and selection of data, and scientific investigation and
analysis of the possible alternative courses of action and the selection of the best alternative.

5.Planning Pervades Managerial Activities

From primary of planning follows pervasiveness of planning. It is the function of every
managerial personnel. The character, nature and scope of planning may change fro personnel to
personnel but the planning as an action remains intact. According to Billy E. Goetz, Plans
cannot make an enterprise successful. Action is required, the enterprise must operate managerial
planning seeks to achieve a consistent, coordinated structure of operations focused on desired
trends. Without plans, action must become merely activity producing nothing but chaos.

STEPS IN PLANNING PROCESS

Planning is a process which embraces a number of steps to be taken. Planning is an intellectual

exercise and a conscious determination of courses of action. Therefore, it requires courses of
action. The planning process is valid for one organisation and for one plan, may not be valid for
other organizations or for all types of plans, because various factors that go into planning process
may differ from organisation to organisation or from plan to plan. For example, planning process
for a large organisation may not be the same for a small organisation. However, the major steps
involved in the planning process of a major organisation or enterprise are as follows:

Establishing objectives
The first and primary step in planning process is the establishment of planning objectives or
goals. Definite objectives, in fact, speak categorically about what is to be done, where to place
the initial emphasis and the things to be accomplished by the network of policies, procedures,
budgets and programmes, the lack of which would invariably result in either faulty or ineffective
planning.
It needs mentioning in this connection that objectives must be understandable and rational to
make planning effective. Because the major objective, in all enterprise, needs be translated into
derivative objective, accomplishment of enterprise objective needs a concrete endeavor of all the
departments.

Establishment of Planning Premises

Planning premises are assumptions about the future understanding of the expected situations.
These are the conditions under which planning activities are to be undertaken. These premises
may be internal or external. Internal premises are internal variables that affect the planning.
These include organizational polices, various resources and the ability of the organisation to
withstand the environmental pressure. External premises include all factors in task environment
like political, social technological, competitors plans and actions, government policies, market
conditions. Both internal factors should be considered in formulating plans. At the top level
mainly external premises are considered. As one moves downward, internal premises gain
importance.

Determining Alternative Courses

The next logical step in planning is to determine and evaluate alternative courses of action. It
may be mentioned that there can hardly be any occasion when there are no alternatives. And it is
most likely that alternatives properly assessed may prove worthy and meaningful. As a matter of
fact, it is imperative that alternative courses of action must be developed before deciding upon
the exact plan.

Evaluation of Alternatives
Having sought out the available alternatives along with their strong and weak points, planners
are required to evaluate the alternatives giving due weight-age to various factors involved, for
one alternative may appear to be most profitable involving heavy cash outlay whereas the other
less profitable but involve least risk. Likewise, another course of action may be found
contributing significantly to the companys long-range objectives although immediate
expectations are likely to go unfulfilled.
Evidently, evaluation of alternative is a must to arrive at a decision. Otherwise, it would be
difficult to choose the best course of action in the perspective of company needs and resources as
well as objectives laid down.

Selecting a Course of Action

The fifth step in planning is selecting a course of action from among alternatives. In fact, it is the
point of decision-making-deciding upon the plan to be adopted for accomplishing the enterprise
objectives.

Formulating Derivative Plans

To make any planning process complete the final step is to formulate derivative plans to give
effect to and support the basic plan. For example, if Indian Airlines decide to run Jumbo Jets
between Delhi an Patna, obliviously, a number of derivative plans have to be framed to support
the decision, e.g., a staffing plan, operating plans for fuelling, maintenance, stores purchase, etc.
In other words, plans do not accomplish themselves. They require to be broken down into
supporting plans. Each manager and department of the organisation is to contribute to the
accomplishment of the master plan on the basis of the derivative plans.

