Management Principles.......................................................................................................

2
INTRODUCTION...............................................................................................................3
Nature and Characteristics of Management.....................................................................4
Scope of Management.....................................................................................................5
Importance of Management.............................................................................................5
Differences between Administration and Management:.................................................6
Management........................................................................................................................6
Levels of Management:...................................................................................................7
Is Management an Art or Science?..................................................................................7
Functions of Management...............................................................................................8
Principles of Management.............................................................................................10
Management by Objectives (MBO)...............................................................................11
Principles/Steps in Management by Objectives:...........................................................12
Advantages of MBO......................................................................................................13
Disadvantages of MBO..................................................................................................13
Control by Exception or Management by Exception (MBE)........................................13
Advantages of MBE......................................................................................................14
Limitations of MBE.......................................................................................................14
Summary........................................................................................................................14
Planning and Decision-Making.........................................................................................20
Importance of planning (advantages of planning).........................................................22
Disadvantages of planning.............................................................................................23
Process of Planning (Steps involved in Planning Process)............................................24
Elements of Planning:....................................................................................................26
Kinds of Planning:.........................................................................................................27
Decision –Making..............................................................................................................28
Characteristics of Decision –Making.............................................................................28
Types of managerial decision:.......................................................................................30
The process of Decision-making:..................................................................................31
Summary........................................................................................................................34
Characteristics of Decision Making...............................................................................35
Types of Managerial Decision.......................................................................................35
Project............................................................................................................................36
Organisation and Delegation of Authority........................................................................41
Principles of Organisation.............................................................................................42
Advantages of Organisation:.........................................................................................43
Steps / Process of Organizing:.......................................................................................44
Formal and Informal Organisation................................................................................45
Organisation Structure:..................................................................................................46
Line Organisation:.........................................................................................................46
Functional Organisation:...............................................................................................47
Line and Staff Organisation:..........................................................................................48

Kihara _ Snr. Lecturer @KEWI 21/11/2019 1

Management Principles
Introduction to Management

Learning objectives: After reading this topic you will be able to appreciate and
understand:

Origin – Introduction – Meaning – Definition – Nature & Characteristics – Scope –

Importance - Administration vs. Management – Levels – Management is an Art or
Science
– Management as a Profession – Functions – Principles – Management by Objectives and
Management by exception.

Origin

Management has been practiced in some form or the other since the dawn of civilization.
Ever since human beings began to live and work together in groups, techniques of
organization and management were evolved. The pyramids of Egypt, the Chinese civil
service, the Roman Catholic Church, and military organization offer good examples of
the application of management in ancient times. Kawtilya’s Artha shashtra, the Bhagwat
Gita, the Holy bible and other epics contain references to the management of public
affairs.
The early contributions to management thought came from Roman Catholic Church,
Military organizations and camera-lists. Thus art of management has ancient origins.
However, the science of management developed largely after the industrial Revolution
which established the factory system. Scientific Management movement laid the
foundations of Management as a science.

Modern Management thought has developed during several stages. These stages or
approaches or theories to the study of management are classified as follows.

1. Classical theory
2. Neo-classical theory
3. Modern Theory

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INTRODUCTION

We are born in an organization (a family). Live in organizations (society) and work in

organizations, (Business, Government, Army, School, College etc.). Each one of these
organizations is a group of persons working together to achieve some common
objectives. The organizations can be successful only when the efforts of various
individuals in the groups are integrated into team work. The central agency which
performs this task is known as management. It plays the same role in an organization
which brain does in human body.

Meaning of Management

Management is basically concerned with the performance of planning, organizing,

directing, co-coordinating and controlling, which, in fact, are its main functions.
Management is also regarded as the art of getting things done through others. It is not
possible for any individual to do all the work by himself. The work is always shared with
others.

Definitions of Management

1. Mary Parker Follet: “Management is the art of getting things done through people”.
2. Henry Fayol: “To manage is to forecast and plan, to organize, to command, to co-
ordinate, and to control.”
3. F.W. Taylor: “The art of knowing exactly what you want men to do and seeing that
they do it in the best and cheapest way”.

Note on management experts

F.W. Taylor - (1856 – 1915) is known as the father of Scientific Management. The
objective of Management should be to secure the maximum prosperity for both the
employer and the employees. Taylor’s theory came to be called ‘Scientific Management’.

Henry Fayol – (1894 – 1952) is one of the first writers to introduce concepts which are
still forming a part of the current management thought. He is the father of modern
management.

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Nature and Characteristics of Management
The salient features which highlight the nature of management are: -

1. Management is universal –this means it is required in every form of group activity

for example a family, a club, a government, an army or a business enterprise. The
approach and style of management may differ from one organization to another, but
in each case, it involves pulling of human, financial and physical resources towards
the attainment of common objectives.

