Forecasting and Planning

Nature of Forecasting and Planning

Forecasting. This is a management function that

reduces areas of uncertainty that surround management
decision. Such decisions can be in sales, costing, profit,
manpower among others. Forecasting is aimed at
calculating or predicting what is likely going to happen in
the future. That is, the events or conditions are predicted
in advance. By so doing, forecasting gives management
the basis for expecting the desired outcome arising from
management decisions. Through forecasting, a manager
has alternatives. Out of the alternatives he selects the one
that can maximize his objective(s).

Planning. This is another management function

which is futuristic. It goes together with another
management function of forecasting. It involves deciding
in advance what to do, how to do it, when to do it and
who is to do it. Consequently, planning has to do with the
conscious choice of patterns of influence on the manager
in his attempt to make decisions. For planning to be
effective there must be the establishment of objective.
Planning defined as the design of a desired future and of
effective and efficient way of bringing it about.
Features of Planning
1. Planning involves design. Remember to design is to
create which is one of the skills of management. This
means that before any other management function
can take place, there must be first of all planning.
Consequently, planning precedes action in respect of
other management functions.
2. Planning attempts to bring necessary actions and fit
them together to something we want to make sense of
before it happens. This means that before we realize
an objective, there must be series of actions which
must be well fitted together in a logical sequence.
3. Planning is focused on the need to achieve stated and
well defined objectives, this means that the end-
product of planning is the realization of
organizational objectives.
4. Planning is also a conscious deliberate response to
the negative belief that unless something is done a
desired future state will not occur, and to the
optimistic belief that we can do things to improve our
chances of achieving the desired state.

Advantages of Planning
 1. Planning focuses on objectives. This is important so
as not commit the limited resources of the
organization into unprofitable actions.
2. It off sets uncertainties by making the manager to
develop some confidence which will enable him to
take decisions with some degree of certainty.
3. It minimizes waste before careful analysis would
have been made with respect to the critical activities
that need to be performed on other to realize the
objective or give solution to the problem. All
unwanted activities are isolated and thrown away.
4. Planning also ensures control through measurement
and feedback. This is important so as to avoid
unnecessary expenditure of resources.

Disadvantages of Planning
1. The effectiveness of planning depends on the quality
of data gathered and the assumptions made from
them. If the quality is poor and assumptions not
correct. They can adversely affect future of the
results.
2. Planning is expensive as it involves considerable
amount of time and money.
3. Planning delays action because it is only when the
plan is completed that the desired action can take
place.
Benefits of Planning
1. It helps identify opportunities for the organization
planning required an organization to look for
opportunities; to earn profit or provide a service that
otherwise may not exist. If opportunities are
identified steps can be taken to capitalize on the
essentials.
2. It helps identify possible problem; the analysis
involved in planning can reveal situation that could
threaten the organization. If such potentials hazards
are noticed or anticipated, steps can be taken to
minimize their impact.
3. If forces managers to set objectives; the planning
process demands that managers make decision about
what objective to pursue. Once these objectives are
set, employees have a clear idea of how their work
helps achieve the organization goals.
4. If forces managers to set standard, as part of the
planning process, managers must decide what
standards of performances are necessary to reach the
objectives. These standards convey to employees
what they must; they also help managers fulfil the
controlling function.
5. It coordinates organizational activity well-developed
plans for the whole organization and for each of its
 major components assist individuals in seeing how
their particular work fits in with the work of others.
This understanding can reduce wasted actions and
increase organizational efficiency.
Problems in Planning
1. Lack or support from top management; if top
management is nonchalant about planning, lower
level managers will conclude that planning is
unimportant.
2. Poor performance is a key element in planning. If
poor quality information is used as the basis for
plans, good plans cannot be developed.
3. Resistance to change; planning may result in decision
to change organizations practice. These changes can
cause resistance in people who have become
accustomed to certain ways of behaving.
4. Over or under commitment in plans; if managers
spend a lot of time and energy implementing plans
they may become emotionally attached to them. Once
that happens they may be unable to articulate the
plan.
5. Managers are not involved in the planning process; If
objectives are simply imposed from above, lower-
level manager will lack motivation to achieve them.
6. Lack of competence in planning; Some managers
lack the experience, motivation or aptitude for
 systematic planning. Deficiencies in experience and
motivation can be overcome, but the inability to plan
for an ineffective manager.

Planning at Different Levels in the Firm

Plans must be developed for all levels of management,

although other focus will differ at different levels of
management. Below are the planning activities of top
managers and low level managers which reveal four
principal differences.

Top Mangers Low-Level Managers

1. Develop organizational
objectives and the overall
plans to achieve them.
2. Spend a large proportion
of their time on the
planning function.
3. The time frame for
planning activities is large
(about one year).
4. Focus on both internal
and external factors when
planning.
Develop plans that will fit
the overall objectives set by
top management.
Spend a much smaller
preparation time on the
planning function.
The time frame for planning
activities is short (often
week to week)
Focus largely on internal
factors.
Types of Plans

There are a variety of ways in which we can

categorize plans. In this lesson, the learner is exposed to
categorization that is based on breadth, time frame,
specificity and frequency of use.
1. Breadth. Under this sub-division, we have two types,
namely, strategic and operational plans. Strategic
plans generally apply to the entire enterprise,
establish the enterprise’s overall objectives and seek
to place organization in terms of its environment
while operational plans specify the details required to
achieve the overall objectives i.e. they define ways to
attain the objectives. It follows that strategic plans
cover a wider period than operational plans.
Operational plans also deal with specifics as opposed
to strategic plans which are broader.
2. Time frame. Here we may have short plans (plans
within less than one year), intermediate plans (period
between 1-5 years) and long-term plans (plans
exceeding five years.)