Establishing Sequence of Activities

Timing an sequence of activities are determined after formulating basic and derivative plans, so
that plans may be put into action. Timing is an essential consideration in planning. It gives
practical shape and concrete form to the programmes. The starting and finishing times are fixed
for each piece of work, so as to indicate when the within what time that work is to be
commenced and completed. Bad timing of programmes results in their failure. To maintain a
symmetry of performance and a smooth flow of work, the sequence of operation shaped be
arranged carefully by giving priorities to some work in preference to others. Under sequence it
should be decided as to who will don what and at what time.

Feedback or Follow-up Action

Formulating plans and chalking out of programmes are not sufficient, unless follow-up action is
provided to see that plans so prepared and programmes chalked out are being carried out in
accordance with the plan and to see whether these are not kept in cold storage. It is also required
to see whether the plan is working well in the present situation. If conditions have changed, the
plan current plan has become outdated or inoperative it should be replaced by another plan. A
regular follow-up is necessary and desirable from effective implementation and accomplishment
of tasks assigned.
The plan should be communicated to all persons concerned in the organisation. Its objectives and
course of action must be clearly defined leaving no ambiguity in the minds of those who are
responsible for its execution. Planning is effective only when the persons involved work in a
team spirit and all are committed to the objectives, policies, programmes, strategies envisaged in
the plan.

ROLE,SIGNIFICANCE AND IMPORTANCE OF PLANNING

An organisation without planning is like a sailboat minus its rudder. Without planning,
organisation, are subject to the winds of organizational change. Planning is one of the most
important and crucial functions of management.
According to Geroge R. Terry, Planning is the foundation of most successful actions of any
enterprise. Planning becomes necessary due to the following reasons:

1.Reduction of Uncertainty
Future is always full of uncertainties. A business organisation has to function in these
uncertainties. It can operate successfully if it is able to predict the uncertainties. Some of the
uncertainties can be predicted by undertaking systematic. Some of the uncertainties can be
predicted by undertaking systematic forecasting. Thus, planning helps in foreseeing uncertainties
which may be caused by changes in technology, fashion and taste of people, government rules
and regulations, etc.
2.Better Utilization of Resources
An important advantage of planning is that it makes effective and proper utilization of enterprise
resources. It identifies all such available resources and makes optimum use of these resources.

3.Increases Organizational Effectiveness

Planning ensures organizational effectiveness. Effectiveness ensures that the organisation is in a
position to achieve its objective due to increased efficiency of the organisation.

4.Reduces the Cost of Performance

Planning assists in reducing the cost of performance. It includes the selection of only one course
of action amongst the different courses of action that would yield the best results at minimum
cost. It removes hesitancy, avoids crises and chaos, eliminates false steps and protects against
improper deviations.

5.Concentration on Objectives
It is a basic characteristic of planning that it is related to the organizational objectives. All the
operations are planned to achieve the organizational objectives. Planning facilitates the
achievement of objectives by focusing attention on them. It requires the clear definition of
objectives so that most appropriate alternative courses of action are chosen.

6.Helps in Coordination
Good plans unify the interdepartmental activity and clearly lay down the area of freedom in the
development of various sub-plans. Various departments work in accordance with the overall
plans of the organisation. Thus, there is harmony in the organisation, and duplication of efforts
and conflict of jurisdiction are avoided.

7.Makes Control Effective

Planning and control are inseparable in the sense that unplanned action cannot be controlled
because control involves keeping activities on the predetermined course by rectifying deviations
from plans. Planning helps control by furnishing standards of performance.

8.Encouragement to Innovation
Planning helps innovative and creative thinking among the managers because many new ideas
come to the mind of a manager when he is planning. It creates a forward-looking attitude among
the managers.

9.Increase in Competitive Strength

Effective planning gives a competitive edge to the enterprise over other enterprises that do not
have planning or have ineffective planning. This is because planning may involve expansion of
capacity, changes in work methods, changes in quality, anticipation of tastes and fashions of
people and technological changes etc.

10.Delegation is Facilitated
A good plan always facilitates delegation of authority in a better way to subordinates.