2. Management is Purposeful – it exists for the achievement of specific objectives. It’s

a means towards the accomplishment of pre-determined goals. All activities of
management are goal-oriented. Success of management is measured by the extent to
which the desired objectives are attained. It’s a creative process of achieving results.

3. Management is an Integrative Force - The essence of management lies in the

coordination of individual efforts into a team effort. Management reconciles the
individual goals with organizational goals. It integrates human and other resources.

4. Management is a Social Process – it’s done by people, through people and for
people. It is a social process because it is concerned with interpersonal relations. The
human factor is the most important element in management.

5. Management is Multidisciplinary – it has to deal with human behavior under

changing conditions. It therefore means, it depends upon wide knowledge derived
from several disciplines like engineering, sociology, psychology, economics,
anthropology, etc

6. Management is a Continuous Process – it’s a dynamic and an on going process.

The cycle of management continues to operate so long as there is organized action for
the achievement of group goals.

7. Management is Intangible – it’s an unseen or invisible force. It cannot be seen but

its presence can be felt everywhere in form of results. However, the managers who
perform the functions of management are tangible and visible.

8. Management is both an Art and a Science - It contains a systematic body of

theoretical knowledge and it also involves the practical application of such
knowledge. Management is also a discipline involving specialized training and an
ethical code arising out of its social obligations.

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Scope of Management

The field of management is very wide. The operational areas of business management
may be classified into the following categories.

1. Production Management: Production management implies planning, organizing,

directing and controlling the production function so as to produce the right goods, in
right quantity, at the right time and at the right cost.
2. Marketing Management: Marketing management refers to the identification of
consumer’s needs and supplying them the goods and services which can satisfy these
wants.
3. Financial Management: Financial management seeks to ensure the right amount and
type of funds to business at the right time and at reasonable cost.
4. Personnel Management: Personnel Management involves planning, organizing and
controlling the procurement, development, compensation, maintenance and
integration of human resources of an organization.

Importance of Management

Management is necessary in all organizations. Its importance is listed below:

1. Scientific Management only can meet the challenges and complexities of modern
business.
2. Efficient Management can effectively utilize the available resources in the enterprise.
3. Management creates teamwork and coordination among employees.
4. Management directs and controls the organization to achieve the desired goal.
5. Management provides stability in organization.
6. Management provides new ideas, imagination and vision for better and greater
performance.
7. Good management serves as a friend and guide in tackling business problems.
8. Management is a tool of personality development of the people and attempts to raise
their efficiency and productivity.
9. Management is equally important at the national level. It is an agent of change and
economic development.

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Differences between Administration and Management:

Although the terms ‘Administration’ and ‘Management’ may appear to be similar, they
are actually different. In our daily conversation we use the two terms interchangeably.
Administration is concerned with laying down suitable policies for the whole concern
whereas management will simply execute those policies.
Administrators are the owners of the business, while on the other hand, are the salaried
employees of the organization.
The differences between administration and management are tabulated below:

No Administration
Management
1. All policy decisions are made by the It is concerned with the implementation
administration. of the policies. Certain routine decisions
may be made by the managers on less
important matters.
2. Administrators are the owners of the Managers are paid employees of the
concern. concern.
3. Administration is basically interested in Managers actually work for the money
results, i.e., profitability, sales, future they get. They direct their efforts towards
prospects and so on. the attainment of the goal set by the
administration.
4. Administrators do not take part in the The managers are responsible to the
daily activities of the concern. administrators on the daily work done in
the concern.
5. The decisions made by the The managers are empowered to take
administrators are influenced by the decisions only on routine matters. They
availability of capital, Government are usually guided by opinions, values
regulations etc. and beliefs in making decisions.

6. Administration is almost a permanent Management is not a static body.

body. No major change, therefore, takes Managers may resign, retire or may even
place in it. be removed from service.
7. It is a top-level function. It is a lower-level function.

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Levels of Management:
Three levels of management have been recognized by management experts. These are:

1. Top management
2. Middle management and
3. Supervisory or lower management

Top Management: this consists of the Board of Directors, the Chairman, and the
Managing Director and so on. The functions of the top management are:-

 To lay down the basic objectives of the business.

 To frame major policies for the business
 To organize the business into different departments for the efficient attainment of the
enterprise goals.
 To appoint departmental heads and review their performance.
 To represent the business outside, particularly in discussing business problems with
the Government, trade association and so on.