3. Specific. Plans may be specific or directional.

Specific plans usually are explicit and with clearly
defined objectives for example, “we want to attain
10% sales volume within the first quarter of 2009”. It
 follows, clear procedures, budget allocations,
schedules of activities must be designed to achieve
this target. This represents a specific plan. Directional
plans on the other hand are plans that merely give
general guidelines, for example, providing focus or
direction with no specific objectives. This kind of
plan is flexible and provides for misinterpretations.
4. Frequency of use. Here, we have single-use plans
and standing plans. Standing plans by their nature are
to provide guidance for events that are repetitive in
an enterprise, for example, the national policy on
gender mainstreaming. Single-use plans on the other
hand are those that are planned specifically to meet
unique needs. They are created in response to non-
programmed decisions, since managers may not
repeat such plans.

Planning Techniques and Tools

The basic techniques in planning are:

1. Readiness to engage in planning. The organization
must be ready to engage in planning otherwise it is an
effort in futility. This step is to help clarify the
organization’s beliefs.
 2. Creating a vision. This means a statement of purpose
and function. This means defining the organization’s
preferred future.
3. Stock taking. This implies a vivid understanding of
the organization’s current status and it involves an
exhaustive examination of both the internal and
external context within the enterprise’s situation.
4. Goals and objectives setting. Goals are simply a
clearer statement of the visions which specify what is
to be accomplished so that the vision becomes real.
Objectives are only clearer statements of the specific
activities that are required to achieve set goals.
5. Build a communication plan. Having a successful
plan requires much of a sound communication
campaign from the onset to create awareness and
acceptance.

In utilizing these techniques, managers use a variety of planning tools. There are:

1. Environmental scanning. An in-depth analysis or

screening of volumes of information to detect
emerging trends and create scenarios.
2. Forecasting. From the environmental scanning,
forecasts (predictions of future outcomes) are made.
3. Benchmarking. This simply means a search for the
best practices among competing or non-competing
 firms, leading to their superiority in such industries.
The idea behind this practice is that it can lead to
improvement in quality by analyzing and/or copying
the methods of leaders in different fields.

Applications of Planning and Techniques

1. Establish and define clearly the central and

overall objectives of the organization. A well-
defined objective can make the difference between
success and failure of an enterprise. It clearly defines
the product or service as well as the purpose of the
company. Along with the overall mission of the
company, it is also necessary to establish the specific
objectives and goals. For example, the overall
objective of a hospital is to provide quality
healthcare.
2. Determine your current position relative to your
objectives. Make an assessment of your strengths
and weaknesses. This will show the distance the
company has to cover before reaching its goals. The
analysis of current strengths and weaknesses would
determine if the goals are realistic and achievable and
whether they need to be re-evaluated and modified.
3. Develop forecasts and future conditions. In order to
effectively plan, it is important and necessary to
forecast as accurately as possible, the future trends
that will affect the company’s standing and
operations. The factors of forecast will include
general economic conditions, changes in consumer
attributes, new technological and product
developments, possible competitive strategies and
any adverse legal developments.
4. Preparation of derivative plans. Once an overall
plan has been adopted, it is necessary to develop
other derivative plans for each segment of the
company, to support the formal plan. derivative or
sectional plans are developed in each area of the
business, but within the framework of the primary
plan in order to coordinate and integrate programs
and policies of all sections of the enterprise.
5. Implement plans and evaluate its results. The
success of the plan would depend upon how
effectively the plan is implemented. This
implementation is going to require a combination of
all skills and coordination of all factors. Also in this
ever-changing dynamic environment, it is necessary
to keep the plan open to evaluation and modification.
The plans should be periodically re-evaluated to
measure its progress and effectiveness so that any
 deviations can be corrected and any adjustments can
be made.

The Six P’s Planning

1. Purpose. An effective planning system requires a
clear understanding of the organization’s purpose.
What are the reasons for the organization’s existence?
Is it to increase profit or increase market share or
generate more employment or introduce more
products, etc? This purpose must be clear and
elaborate.
2. Philosophy. Philosophy incorporates the fundamental
belief as to how the organization’s purpose is to be
achieved. For long-term survival and growth, a
philosophy of ethical conduct must be adopted. For
example, General Motor’s philosophy is based upon
profitability through quality, service and ethical
behaviour. IBM’s philosophy was to elevate the level
of the salesman to an executive, etc.
3. Premise. This involves the strengths and weaknesses
of the organization and its knowledge and
assumptions about its environment. By forecasting
and other methods, the management can make some
conclusion about the environment trends and by
knowing its own strengths and weaknesses it can
 deal with the changing environment in a more
intelligent way.
4. Policies. Policies are general guidelines or constraints
that aid in managerial thinking and action. In a
typical organization, there are production policies,
financial policies, accounting policies, marketing
policies, personnel policies, than the philosophy and
form a basis for planning and necessary operational
actions.
5. Plans. Plans represent specific objectives and action
statement. Objectives are the goals to be met and the
action statements are the means to achieve these
ends. These plans guide us step by step as to how to
reach the objectives and also at what stage the
progress is at given time.
6. Priorities. A particular organizational goal must be
given a particular priority. Limited resources of time,
finances, materials, etc. must be proportionally
allotted to goals of priority. The priorities will
determine an appropriate allocation of resources.
Goal priorities would determine what is relatively
more important. A goal of higher priority would
receive more attention and more resources. For
example, a research-oriented organization will get
different priorities and resources than a profit-
oriented organization. The priorities of goals would
 be established on the basis of philosophy and
premises of the organization as well as social,
political, and economic measures and value conflicts.
In any case, such priorities would affect the planning
process.