LIMITATION OF PLANNING

i) planning does not work in a dynamic environment- planning also has to work amidst the
influence of external environment which can render even the most effective plan inoperative.

ii) Planning is a time consuming process as it requires collection of information, its analysis
and interpretation. It becomes a difficult exercise in times of unexpected emergencies.

iii) It involves huge cost in its formulation. As a lot of money needs to be expended in the
collection, analysis and interpretation of data

iv) It creates rigidity in the mode of functioning. As the employees are required to function as
per the dictates of the predetermined policy.

v) It does not guarantee success, as a wrong or a misconceived plan or a well-drawn plan

when not implemented can lead to failure.

vi) It reduces creativity as the middle level managers and the other decision makers have to
only follow and are not allowed to deviate from the plans.
vii) The human element can give way to errors or mistakes through wrong assumption.

viii) It is prone to external influence which can reduce its impact like natural calamity,
technology changes, policy changes, competition.

TYPES OF PLAN
A. Standing or Repeatedly used plans: As their name indicates that these plans are
formulated once and they are repeatedly used. These plans continuously guide the
managers. That is why it is said that a standing plan is a standing guide to recurring
problems. These plans include:
1. Objectives
2. Strategies
3. Policies
4. Procedures
5. Methods and
6. Rules
B. Single use special or Adhoc plans: These plans are connected with some special problem.
These plans end the moment the problems are solved. After having been used once there is no
importance of these plans and in future, whenever they are needed they are re-created. These
plans include

1. Budget and
2. Programme.
DIFFERENCE BETWEEN STANDING PLAN AND SINGLE USE PLAN

BASIS STANDING PLAN SINGLE USE PLAN

1. period These plans are formulated for a These plans for a short
long period Period and are repeatedly
formulated in case of need.
2.object These plans are formulated to bring These plans are designed to
uniformity in run successfully some
decisions particular activities
3.Types They are of six types i. objectives ii. They are of two types i.
Strategies iii. Policies iv. Procedures Budgets and ii.Programmes
v. methods and vi. Rules
4.scope They guide the managers in These plans guide in
particular matters like price policy Matters of daily routine.
and sales policy
5.Basis They are based on the main They are based on the
objectives of the standing plans of the
organization organization.

1. Objectives Are the ends which the management seeks to achieve by its operation.
Represent the end point of management.
Set by top management.
Defines the future state of affairs.
Guides the overall business planning.
Can be expressed in specific terms. They can be measured.

2.Strategy provides broad shape of organizations business, refers to the future objective,
adoption of a particular course of action and allocation of resources.
3.Policies are general statements which guide thinking in decision making.
They are based on objectives.
 They guide managerial action and decisions.
They exist at all levels and departments of the organization.

4.Procedures- Are a chronological sequence of routine steps on how to carry an activity.They

detail the exact manner in which the work is to be performed.

It is meant for the insiders to follow.

Policies and procedures are interlinked.
5.Rules Are specific statements that inform what is to be done.

Reflects managerial decision.

Simplest plan.
They are to be enforced rigidly.
6.Methods Are standardized ways or manners in which a task has to be performed considering
the objectives.

7.Programmes detailed statements which are combination of goals, policies, procedures, rules
tasks, human and physical resources required and the budget to implement any course of action.
All these plans together form a Programme.

8.Budget Is a statement of expected results expressed in numerical terms for a definite period
of time in the future.

It quantifies future facts and figures.

Serves as a standard for measuring actual performance.
It is prepared for various groups of activities.

SUMMARY

Planning Planning is deciding in advance what to do and how to do. It is one of the basic
managerial functions. Planning therefore involves setting objectives and developing an
appropriate course of action to achieve these objectives.

Importance of Planning
Planning provides directions, reduces risks of uncertainty, reduces overlapping and wasteful
activities, promotes innovative ideas, facilitates decision making, establishes standards for
controlling.

Features of Planning
Planning focuses on achieving objectives; It is a primary function of management; Planning is
pervasive, continuous, futuristic and involves decision making; It is a mental exercise.

Limitations of Planning
Planning leads to rigidity; reduces creativity; involves huge costs; It is a time consuming process;
Planning does not work in a dynamic environment; and does not guarantee success.