Middle Management: It consists of the Heads of all the Departments like the Production
Manager, the Finance Manager, the Marketing Manager, etc. It also includes the deputy
managers in all the departments. The functions of middle management are:
 Formulation of suitable policies at the departmental level.
 Periodical review of performance.
 Interaction with the subordinate staff.

Supervisory or Lower Management: It consists of such individuals as the foremen,

office managers, supervisors, etc. The supervisory management is concerned with the
following functions:
 To plan the day-to-day work
 To assign work to all the employees and undertake supervision
 To monitor the performance of the employees.
 To send periodical reports to the middle level managers.

Is Management an Art or Science?

A question is often asked as to whether management is an art or science? This question

has been discussed here to explain the nature of management.

Management is a Science: Science is a systematic body of knowledge pertaining to a

particular field of enquiry. Its principles have universal applicability. It contains
underlying principles and theories developed through continuous observation,
experimentation and research. Likewise, principles and theories are now available in
every area of management. So, management can be described as a science.

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Management is an Art: Art involves the practical application of personal skills and
knowledge to achieve concrete results. Like any other artist, a manager applies his
knowledge and skills to coordinate the efforts of his people. So Management is also
called as an art.

Conclusion: As Management has both the characteristics of science and art we can
conclude that management is both an art and a science.

Management as a Profession: Management has come to be recognized as a profession

in the way Medical, Law and Engineering are recognized. A profession is different from
an occupation. A professional need not work for salary under an employer. He can have
his own clients and get his remuneration from them directly. A professional can be an
employer for many. A doctor, for example, may have his own clinic and employ nursing
staff, lab technicians and others.

Functions of Management

Generally, the managers have to perform certain functions in the organization to get the
things done by others. Different authors have given different functions. Henry Fayol has
classified managerial functions as planning, organizing, directing, coordinating and
controlling.

Gullick and Urwick have described the duties of executives as POSDCORB ire.
Planning, Organising, Staffing, Directing, Coordinating, Reporting and Budgeting.
Koontz and O’Donnel consider planning, organizing, staffing, directing and controlling
as main the functions.

A. Management Functions

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The Main functions of the management are:
1. Planning: Planning is the most basic or primary function of management. It involves
determining the objectives and selecting a course of action to achieve them. It implies
looking ahead and deciding in advance what is to be done, when and where it is to be
done, how and by whom it is to be done. It is helpful in more effective achievement
of goals. Planning helps an organisation to face uncertainty and change.

2. Organising: Once plans are formulated, the next step is that of organising. It is the
process of establishing authority-responsibility relationships among the members of
the enterprise. According to Louis Allen, “Organising is the process of identifying
and grouping the work to be performed, defining and delegating responsibility and
authority and establishing relationships for the purpose of enabling people to work
most effectively together in accomplishing objectives.”

3. Staffing: is the process of filling all positions in the organisation with adequate and
qualified personnel. It consists of manpower planning, recruitment, selection,
training, compensation, integration and maintenance of employees.

4. Directing: is the managerial functions of guiding, supervising, motivating and

leading people towards the attainment of planned targets of performance. Directing is
the executive functions of management since its concerned with the execution of
plans and polices.

5. Motivating: Motivating is the process of inspiring people to strive for the

accomplishment of common goals by providing stimuli that satisfy their needs and
motives. Motivation is an important determinant of job performance.

6. Communication: This implies exchange of facts, ideas, opinions or emotions among

two or more persons with the aim of creating mutual understanding and co-operation
among them. It is a continuous process of telling, listening and understanding.
Several methods e.g. Written, Oral, Visual etc. are used in communication.

7. Coordination: Co-ordination refers to harmonising and integrating the activities and

efforts of different individuals into teamwork. It requires integration of diverse and
specialized activities towards the achievement of common goals. Manager integrates
the efforts of different employees to ensure that they work as a team.

8. Controlling: Controlling is the process of ensuring that the organisation is moving in

the desired direction and that progress is being made towards the achievement of
goals. The process of controlling involves the following steps:

 Establishing standards for measuring work performance;

 Measurement of actual performance and comparing it with the standards;
 Finding variances between the standard and actual performance and the reason
therefore; and
 Taking corrective actions for correcting deviations so as to attain objectives.

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Principles of Management
Management is a science consisting of certain principles. A principle is a fundamental
statement of truth that provides a guide to talk and action. The Principles of Management
lay down guidelines for improving management practices. The list of fourteen principles
of management given by Henry Fayol is widely accepted and practiced. These principles
are: -

1. Division of Work: Total work of an organization is divided into small manageable

units and assigned to particular individuals. It helps to increase efficiency. The
principle of division of work can be applied at all levels in the organization.