Decision Making

In the process of planning an organization decision is

being made. Decision-making is where choices are being
made of which activity is to be carried out from other
different activities. What this means is that before a
decision can be made, there must be alternatives or
different ways to do something. Out of these ways, there
must be an action to pick one alternative out of the several
alternatives. A decision is therefore regarded as
commitment to action. This is why a plan is useless unless
it is committed into concrete action.

Steps in Decision-Making

The following shows the relevant steps in planning.

There are also the steps in decision-making and we are
going to consider them, though briefly, one after the other.
1. Define problem/issue. This is the first step in
planning/decision making. The objective has been
set, and there is an obstacle toward the realization of
the objective. As a result, before a problem does exit
and becomes an issue there must be an objective to
identify which problem is threatening. That problem
must be identified and isolated. Care must be taken
so as not to confuse symptom of a problem from the
actual problem at stake. For example, there can be
smoke in the factory but what is causing the smoke is
the fire. Attacking the smoke is a sheer waste of time
because the fire will continue to produce fresh
smoke. The only way to put an end to the smoke is to
quench the fire by relevant means or a combination
of means.
2. Collect relevant data. Planning and decision making
cannot take place unless there is data. But the data
should be meaningful to the problem already
identified. This is where the information gathered in
the management function of forecasting will be
useful. The assumptions made will be further
subjected to analysis so as to determine the relevance
to the problem at stake. Company records are also
part of the data which have to be processed.
3. Develop alternative solutions. The data having been
assembled, the next stage is for management to work
 out possible solutions. The solution can never be one
because if it is so then there can be no choice. The
idea of choice suggests that at least there must be two
solutions to the existing problem. Out of these
solutions, there can be a choice.
4. Assess the consequences. But before there can be a
choice, its consequences must be carefully considered
in the light of the problem threatening the objective.
The manager should determine the required resources
needed in selecting an option. He should find out if
such resources do exist and if they can be put to
alternative use that can bring better benefits. He must
ensure that the organization can handle the option and
that such option is capable of tacking the problem
effectively.
5. Select the Optimum Solution. The solutions having
been worked out and ranked order of preference, the
nest stage is to choose. And the choice should be the
most feasible one after taking several factors into
consideration vis-à-vis the objective and the problem
at stake.
6. Implement Solution. Once the choice has been
made, management should process to implement.
While implementing, there should be built-in
motivational system that will enable problem to be
tackled satisfactorily. Job plan should be developed
 spelling out the necessary activities to be done, who
is to do them, how they are going to be done and at
what time.
7. Measure result. While implementing, there must be
control and feedback. To achieve this, there should be
regular reports on performance. The reports should
then be compared with the objective. If there is a
deviation, this means that there is no effective
solution yet to the problem. Such deviation should be
quickly corrected.
 Organizing

Performance Standard: The learners shall be able to

design an appropriate organization structure for a specific
business.
Learning Competences: The learners…
 Discuss the nature of organizations;.
 Distinguish the various types of organization
structures;
 Apply organization theories in solving business
cases;
 Identify the different elements of delegation; and
 Differentiate formal from informal organization.

Nature of Organizing
Organizing is one of the functions of management
where the manager is expected to bring his creativity to
bear. He has to be original and innovative in the discharge
of this function. It can be recalled that we treated business
objectives and the necessary skills a manager need to
have in other to satisfactorily perform his functions,
design skill is one of those skills, and the design skill is
very much needed in the function of organizing.
Organizing has many areas to cover. As a result, we shall
be starting with the nature of organizations, types of
organization and the activities of organizing. Organizing
can be thought of as:

1. Identification and classification of required activities

necessary for the accomplishment of the objectives of
the organization;
2. The grouping of the activities identified;
3. The assignment of the activities which have been
grouped (each group of activities) to a manager;
4. Provision of commensurate authority to the manager
so that he can be able to supervise the group of
activities that has been assigned to him, and
5. Co-ordination which ensures that the group of
activities assigned to a manager has a link with other
groups of activities assigned to other managers in the
organization.