Planning Process
Setting objectives: Objectives may be set for the entire organisation and each department or unit
within the organisation.
Developing premises: Planning is concerned with the future which is uncertain and every planner
is using conjucture about what might happen in future.
Identifying alternative courses of action: Once objectives are set, assumptions are made. Then
the next step would be to act upon them. Evaluating alternative courses: The next step is to
weigh the pros and cons of each alternative.
Selecting an alternative: This is the real point of decision making. The best plan has to be
adopted and implemented.
Implement the plan: This is concerned with putting the plan into action. Follow-up action:
Monitoring the plans are equally important to ensure that objectives are achieved.

Types of Plans
Objectives: Objectives therefore can be said to be the desired future position that the
management would like to reach.
Strategy: A strategy provides the broad contours of an organisation s business. It will also refer
to future decisions defining the organisations direction and scope in the long run.

Policy: Policies are general statements that guide thinking or channelise energies towards a
particular direction.
Procedure: Procedures are routine steps on how to carry out activities. Rule: Rules are specific
statements that tell what is to be done. Programme: Programmes are detailed statements about a
project which outlines the objectives, policies, procedures, rules, tasks, human and physical
resources required and the budget to implement any course of action.
Budget: A budget is a statement of expected results expressed in numerical terms. It is a plan
which quantifies future facts and figures.

QUESTION BANK

VERY SHORT QUESTION ANSWER

Que1. Name the feature of planning which says planning is a forward looking function

Ans. planning is futuristic.

Que2. State how planning is a mental exercise .

Ans. Planning is an intellectual activity of thinking rather than doing because planning
determines the action to be taken.

Que3. How does planning create rigidity?

Ans. Planning creates rigidity by putting adverse effect on initiative taken by the managers and
not giving them any flexibility to be able with the rapidly changing circumstances and sticking
to pre-determined plans.

Que4. State the features of planning which help managers know whether they have
actually been able to attain goals and correct the deviations.

Ans. Planning establishes standard for controlling.

Que5. Planning eliminates change/uncertainties. Do you agree? Give reason in

support of yours answer.

Ans. No, I don not agree because planning only anticipates not eliminates change
/uncertainties.

Que6. Does planning work in a dynamic environment? Give reasons.

Ans. No. As it becomes very difficult to forecast the business environment.

Que7.Give any one external limitation of planning function.

Ans. natural calamites are beyond the control of planners.

Que8. What is meant by follow-up action as the step involved in the planning
process?

Ans. Follow up action means checking weather the plans are being implemented and activities
are performed according the schedule.

Que9. What is to be done for evaluating different project of a financial plan?

Ans. Risk return tradeoff is to be considered.

Que10. What is the purpose of doing follow up action in planning process?

Ans.To ensures proper implementation of plans.

Que11. Name the type of plans that are used once. Also give two examples of that
plan.

Ans. Single use plans

Example: Method, program, budget etc.

Que12. Name the type of plans that are used again and for for an indefinite period.
Example of that Also gives two plans.

Ans. Standing plans

Example: objective, policy, strategy, procedure, rules.

Que13. Give one difference between policy and procedure.

Ans. Procedure consists of series of step whereas policies are guidelines for decision making.

Que14. Name the type of plan which tells what is to be done and what is not to be done.

Ans. Rules.

Que15. Give any one example of budget.

Ans.Cash budget.

Que16. Jagat Ltd. Decides to advertise its product which are newly launched on
television and radio. What type of plan it is?

Ans. Strategy.

Que17. XYZ Ltd. Company select its employees thought written test along with interview.
Identify the plan.

Ans. Procedure.

Q.18. PLANNING IS PURPOSEFUL. HOW?

Ans. Planning is purposeful as it focuses on the achievement of organizational goals.

Q.19. GIVE THE FEATURES OF AN IDEAL PLAN.

Ans.The ideal plan is the most feasible, profitable and with least negative consequences.
 Q.20. NAME THE TYPE OF PLAN WHICH IS ALSO A CONTROL DEVICE FROM WHICH
DEVIATION CAN BE TAKEN CARE OF.