2. Authority and Responsibility: In an organization the authority and responsibility

should go together. The Manager gives his order directly to the subordinate after that
he should take the responsibility for the work done by them. So the person receiving
the authority should be ready to bear the responsibility for the same. It is important to
delegate authority, at the same time retain the responsibility with him.

3. Discipline: Discipline should be followed by all the employees. Obedient behavior,

flexibility and human consideration are together called discipline. The organization
must have discipline, otherwise it cannot run smoothly.

4. Unity of Command: Every subordinate should receive orders and be accountable to

only one superior. Dual or multiple commands is a perpetual source of conflict. Unity
of command avoids conflicting orders and ensures order and stability in the
organization. It is also helpful in fixing responsibility.

5. Unity of Direction: According to this principle, each group of activities having the
same objective must have one head and one plan. The principle of unity of direction
seeks to ensure unity of action. Unity of direction should not be confused with the
unity of command.

6. Subordination of Individual Interest to General Interest: Every employee should

forget their individual interest and work for common purpose, when there is conflict
between the two, interest of the organization should prevail over individual interest.

7. Remuneration: The amount of remuneration and the methods of payment should be

just and fair and should provide maximum possible satisfaction to employees and
employers.

8. Centralization: According to Fayol, The question of centralization and

decentralization is a matter of finding optimum degree for the particular concern. The
degree of concentration of authority should be based upon optimum utilization of all
faculties of the personnel. It should be determined on the basis of individual
circumstances in each case.
9. Scalar Chain: It refers to the chain of superiors ranging from the highest authority to
the lowest level in the organization. There should be a clear line of authority ranging

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 from top to bottom of the organisation. All upward and downward communications
should flow through each position of authority along the scalar chain.

10. Order: This principle is concerned with the arrangement of things and the placement
of people. In material order, there should be a place for everything and everything
should be in its proper place. Similarly, in social order, there should be an appropriate
place for everyone and everyone should be in his or her appointed place.

11. Equity: Equity implies that employees should be treated with justice and kindness.
Managers should be fair and impartial in their dealings with subordinates. Equity
helps to create cordial relations between management and workers which are essential
for successful functioning or every enterprise.

12. Stability of Tenure of Personnel: Employees cannot work efficiently unless job
security is assured to them. An employee can not render worth while service if he is
removed from the job before he gets accustomed to it.

13. Initiative: Employees at all levels should be given the opportunity to take initiative
and exercise judgement in the formulation and execution of plans. Initiative refers to
the freedom to think for oneself and use direction in doing work. It develops the
interest of employees in their jobs and provides job satisfaction to them.

14. Espirit de Corps: This refers to harmony and mutual understanding among the
members of an organisation. Union is strength and unity in the staff is the foundation
of success in any organisation. Management should not follow the policy of ‘Divide
and rule’. Unity among personnel can be developed through proper communication
and coordination.

Management by Objectives (MBO)

Meaning:

An organization can have many objectives. The objectives of the workers may differ
from that of management. The principles of MBO aim at coordinating the individual
goals with that of organizational goals. Through this principle, the management and
workers work without any conflicts. It helps to realize the organizational goals quickly
without unnecessary efforts.

Definitions of MBO: “Each and every employee of an organisation works whole

heartedly towards the attainment of the objectives of an organisation is known as
Management by objectives: Peter F. Drucker.

John Humble calls it “a dynamic system which integrates the company need to achieve its
goal for profit and growth with managers need to contribute and develop himself.

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Principles/Steps in Management by Objectives:

MBO comprises of the following important principles.

Essential Steps for MBO

Set Goals Develop Action Plan
–The most difficult step. –Course of action
–Concrete –For both workgroups and
individuals
–Specific target and timeframe
–Assign responsibility

Review Progress
–Periodicity?
–Course corrections

Appraise Overall Performance.

–How are we doing?
–Do we need to restate our goals?

Kihara - Snr Lecturer@KEWI. 29

B - Essential Steps for MBO.

1. Framing the Objectives:

Objectives can be framed based on the following steps.

a. Each and Every Objective has Different Goals:

Objectives attained in the lower level help in the achievement of objectives at the higher
level. Each objective depends on the objective below it and helps in achievement of
Upper level objectives. These steps help in the achievement of upper level objectives by
directing the members and departmental activities.

b. Aims of Management by Objectives:

Each and every activity of the organization is directed towards satisfying the goals. This
is the last stage of the organization. Objectives may be short and clear. The objectives
must be easily understood by persons who are involved in the activity of achieving them.
Goals must agree with the policies and procedures of the organization. Goals must be
efficiently evaluated, dependent on decision and dependable. Goals must be reachable
within a given period.

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c. Clear-Cut Aims:

The individual goals and organizational goals must be clear. If the aims are not clear then
confusion arises. Goals must be fixed clearly at all management levels.