Advantages of Organizing

Having explained briefly what is organizing you can

easily see some of the advantages associated with it. By
creating the different roles that make up the structure of
an organization arises some definite advantages.
1. The environment, that is, the internal environment
is made clear. There is a focus of what the objective
 is, and the need to contribute one’s quota toward the
realization of the objective.
2. Organizing makes it possible to determine who is to
do with what. The marketing manager through
organizing, for example, knows he is to perform
marketing activities such, as market and marketing
researches, segmentation, pricing, promotion among
others. He is not employed to do engineering work
because that aspect of the organizational role belongs
to another manager entirely.
3. Organizing again makes it possible to identify who
is responsible for what result. Even though the
marketing department has to perform marketing
activities, it is the marketing manager that is
accountable to a higher manager all issues relating to
marketing. Below the marketing manager, there are
other employees reporting to him. These other
employees must also give account to the marketing
manager and to another manager, outside the
marketing department.
4. Removes obstacles. Though proper organizing all
obstacles are removed. They are obstacles because
they do not allow good performance. The obstacles
arise due to confusion and uncertainties which arise
because of improper or faulty organizing. These
problems in the forms of confusions, anger,
 frustrations, and uncertainties among others are
drastically reduced through the management function
of organizing.
5. It makes it possible for smooth decision making
network. We have said it earlier that a manager takes
decisions. But he cannot take a decision if there is
confusion and uncertainty surrounding the
environment under which he is managing. He may
not know what he is going to decide on and the
importance of his decisions to the organization. But
with proper organizing, a conducive environment
would have been created under which the manager
has to make his decisions.
6. Presence of communication network. In an
organization, nothing would be done without
communication. Decision making involves
communication; forecasting and planning cannot be
done in the absence of communication. In fact, no
management function can be performed in the
absence of communication which can be oral or
written or non verbal. Communication exists between
managers, between managers and their subordinates,
between managers and their superior officers and so
on.

What is Organization?
 The term “Organization” is one word that people use
loosely. In one sense, some people look at the word as
including all the behaviours of the people that work in a n
establishment. Some other people regard organization as
the total system of social and cultural relationships. Still
others equate an organization with an enterprise.

Meaning of Organization Structure

According to Mullins (2000), structure is the

pattern of relationships along positions in the
organization and among members of the organization.
The purpose of structure is the division of work among
members of the organization, and the coordination of
their activities so they are directed towards achieving
the goals and objectives of the organization. The
structure defines tasks and responsibilities, work roles
and relationships and channels of communication.

Structure makes possible the application of the

process of management and creates a framework of order
and command through which the activities of the
organization can be planned, organized, directed and
controlled.
 Drucker (1989) suggests the organization structure
should satisfy three requirements. There requirements are
as follows:

1. It must be organized for business performance. The

more direct and simple the structure the more
efficient it is because there is less change needed in
the individual activities directed to business
performance and results. Structure should not rest on
past achievements but be geared to future demands
and growth of the organization.
2. The structure should contain the least possible
number of management levels. The chain of
command should be as short as possible. Every
additional level makes for difficulties in direction and
mutual understanding, distorts objectives, sets up
additional stresses, creates inertia and slack, and
increases the difficulties of the development of future
managers moving up through the chain. The number
of levels will tend to grow by themselves without the
application of proper principles of organization.
3. Organization structure must make the training and
testing of future top management. In addition to
their training, future managers should be tested
before they reach the top. They should be given
autonomy in positions of actual managerial
 responsibility while still young enough to benefit
from the new experience. They should also have the
opportunity of at least observing the operation of the
business as a whole, and not be narrowed by too long
an experience in the position of a functional
specialist.

Drucker suggests that, in order to satisfy these three

requirement, the organization structure must be based
preferably on the principle of regional decentralization,
with activities integrated into autonomous product
businesses with their own product and market, and with
responsibility for their profit and loss. According to
Drucker, if regional decentralization is not possible then
the organization structure should be based on the principle
of functional decentralization with integrated units having
the maximum responsibility for major and distinct stages
of the business process.

Objectives of Organizational Structure

The objectives of organizational Structure, according

to Knight (1977), are as follows:
1. The economic and efficient performance of the
organization and the level of resource utilization;
2. Monitoring the activities of the organization;
 3. Accountability for areas of work undertaken by
groups and individual members of the organization;
4. Coordination of different parts of the organization
and different areas of work;
5. Flexibility in order to respond to future demands and
developments, and adapt to changing environmental
influences; and
6. The social satisfaction of members working in the
organization.

Types of Organization Structures

There are various types of organizational structures.

The basic ones are functional product/market, geographic
and matrix types.

1. Functional organizational structure. This structure

makes use of expertise since members engage in one
functional activity e.g. production. It is the most basic
structure. Here, supervision is made easier. Here also,
there is grouping of diverse tasks into seemingly
similar roles. For example:
 Marketing Manager

General General
General General Manager
Manager Manager
Manager Foods pharmaceutical personal care
households products

2. Product/Market Structure. In this type all those

involved in the production or marketing of one or
related product are brought under one division. This
explains why it is often called organization by
division. This system is practiced mostly by large
organizations that have diverse products. These
divisions basically represent separate business units
since the divisional heads focus primarily on their
divisions as illustrated below.
 Marketing Manager

General General General General

Manager Manager Manager Manager
Foods households pharmaceutical personal care
products

3. Matrix structure. This is basically a hybrid type

since it simultaneously combines the other types
discussed earlier. As a result it utilizes the merits
inherent in both as well as relaxes their drawbacks. It
follows that employees have in effect two horizontal
which one chain of command (functional or
divisional) and the other is horizontal which
combines people from various functional departments
into a project team or a business team under a project
or group manager (Stoner, Freeman and Gilbert,
1995). Much complexity is seen in Matrix
 organizational structures. Here, there may be a
product manager as well as national manager. It
follows that the same employee may report to the
product manager as well as to the national manager
where the need arises.