Ans. Budget.

Q.21. STATE THE RELATIONSHIP BETWEEN POLICY AND STRATEGY?

Ans. Policies provide a basis for interpreting strategy. They are guides to managerial action
and decisions in the implementation of strategy.

Q.22. NAME THE TYPE OF PLAN THAT DOES NOT ALLOW FOR ANY FLEXIBILITY OR
DISRETION.

Ans. Rule.

SHORT QUESTION ANSWER

Q.1. Define Planning .List any two reasons why planning is essential.

Ans. Planning means setting objectives for a given time period ,formulating various courses of
action to achieve them and then selecting the best possible alternative from among the various
courses of action available.

Planning is essential because it (any two):

i. Provides directions.
ii. Reduces the risk of uncertainty.
iii. Reduces overlapping and wasteful activities.
iv. Promotes innovative ideas.
v. Facilitates decision making.
vi. Establishes standards for controlling.

Q. 2. Enumerate the steps involved in the planning process.

Ans. Steps of planning are as follows :

i. Setting up of objectives.
ii. Developing premises.
iii. Identifying alternative courses of action.
iv. Evaluating alternative courses.
v. Selecting an alternative .
vi. Implementation of plan.
vii. Follow up action .
LONG QUESTION ANSWER

Q1. Though planning is an important tool of management, yet it is not a remedy for all
types of problems. Do you agree with this statement? Give any five reasons in support
your answer.

OR

In spite of best efforts of managers sometimes planning fails to achieve desired result
due to its limitation. Explain any five limitation of planning.

Ans- Limitations of planning:

1. Planning creates rigidity

a. In an organization, a well defined plan is drawn to achieve some specified goals within a
specified period of time.
b. These plans lay down the future course of action and it is not possible for the managers to
change them.
c. Hence, it is not in the organizational interest to allow a particular plan when circumstances
have changed.

1. Planning does not work in a dynamic environment

a. The various forces of business environment like social, political, technological and
legal keep on changing and the organization have to adapt themselves to these
changes.
b. Thus, it becomes very difficult to forecast when there is change in government
policies, natural calamity, political instability in the country etc.

1. Planning reduces creativity

a. Usually in an organization planning function is performed by the top management
and the rest of the members are required to implement these plans.
b. As a result, middle management and other members are neither allowed to deviate
from plans nor grants authority to act on their own.
c. Hence most of the initiative and creativity in them gets reduced.

1. Planning involves huge cost

a. Huge cost is involved in the formation of plans.
b. This costs is in terms of money and time. For example, a lot of time is involved in
scientific calculations to ascertain facts and figures and to check accuracy of facts
while formulating a plan.
c. Likewise, a lot of money spent on boardroom meetings, discussion with experts and
preliminary investigation to find out the effectiveness of the plans.
d. Moreover sometimes are cost incurred in formulating plans is higher than the
benefits received from these plans.

1. Planning is a time consuming process

 a. Sometimes top level management consumers a lot of time in formulating the plans,
as a result of which very less time is left with them to implement these plans.

1. Planning does not guarantee success

a. An organization is successfully when the plans are effectively drawn and
implemented.
b. Managers are in the habit of depending on previously tried and tested successful
plans, but this practise sometimes does not work and may lead to failure instead of
success.
Q2. Distinguish between objective and policy.

Ans- difference between objective and policy

Basis Objective policy

meaning An objective is the main target Policies are an organization
to be achieved. ways for solving problems.
Nature Objective determines what is to Policy determines how the work
be done is to be done
Need Defining objectives is important Policy formulation is not
for all types of organizations. mandatory.
purpose Objectives provide the Policies provides the route to
destination towards which all reach that destination
organizational activities are
directed.
Level of determination Objectives are determined by Policies are formulated by all
top level managers managerial level viz. Top,middle
and operational.
Scope The scope of the objectives is The scope of policy is limited as
wide as other plan like policies, it is a guide for actions to
procedures, rules; methods etc. achieve objectives.
are framed on the basis of
objectives.