2. Implementation:
Managers require efficiency, intelligence and ability in order to attain the common
objective of the organisation. They must be properly remunerated and motivated so that
they will put on best efforts in management by objectives. Top level executives must not
enforce their control through management by objectives; otherwise it will change into
control by objectives.

3. Evaluating the Results:

The objective fixed must be evaluated with the results obtained. The managers at all
levels must have a watch on the activities of the subordinates to attain the objectives and
after a specified period the results achieved have to be evaluated.

Advantages of MBO
i. It promotes better communication relationship between the superior and his
subordinates.
ii. It gives the subordinate an opportunity to fix his own targets in consultation with
his superior.
iii. As the subordinates have the freedom to determine their own targets, they feel
motivated.
iv. The periodic review of the subordinate’s performance enables him to know
whether he is proceeding in the right direction.

Disadvantages of MBO
i. The superior and his subordinate may have to meet several times for the sake of
setting the objectives mutually.
ii. Periodic review of the subordinate’s performance involves lot of time and also
paper work.
iii. MBO has not much to do with the lower levels of management.

Control by Exception or Management by Exception (MBE)

It is a management technique by which managers concentrate only on exceptional

deviations instead of trying to correct each and every deviation. The advantage of the
technique of Management by Exception is that it allows the manager to concentrate on
problems that need his attention and to avoid dealing with those that can be well handled
by the subordinates themselves.

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Advantages of MBE

i. It allows the manager to devote more time for important issues by letting the
subordinates deal with the issues of a routine nature.
ii. As the manager need not bother about routine matters.
iii. Since the manager devotes more time for vital issues, he will be able to make
better decisions.
iv. The subordinates are given authority to make decisions on certain matters without
any interference by the executives.
v. The management is also able to utilize the available talent at the lower levels.

Limitations of MBE

i. There is no parameter available by which one can differentiate important

deviations from the unimportant ones.
ii. Only an organization that has a perfect system of control will be able to employ
the technique of MBE.
iii. It may lead to dispersal of authority that has its own limitations.

Summary

Nature and Characteristics of Management

 Management is universal
 Management is purposeful
 Management is an Integrative Force
 Management is a social process
 Management is multidisciplinary
 Management is a continuous process
 Management is Intangible
 Management is an art as well as a science

Scope of Management

 Production management
 Marketing management
 Financial management
 Personnel management

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Functions of Management

 Planning
 Organizing
 Staffing
 Directing
 Motivating
 Communication
 Co-ordination
 Controlling

Principles of Management

 Division of work
 Authority and responsibility
 Discipline
 Unity of command
 Unity of direction
 Subordination of Individual interest to general interest
 Remuneration
 Centralization
 Scalar chain
 Order
 Equity
 Stability of Tenure of personnel
 Initiative
 Espirit de corps

Part – A _ One Mark

Objective Type Questions - Choose the Correct Answer

1. Management has been practiced in some form or the other since the dawn of.....
a) Civilization
b) Ariyan
c) Dravidian
d) None of the Above.
2) Examples of the application of Management in ancient times.......
a) Santhome Church
b) Roman Catholic Church
c) C.S.I.Church
d) None of the above

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3) The Scientific management developed largely after the -------revolution which
established the factory system
a) Green
b) Russian
c) Industrial
d) None of the above.
4) ---------- is not the function of Management
a) Planning
b) Organizing
c) Directing
d) Recording
5) All activities of management are....
a) Nature Oriented
b) Work Oriented
c) Goal Oriented
d) Business Oriented.
6) Management reconciles the individual goals with....
a) Industrial goals
b) Organizational goals
c) Departmental goals
d) None of the above
7) Marketing management refers to the identification of....
a) Producers Needs
b) Consumer Needs
c) Workers Needs
d) Salesmen Needs
8)… is concerned with laying down suitable policies for the whole concern.
a) Administration
b) Management
c) Manager
d) Auditor
9) Top Management consists of....
a) Foreman
b) Finance Manager
c) Board of Directors
d) Supervisor.
10) Art is a.... process
a) Personalized Process
b) Individualized Process
c) General Process
d) None of the Above.
11) Management has come to be recognized as a profession like
a) Medical
b) Law
c) Engineering
d) All the above.

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12) .... integrates the efforts of different employees to ensure that they work as a team
a) Manager
b) Shareholders
c) Company Secretary
d) Managing Director
13) .... aims to co-ordinate the individual goals with the top organizational goals
a) M.B.O.
b) M.B.E.
c) Staffing
d) Controlling

Answers:

1. (a) Civilization
2. (b) Roman Catholic Church
3. (c) Industrial
4. (d) Recording
5. (c) Goal oriented
6. (b) Organizational goals
7. (b) Consumer needs
8. (b) Management
9. (c) Board of Directors
10. (b) Individualized process
11. (d)All the above
12. (a) Manager
13. (a) M.B.O.