Dimensions of Organizational Structure

Organizational structure can be analyzed along

several dimensions: formalization, centralization,
complexity and specialization which are briefly explained
below:

1. Formalization. Formalization refers to the amount of

written job description, rules, policies and procedures
that guide employee behaviour. In small firms, the
degree of formalization is low and most of the
direction that employees secure is verbal, whereas in
large organization particularly they are highly
bureaucratic in nature.
2. Centralization. Centralization deals with the issue of
how much authority is held at the various
management levels in the organizational hierarchy. In
a centralized organization, top management makes
 decisions for most areas of operation. Workers at
lower levels are allowed to make decision and initiate
action only in limited areas.
3. Complexity. Complexity concerns the number of
distinctly different job titles and departments in an
organization with many different department and job
titles are more complex than organizations with only
a few job titles and departments.
4. Specialization. Specialization means breaking a
complex task into simple parts so that the individual
or group performing the task can focus on specific
parts of it. Specialization is widely used in modern
organization for both managerial and operative jobs.

Advantages and Disadvantages of Specialization of Labor

Advantages Disadvantages
1. Workers became very 1. Workers fail to develop
efficient when doing any sense of pride for
the same portion of a product and service that
carped task over and they are producing.
over again.
2. One manager can 2. Motivation among
supervise large workers erodes and a
numbers of worker series of alienation
doing identical tasks. from work may
 develop.
3. Workers can learn 3. Workers may feel that
specialized jobs much they are not using
faster than jobs valued skills to do their
requiring many work.
different skills.
4. Quantity may improve 4. Boredom, absenteeism,
because workers know and turnover among
their job excellently. workers may cause
quality to decline.
5. The coordination of 5. Workers may be
many specific tasks unaware of how their
may be the only way area of specialization
for the organization to
fits into the overall goal
achieve its complex
overall goals. of the organization.

Composition and Members in the Organization

Structure

The structure is important because it shows the duties

that should be performed in order that the goals and
objectives can be reached. The structure of an
organization is basically if three layers. The first layer is
the Board of Directors, the second layer is the office of
the Managing Director and the third and last layer is what
is commonly referred to as a complex layer consisting of
the functional managers and their subordinates.

Board of Directors. This is the first layer of a typical

business organization. Members of the board are drawn
from the share holders. The Managing Director, even
though he is in charge of the day to day activities of the
organization is also member of the board. The board must
be a matured individual capable of contributing
constructively to the leadership role of the board. But
beyond leader guidance to an organization, there are still
other functions of the board which must be performed.
These functions include the following.

1. Determination of Organization Policy. It is the

responsibility of the board to fashion out what should
be the policy of an organization. The policy is
important because it gives a guide to action. It
provides the framework through which all other
activities are carried. If this is not, there will be no
unity of purpose as every member will be doing
things accordingly to the way he/she likes. Such
action of course will create waste, apart from the
confusion. It will result, because action demands the
expenditure of organizational resources. But this
 expenditure can only worth the while if it is for the
purpose of carrying out the objectives of the
organization in line with the policy framework. It is
for this reason that the primary task of the board is to
work out what will be regarded as correct policy
framework which the members will use to assess
their activities. The corporate policy affects the entire
organization. But the department and sections can
also have their policies which must of course support
the corporate policy and never contradicting it.
2. Determine of Organization Objectives. The
corporate objectives of the organization are also
determined by the board, which also provides the
guidelines for each department to set its objectives.
Again, the departmental objectives should not
conflict with the corporate objectives. If there is any
contradiction, because the corporate objectives are
superior to the departmental or any other objectives
in the organization, the corporate objectives will be
upheld.
3. Carrying out Appraisal on the Organization. The
board has to regularly carry out particularly the
economic appraisal of the organization. It is not just
enough to firm up corporate policy and providing
guidelines for sub policies in respect of the
departments, the policies must be implemented. The
 board will review at appropriate period that extent to
which policies earlier formulated are being
implemented. The board also reviews the projects
that have been approved for implementation. The
review and appraisal are important so as to find out
the level of implementation, the conformity in the
process to existing guidelines and finding out if there
are problems associated with the implementation.
Any problem detected is then investigated and
remedial action taken. Detailed programs concerning
how the projects are being implemented need to be
reviewed. All the 3ps (policy, projects and programs)
are therefore regularly appraised so as to ensure the
economic viability of the organization.
4. Determination and Provision of Adequate funds.
The board does two things here. The first is that they
found out preciously the amount of money that is
needed for the projects and programs they have
approved based on courses on the corporate or
organizational policy. Also, it is the responsibility of
the board how the net profit will be distributed, that
is, how much will be given to share holders as
dividends, how much will go into reserved to
improve performance among other important
decisions. Again on the event of the organization
borrowing money from the bank of finance its
 operation, it is the board that will give the go-ahead
signal.
5. Providing Schemes of Control. It is only the policy,
projects and programs of an organization that the
board controls. Even though the board does not
manage the day to day activities of the organization,
the member works put appropriate methods and
guidelines through which activities of employees are
controlled to ensure that they work towards attaining
organization objectives. All these are reflected in the
organizational manual.
6. Appointment of the Managing Director. The board
also appoints the Managing Director who is also the
Chief Executive Officer of the organization. In
appointing the Chief Executive, they fix his salary
plus other benefits associated with that position. In
some organizations, the Managing Director is not
only a member of the Board of Directors but
sometimes serves as the Chairman of the Board of
Directors.