Q3. Distinguish between policy and procedure.

Ans- difference between policy and procedure.

Basis Policy Procedure

Meaning A policy is a guide for thinking. Procedure is a guide for action
 in a given situation.
Level of determination Policies are formulated by the Procedures are determined by
top level managers the lower level managers.
Nature Policy is derived from objectives Procedure is laid down to
of business. implement policy.
Expression Policy is expressed in the form Procedure is expressed in
of general statement. specific terms.
Stages Policies do not involve various Procedure involves various
steps. steps.
Managers discretion Policy provides some scope for Procedure provides no scope
mangers discretion in his for managers discretion in his
course of action. course of action.

Q4. . Distinguish between policies and rules.

Ans- difference between policies and rules.

Basis Policies Rule

Meaning A policy is a guide A rule is a specific statement,
which restricts the flexibility or
discretion.
Nature Policy lays down the broad Rule lays down any specific
areas of action in an sequence of action in an
organization. organization.
Objectives Policy is framed to achieve Rules are used to maintain
objectives of the organization. discipline and command in any
organization.
Managers discretion Policy provides some scope for Rules provide no scope for
the managers discretions in his managers discretions and they
course of action. are binding for all.

Q5. Distinguish between procedures and rules.

Ans- difference between procedures and rules.

Basis Procedure Rules

Meaning Procedure is a guide for action Rule is a code of conduct
in a given situation. governing or restricting flexibility

Nature Procedure are specified in
chronological order.
Purpose The purpose of procedure is to
facilitate and simplify the
operations and eliminate
duplication.
Scope The scope of procedure is wide A rule has no procedure.
because it has its own rules and
regulations.
or discretion.
Rules do not place activities in
chronological order.
The purpose of rule is to
maintain discipline in an
organization.

Q6. Distinguish between rules and methods.

Ans- Difference between rules and methods.

Basis Rules Methods

Meaning Rules are specific statements Methods are standardization
which inform what is to be done. ways of performing jobs.
Nature Rules are regarded as Methods are regarded as
authoritative and mandatory. logical or rational and to be
followed for better results.
Relation Rules restrict the behaviour of Methods act as guide for
people. efficient working.
Purpose The purpose of rules is to Methods ensure the efficiently
ensure discipline. in action.
Penalty Breaking g of rules attracts Deviation from methods leads
penalty to substandard results.
Control Following the rules increaser Methods re not directly related
the level of control. to control.
Example Smoking is prohibited. On the job training for
supervisors.

Hots

1.Offering 30% jobs to women. What type of plan is it?

Ans. Policy.

2. An employee will be selected through a written test. What type of plan it is?
Ans. Procedure.

3. Shoguns ltd. decides to sell television sets through exchange of old television sets. What
type of plan is it?

Ans. Strategy.

VALUE BASED QUESTIONS.

Q.1. In a visit to restaurant, some youngsters were found smoking in spite of sign board
indicating no smoking zone.

Suggest the values which will help the youth to become responsible citizens of the
nation.

Obedience
Self-discipline
Concern of health of other people.
Respecting the law of the land.

Q2 The CEO of XYZ Ltd. an automobile enterprise dreams of his company becoming the
best player in future, for which he sets the objectives, forecasts the future and develops
various courses of action.

i) Identify the management function which is highlighted here. ii) What are the various
values the CEO is striving to achieve?

i) Planning is the Management function

ii) The values the above mentioned paragraph highlight are:

a) Hard work helps individuals to turn their dreams into reality

b) Initiative, confidence, commitment

Q3.What values does planning emphasize by reducing wasteful activities and

establishing standards?

i. Social responsibility
ii. Empathy, Harmony
iii. Motivation,
iv. Cooperation
Q4. Planning is a mental exercise. What human value is being

Emphasized?

Ans Adaptability

Team spirit,
 Sense of judgement.

Q5.Planning reduces creativity. What value is violated in this statement?

Ans.: Initiative,

Motivation,