Write The Answer in One or Two Words:

1. Who is the author of Arthashastra?
2. What is the movement that laid the foundation of management as a science?
3. Who is the father of Scientific Management?
4. Who is the father of Modern Management?
5. Which plays the central role in an organization which brain does in human body?
6. “Management is the Art of getting things done through people” who said?
7. Is a good manager a leader or boss?
8. Is Management tangible or Intangible?
9. Is Management a continuing process or ending process?
10. Which seeks to ensure the right amount and type of funds to business at the right
time?
11. Which is a top-level function?
12. Whether production Manager comes under Middle management or Supervisory
Management?
13. Which is the primary function of management?

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Answers:
1. Kautilya
2. Scientific Management
3. F.W.Taylor
4. Henry Fayol
5. Management
6. Parker Follet
7. Leader
8. Intangible
9. Continuous Process
10. Financial Management
11. Administration
12. Middle Management
13. Planning

Part – B _ Four Marks

Very Short Answers:

1. What is Management?
2. Define Management?
3. What is scientific Management?
4. Write a short note on F.W.Taylor?
5. Write a short note on Henry Fayol?
6. What are the classifications of Management?
7. Define Management by objectives?
8. What do you mean by Management by exception?
9. What is M.B.O.?
10. What do you mean by Division of work?
11. What is Unity of command?
12. Explain Unity of Direction?
13. What is Scalar chain?
14. Define Motivation?
15. What is co-ordination?

Part – C _ Ten Marks

Short Answers Answer in One Page:

1. Explain the importance of Management?

2. Is Management an Art or a Science – Discuss?
3. Differentiate Management from Administration?
4. What are the different levels of Management?
5. Explain the steps in Management by objectives?
6. What are the advantages & disadvantages of M.B.E.?
7. Explain the scope of Management?
8. What are the advantages and disadvantages of M.B.O?

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Part – B _ Twenty Marks

Essay type Questions

a. Explain briefly the Principles of Management?

b. Explain the functions of Management?
c. What are the Characteristics / Nature of Management?
d. Write an essay on MBO.

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Planning and Decision-Making
Learning Objectives:

After reading this chapter you will be able to appreciate and understand

Planning – Meaning – Definition – Nature/Characteristics – Merits & Demerits – Steps/

Process – Elements – Kinds – Decision Making – Meaning – Definition- Characteristics
Types – Steps Process – Merits & Demerits

Meaning
The first and the foremost function of management is planning. Simply stated, planning is
deciding in advance what should be done. It is future oriented. To attain its goal of profit
maximization, the business has to produce and sell goods. Its yearly production and sales
targets are broken into weekly and monthly targets by proper planning. This makes it
possible to work systematically.

Definitions of Planning:
According to Koontz and O’Donnell “Planning is deciding in advance
i. What to do? (Aim)
ii. How to do? (Practice)
iii. When to do? (Time)
iv. Who is to do? (Workers)
It bridges the gap from where we are to where we want to go”.

Planning is deciding in advance what to do, how to do it, when to do it, and who is to do
it. It bridges the gap from where we are to where we want to go -Koontz and O’Donnell.

Planning is a mental predisposition to do things in orderly way, to think before acting and
to act in the light of facts rather than guess -Urwick.

Planning is deciding the best alternative among others to perform different managerial
operations in order to achieve the predetermined goal -Henry Fayol.

Planning is deciding in advance what is to be done. It involves the selection of objectives,

policies, procedures and programmes from among alternatives – M.E.Hurley

Definition of Louis A. Allen:

In the words of Louis A. Allen, “Management planning involves the development of

forecasts, objectives, policies, programmes, procedures, schedules and budgets.

Kihara _ Snr. Lecturer @KEWI 21/11/2019 20

Nature of Planning (Basic Characteristics or Features of Planning)
These are the basic characteristics of planning: -

1. Planning is the primary function of management

Planning is the starting point of management. It is only planning which gives meaning
to all other managerial functions, namely, organizing, staffing, coordinating and
controlling. Without planning the other functions cannot be effectively performed.

2. It is goal-oriented
The goal of every business is to make profits. Planning helps to attain the goal in the
most effective and efficient manner.

3. It is all-pervasive
By this we mean that planning is done by everyone at every level of management,
namely top, middle and lower levels.

4. It is an intellectual activity
Planning is a mental activity. It involves application of mind and intelligence to
attain, in a systematic manner, the organizational objective.