The Managing Director. The office of the Managing

Director is the next layer. He occupies a dual office, as a
member of the board; he shares in the duties of the board
that is in the corporate responsibilities with the other
board members. Also, by his special positions as the Chief
Executive Officer, he acts as a link between the board and
the rest of the organizations. The duties of the Managing
Director or the General Manager include the following:
1. He presents organizational objectives. This is one of
the primary duties of the Managing Director. It is not
the wish of members of the organization to be in the
board; it is not allowed. That is why they have to be
represented by their Managing Director. But they
need to know the objectives(s) of the organization
reason the organization is existing in the first place,
and these objectives must be sold to them so that they
can be committed to them and regard them as their
own “baby”. The person to do that is the Managing
Director. It must be pointed out that at the initial
stage of gathering data necessary for objective
formulation by the board, the Managing Director
encourages other members of the organization to
make contributions which are corrected to the board
by the Managing Director for consideration.
2. The Managing Director issues appropriate
instructions. It is the responsibility of the Managing
Director to issue out the necessary directives that will
set the organization to work. This is directing.
However, the directives issued must be clear and
devoid of any word that is capable of double
interaction. Of course, the directives can be oral or
 written or a combination of the two. There are still
other forms of communication but the above
mentioned are popular ones.
3. He maintains Co-ordination. The Managing Director
ensures a high level of co-ordination. We will be
discussing this management function in detail in the
latter stage of this course. But basically, co-ordination
involves the logical linking of an organization’s
activity so that the entire organization works as a
system. Effective co-ordination among the activities
of the organization’s members (employees) will
create a high will to work.
4. He creates and sustains morale. In the process of
directing and leading the other members of the
organization, there should be high morale, that is,
enthusiasm, vim, rigor and total commitment to the
objectives of the organization. All these are achieved
through team spirit, appropriate motivation tasks to
perform, promotion as and when permitted, good
pension scheme, awards and other motivation
techniques.

The Operating Executives (complete layer). This

layer is a complex one and it consist of the functional
manager (the financial, production marketing and
personnel managers) and the subordinates working under
each of them. They perform a variety of tasks.
1. The financial Department. The following functions
are performed:
 They carry out costing
 Financial accounting
 Records
 Budget and budgeting control

2. The Marketing Department. Here functions such as

the following are performed.
 Market and marketing resources
 Market information
 Segmentation
 Product valuation
 Buying and selling
 Pricing
 Distribution, etc

3. The Production Department. The production

Department performs:
 Planning for and measuring production progress
 Engineering
 Methods and standards
 Manufacturing, among others
 4. The Personnel Department. Functions that are
performed here include:
 Recruitment
 Selection or interview
 Placement
 Salaries and wages administration
 Promotion
 Training, among others

Organization Theories and Application

Organizational theory can be explained in terms of

rational edifice or prescriptions built by people to explain
human behaviour in the organization. In other words, it
implies the body of knowledge and principles which
provides the touchstone for effective administrative action
in organizations. Put more succinctly, organizational
theory enables people to describe, explain, and predict a
wide range of human behaviour within organizations.

Several theories on organization have emerged, all in

an attempt to explain that no organization operates in a
vacuum. According to Scott and Mitchell (1972), the
origins of organizational theory are traceable to Europe.
Fredrick Winslow Taylor, Henri Fayol, Max Weber, Henry
Gantt, Frank and Lilian Gilbreth were major contributors
to organization theory. The developments of the various
organizational theories proposed by these individuals
were based on their experiences in the organizations
where they worked. According to Hills (1980,21), the
main features of Greenfield’s organizational theory as
follows”
 The function of organizational theory is to describe
and not to prescribe.
 The aim of organizational theory is to explain and
enlighten.
 The data for the theory can only be obtained from
within the specific organization.
 Scientist who study the human being cannot make
statements about the structure of human behaviour in
every context.
 Organizational theory does not concern what is
explained but also to whom it is explained and by
what means.
 Organizational theory provides insight into human
behaviour.
 Organizational theories are as diverse as the
individuals within an organization.
 No universal theory about organization exists.
Relevance of Organization

Organization is a predominant concept and every

aspect of human race is closely associated with
organization. The production of goods and services are all
important aspects of organizations. Organization can be
said to be the wealth of nations and which has the
following features; goal, attainment, coordination,
planning and procedures. Organization, since it is the
embodiment of common purpose and unity which offers
workers to work together and achieve plans agreed upon
by all the stakeholders towards the realization of the
corporate goals, makes organization as a concept very
important to administration. In the organization, are two
important elements, these are human resource and
material resource. The former includes the skilled, the
semi-skilled and the unskilled. The combination of these
elements and personalities makes up the strength of
organizations (Akinwale, 1999). However, the latter
comprises the physical as well as the financial aspects.
The two elements (human and material) can be made to
produce effective administration and management of an
organization.
 Organization also provides the basis which attracts
people to work together in the process of realizing their
individual and corporate goals.

Elements of Good Organization

The following are the elements of good organization. In good
 Organization:
 Definite and clear cut responsibilities should be assigned to each executive to prevent
frictions.
 Responsibility should always be accompanied with corresponding authority.
 No change should be made in the scope or responsibilities of a position without a definite
understanding to that effect on the part of all concerned.
 No executive or employee, occupying a single position in the organization should be
subject to definite order from more than one source.
 Order should never be given to a subordinate without the prior knowledge of his
immediate executive head. Rather than do this, the officer in question should be
supported.
 Criticism of subordinates should whenever possible, be made privately and in no case
should subordinates be criticized in the presence of executives or employees of equal or
lower rank.
 No dispute or difference between executive or employees as to authority or responsibility
for prompt and careful adjudication.
 Promotions, wage changes and disciplinary actions should always be approved by the
executive’s immediate superior or to the one directly responsible.
 No executive or employee should be the accuser and the judge of another at the same
time.