5. It is future –oriented
Planning is required to attain the future goals of an organization. However, past
happenings provide the basis for plans. As future is uncertain, a plan must make
suitable provisions to meet any crisis.

6. It requires an integrated approach

There must be a link between the plans of different departments. The production plan
of a business must be in tune with its financial plan. The marketing plan likewise
must be in tune with the production plan and vice versa.

7. It is a continuous process
It means that a stage will never come when the need for planning will not be felt at
all. Planning is required as long as we live in this world. As far as business is
concerned, planning is needed as long as there are business activities.

8. It involves decision making

Planning involves making choice out of certain alternative courses i.e., decision-
making. When there is only one way of doing something, there is no need for
planning at all.

Kihara _ Snr. Lecturer @KEWI 21/11/2019 21

Importance of planning (advantages of planning)

As the primary function of management, planning is considered vital in every sphere of

activity. The importance of planning may be summarized as follows: -

1. It focuses on objective
Once the objective of the business has been fixed, the next step is to prepare a plan
for its effective accomplishment. The enterprise objectives cannot be realized
overnight. They have to be achieved gradually over a certain period.

2. It helps to avoid wastage of resources

Planning makes it possible to make optimum use of the available resources i.e., time,
money, materials and machines. This is possible as the employees and the executives
know beforehand what they have to do.

3. It ensures efficiency and effectiveness

Efficiency is ensured by doing right things and effectiveness is achieved by doing
things right. Planning helps to do not only right things but also things right. Each
department knows what it is supposed to do well in advance as a result of planning.

4. It reduces risk and uncertainty

Planning is for future use and future is uncertain. While planning, future uncertainties
are projected and adequate provisions are made to meet or overcome the same.

5. It provides for co-ordination

The work done in any organization is team-work. Different departments participate in
the process of goal attainment. Planning makes the responsibilities of each individual
and department very clear. Thus, planning by explaining the responsibilities of each
individual and department provides scope for co-operation and co-ordination.

6. It facilitates control
If planning is the first function of management, Control is the last function. Planning
without control is useless and control without planning is meaningless. Control helps
the enterprise to know whether the plan has been successfully implemented and the
objective has been achieved.

7. Planning also provides scope for decentralization

Dispersal of authority throughout the organization is what is known as
decentralization. Once the basic and derivative plans of the enterprise have been
prepared, the next step is to explain the same to all the subordinates who are going to
perform the various tasks.

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Disadvantages of planning
Planning suffers from the following limitations:
1. Uncertain Nature
The element of uncertainty cannot be totally eliminated in planning. Plans are meant
for future use but future happenings cannot be accurately foreseen. E.g. a sudden
change in the policy of the government, loss due to natural calamities like earthquake,
floods, etc., can destroy even carefully prepared plans.

2. Expensive
Preparation and implementation of any plan is expensive not only in terms of time but
also in terms of efforts and money required.

3. Rigidity
It is always necessary to strictly adhere to the plan in so far as the daily work routine
in an enterprise is concerned. Lack of flexibility in plans leads to monotony and
boredom.

4. Loss of initiative
The staff in an enterprise shall perform their duties in the way they are expected to do
in the plans. As a result, they are reduced to machines. There is no scope for the
display of skills by individuals and this leads to loss of initiative.

5. Ignorance of subordinates’ interests

Plans are prepared to attain the organizational goal in the most effective manner. In
doing so, often, the interests, preferences, capabilities and attitudes of the employees
are ignored. As a result, the subordinates do not give their wholehearted support to
the implementation of the plans.

6. Complacent attitude
There is always a feeling that once the plan is prepared, the target of the enterprise
can easily be attained. The success of every plan depends much on the effectiveness
with which it is implemented. A plan is only a means to an end and not an end itself.

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Process of Planning (Steps involved in Planning Process)

The following steps are involved in the process of planning:

The Planning Process

GOAL SETTING
Identification and formulation of
objectives

Reactive DEVELOPING PLANS

Planning Choices between alternative plans
Revision
of goals
and
plans
IMPLEMENTATION
Execution of the plan
Kihara - Snr Lecturer@KEWI. 21

C - Process of Planning.

1. Identifying business opportunities

It is necessary to make an analysis of both the internal and external environment to
know the trends in the near future. Business activities are influenced by internal as
well as external factors. Government regulations, technological changes, availability
of material and labour and the extent of competition are some of the important factors
affecting business prospects.

2. Establishment of objectives
The second step in the planning process is to establish the organizational objectives in
tune with the opportunities identified, taking into account the resources available.