Rationale for Studying Organization

Organizations are studied because of the following reasons:

Social Transformation. No doubt, the great social transformations in history have been
essentially organization based. For instance, the current reforms being embarked upon by the
government either in education, economy, health, etc, are to bring about social transformations
which are compelled by global challenges.
 Major Investment Decisions. Major and rational investment decisions cannot be made
without studying the organization in question. For instance, investors constantly assess how
business firms are doing and buy and sell stocks accordingly.

Organizational Analysis. Organization analysis does occur at all levels of management.

The job of organizational management is to assess the state of the organization. Every level of
the organization should be analyzed to determine the level(s) that default(s) in the realization of
the corporate goals.

Examination of Outcomes. Organizations are studied because they have outcomes which
may be good or evil, because they can spread hatred or save lives, because they can wage war or
bring peace. We therefore study organizations to assess their outcomes.

Consolidation and Growth. There are some concepts or terms commonly used in relation
to organization. A clear understanding of these concepts will help those working in the
organization system to be well equipped with the principles, procedures and theories or
organization. These concepts/terms are organizational climate, organizational goals behaviour,
organization development, power and authority etc.

Organizational Climate. Organizational climate according to Hodgetts and Altman

(1979) implies “a set of properties of the work environment perceived by individuals who work
there and which serve as a major force in influencing their job behaviour”. Organizational
climate is also referred to as the internal working environment or situation of the organization as
perceived by the workers or members of such organization. Essentially, varying characteristics
make organization structure, leadership style, rules and regulations, the size, communication
network, goals objectives, nature, interpersonal or intergroup.

Organizational Goals. Organizational goals are said to be the mission and predetermined
objectives of the organization. They refer to future target of the organization. Every organization
must set its goals before it commences operation. In other words, goal setting is an essential
aspect of the organizational life and existence which gives its direction for a specific time.

Organizational Culture. Organizational culture is the dominant pattern of shared beliefs

and values (Cole, 1996). Morgan (1986) sees organization culture from a sociologist’s
perspective, and describes it as; “shared meaning shared understanding and shared sense-
making”. The structure of an organization is essentially influenced by the cultural disposition of
such organization.

Organization and Methods (O & M). The concept relates to administrative and office
work. Organization and methods seek to have the most effective management structure, to
improve efficiency and effectiveness of working.
 Group Cohesiveness. Group cohesiveness refers to the attractiveness or drawing power
for the members of the group. Groups vary widely from one to another in the extent of their
cohesiveness. The cohesiveness if a group is the determination of group members to be the best
means available for meeting the individual’s needs. Cohesiveness is important because it affects
the power of a group. Group develop norms or standards of behaviour, and it has been found that
“the more cohesive the group, the more effectively it can influence its members”

Organizational Behaviour. Organizational behaviour according to Amold and Feldman

(1986) is concerned with the way organizations influence the thoughts, feelings, and actions of
their members in order to create healthier and more productive environment. Organizational
behaviour is also concerned with understanding the ways in which behaviour and performance of
individual organization members influence the performance and effectiveness of the
organizational as a whole.

Organization Development (OD). This term implies a systematic process aimed at

improving organizational effectiveness on the basis of behavioural science knowledge; typical
stages in an organization development program include analysis, diagnosis, action plans and
review. An external third party assists in the process (Cole, 1996).

Delegation

Another important aspect of organizing is the issue of

delegation of authority. We have been mentioning
repeatedly that a manager should not be given
responsibility without the necessary authority; neither
should authority be given without responsibility. That is to
say that both authority and responsibility should go hand
in hand. Centralization of authority is rare case because
absolute centralization means that there is no
organization.

Delegation of Authority. Authority and

responsibility always go together and they cannot be
separated. If for any reason, there is a separation, the
work will suffer. The manager with authority but no
responsibility becomes a director and a tyrant and it is
dangerous because the final outcome of their actions will
not be to the interest of the organization. On the other
hand, the manager with responsibility but no authority
cannot take decisions; neither will he be able to make use
of organizational resources. It is a frustrating situation.
That is why in designing the environment, it must be
conductive. And one way to make it conducive is to
equate authority with responsibility.

Definition of Delegation of Authority. Delegation of

authority is used to mean the granting of right and
approval from a superior source to a subordinate to
function within prescribed limits. It enables the
subordinate to receive the authority to accomplish tasks
assigned to him. But delegation of authority is being
given to the subordinate, superior source at the time still
retains his original authority. This means that total
delegation cannot be done for this will amount to
removing one’s responsibility. Again, no one can delegate
the authority he does not possess. Before delegation of
authority is made, that authority must first and foremost
be seen in you even though it is only a part of it that you
are delegating. The entire concept of delegation starts
with the assignment of tasks to subordinate. This is
followed by provision of the requisite authority to
accomplish the tasks. There should also be demand for
responsibility. This means there is accountability in
delegation.

The advantages/benefits of Delegation. The

recognized advantages of delegation are:

1. It reduces the manager’s burden since a manager

generally has responsibility for more tasks than he
can perform. Delegation thus relieves the manager
from performing duties of routine nature. He
concentrates on more pressing things.
2. The subordinate to whom the tasks is delegated to is
being developed. This is because we learn by doing
and it has often been said that experience is the best
teacher. There are also benefits of participation in
various executive programs, seminars, workshops
among others. All these and more would not have
materialized if delegation was not effected.
 3. It provides continuity by making sure that once takes
over his position and performs the necessary tasks
since he has been trained previously through
delegation.
4. It makes it possible for the organization to expand
because there will be a ready pool of tested officers
(subordinates) that can be posted to man the new
positions and roles that the organization has created.
Though this, there will be no hasty arrangements for
training in order to fill the new position neither will
the organization fail to create necessary new roles
simply because there are no subordinates to occupy
the new positions and perform the new roles.
5. Delegation of authority is also a source of motivation
because subordinates are being developed through
challenging tasks. Successful completion of the tasks
creates a sense of fulfilment and pride.

Limitations of Delegation of Authority. There are

also recognized disadvantages of delegations of authority.

1. Some managers will prefer to perform all activities

by making all decisions. They want to be seen as the
live-wire of the organization and nothing works
without training and preparing subordinates for
higher responsibility is not their priority. Such
 managers are the type that give assignment but no
commensurate authority.
2. Another problem which is disadvantage is the desire
by some managers to dominate and make their
presence on every issue. They like to work under
pressure and keep themselves busy with
appointments and insisting that subordinates must
approach them with every matter for approval.
3. Some manager fail to delegate because they feel that
the subordinates will make better decisions than the
ones they would have made if there was no
delegation.
4. Delegation is retrieved again by the unwillingness of
some managers to accept risks which will occur if
subordinates should make decisions. Their fear is that
the subordinate may take wrong decisions.
5. Again another problem area of delegation is the
reluctance of some subordinates to take higher
responsibility because of criticism, feeling of
inadequacy and other negative attitudes.

Condition for Delegation. There are necessary and

sufficient conditions which must be on ground before
delegation of authority can work. These conditions are the
following:
1. Delegate by expected results. This means that the
assignment must be defined by breaking it into
specific activities. Then authority is provided in the
height of the work that has to be done and the results
that are expected, the authority must therefore be
granted to the extent that will help the subordinate to
achieve.
2. Selecting an appropriate subordinate for delegation.
We have just noted that some subordinates feel
reluctant to accept higher responsibilities. Such
persons should not be forced to do anything
particularly sensitive tasks. The appropriate
subordinate should be selected. As a result, the
qualifications of the person concerned may influence
the nature of delegation.
3. Maintaining parity of authority and responsibility.
We have been stressing this point over and over, we
are re-emphasizing it here again for it is vital to
successful delegation. Authority should be given that
is commensurate with the task.
4. Ensure that each subordinate receives directives
from one boss. He must be accountable to the boss.
This is to avoid confusion and friction. We call this
unity of command and we shall be discussing them in
future units.
 5. There should be good flow of communication if
delegation is going to work. Nothing works in an
organization without communication; delegation of
authority is no exception. Communication spells out
what to be and the expected result. It is also vital to
decision making.
6. There should be appropriate control in the process
of delegation. This is necessary so as to ensure that
the desired result is what is being received. Any
negative derivation should be promptly investigated
so as to correct it before it is too late.
7. There must be a climate of confidence. This can be
done by ensuring that the subordinate is mentally free
from fear and has the confidence that delegation is an
opportunity for him for self development and growth.
8. The manager must also have a strong belief in
delegation by stressing the need for and belief in the
principle of delegation. He must therefore be willing
to accommodate mistakes when they occur, although
he should be stricter in the event of frequent
occurrence.
9. Assist the subordinate from time to time. In the
process of accomplishing the task before him.

Formal and Informal Organization

 In management there are two types of organizations.
These types of organizations are simply called formal
organization and informal organization.

Formal Organization. A formal organization which

is a social system has its roles deliberately created so that
the objectives of the organization can be achieved.
Consequently there are features associated with formal
organizations, and these are:
1. There must be policies and objectives. These policies
must be consciously created. And there must be
verifiable objectives which are formulated taking the
policies into consideration. These objectives are not
only for the entire organization but also for the
departments and sections.
2. The activities of individuals in a formal
organization are coordinated. This means that one
activity must be linked up with another activity.
Through this process the entire activities being
carried out in the organization move in the same
direction.
3. The persons in a formal organization must be able
to communicate with one another through the
appropriate channels which have been created.
Consequently, the issue of keeping malice with a
fellow worker(s) is ruled out because nothing works
 in a formal organization without communication
taking place.
4. The employees in a formal organization must share
a purpose. The purpose is the reason why the
organization is in existence. Such purpose is usually
reflected in the mission statement of the organization.
5. The workers in a formal organization on the receipt
of necessary direction from their manager must be
willing to act. But in acting, it should not be on
individual level; the whole workers must cooperate
with one another in their actions.

Informal Organization. The informal organization

is a network of personal and social relations not
established or required by the formal organization but
arising spontaneously as people associate or come
together. That is why informal organizations exist in a
formal organization. The features of an informal
organization are:

1. The association exists merely as social interactions.

2. There is no common or consciously coordinated joint
purpose among members even though they may be
contributing to joint result.
3. Compatibility is a major criterion for such grouping.
Since informal groups exist in a formal group they
can assist or interfere with the enterprises interests.
4. The form of punishment that the informal group
members can give to a member is to ostracize him.
This means that member of the formal group will
refrain from talking and interacting with the member
under punishment until he turns a “new leaf.”