3. Determination of Planning Premises

Planning Premises are the assumptions made about the future happenings. As
planning is for future and future is uncertain, certain assumptions about the future
become necessary. Employee attitudes, technology used, managerial decision-making
process, etc., are some of the factors influencing the internal environment of the
business. The external environment, on the other hand, is influenced by factors such
as demand, buyer behavior, competitors’ actions, Government regulations, suppliers’
actions, technological changes and so on.

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4. Identifying the alternative courses of action
There are always alternative ways of carrying out any task just as there are different
routes to reach a destination point. To attain the objective of a business, different
courses of action may be available. For example, to maximize profits, any of the
following approaches may be used:

i. Large scale production

ii. Curtailing the cost of production and distribution

iii. Maximizing sales

iv. Increasing the market share and so on.

5. Evaluating the alternative courses of action

Once the alternative courses of action are identified, the next step is to evaluate the
same. By evaluation we mean studying the merits and demerits of each. Each
alternative should be examined carefully to decide on its suitability. For example,
manual method of production and mechanical production are two alternatives.

6. Selecting the best course of action

Once the alternative courses of action have been evaluated, the next step is to select
the best. The finally selected course of action should help the organization in making
an optimum use of the available resources and help to attain the objectives set in the
most effective manner.

7. Formulation of derivative plans

After the basic plan of the enterprise has been determined, the next step is to prepare
the subsidiary or derivative plans to support the basic plan. For example, once the
production plan of a manufacturer is ready, a number of supportive plans concerning
the purchase of raw-materials, tools and equipment, engaging workers, etc., will have
to be formulated.

8. Periodic evaluation and review

Once the implementation of the plan starts, it becomes necessary to evaluate
performance at periodic intervals to ensure that the activities of the enterprise proceed
in the right direction and as laid down in the plan. This will help to identify
shortcomings, if any, in the plan and to take corrective action at the right time.

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Elements of Planning:

Elements of planning are listed below:

1. Objectives: Objectives are the end towards which the activities of an organization
are directed. Objectives are known by different names, such as goals, aims,
purposes, targets etc. Setting up of objectives is the first step in planning.

2. Strategies: A strategy may be defined as relationship or an administrative course

of action designed to achieve success in the face of difficulties. Strategy is the
basic plan chosen to achieve objectives.

3. Policies: A policy is a general guide to thinking and action rather than a specific
course of action. It defines the area or limits within which decisions can be made
to achieve organizational objectives. According to Koontz and O’ Donnell
policies are general statements of understanding which guide or channel thinking
in decision making of subordinates.

4. Procedures: A procedure is a chronological sequence of steps to be undertaken to

enforce a policy and to attain an objective. It lays down the specific manner in
which a particular activity is to be performed. It is a planned sequence of
operations for performing repetitive activities uniformly and consistently.

5. Rules: Rules are rigid and definite plans that specify what is to be done or not
done in given situations. It is a prescribed guide to conduct or action. No
deviation is expected from the rule.

6. Programmes: A programme is a concrete scheme of action designed to

accomplish given tasks. It specifies the steps to be taken, resources to be used,
time limits for each step and assignments of tasks. Programmes help to ensure
economy and uniformity in day-to-day operations.

7. Budgets: A budget is a financial statement of expected results expressed in

numerical terms for a definite period of time in the future. It expresses a plan in
premise terms. Budgets serve as means of coordination and control.

8. Schedules: A schedule specifies time limits within which activities are to be

completed. Scheduling is the process of establishing a time sequence for the work
to be done. Schedules are essential for avoiding delays and for ensuring continuity
of operations.

9. Project: A project is defined in terms of capital investment, specific objective,

inter dependence of tasks. It is designed and executed as a distinct plan.

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Kinds of Planning:

On the basis of time period planning may be of three types:

Long-term planning: Long-term planning covers a long period in future e.g. 5, 10 or 15

years. It takes into account all long-term economic, social and technological factors as
well as their influence on the long-term objectives of the organisation, e.g. development
of new product.

Medium-term planning: Also known as intermediate planning. It focuses on a period

between 2 to 5 years. Such planning is more detailed and specific than long term planning
e.g. plans for purchase of materials, sales etc.

Short-term planning: Such planning covers a short period usually one year. It contains a
detailed outline of certain specific activities to be completed with a specific time limit,
e.g. planning for annual production, sales etc. It may be called activity planning.

According to the scope, planning may be classified as follows:

Corporate Planning: Corporate planning or organizational planning is concerned with

the organization as a whole. It is usually long term and is done by the top level of
management.

Divisional Planning: Divisional planning determines the scope and activities of each
division, e.g., production, sales, finance, personnel etc..., this plan focus on specific
functional areas of business.

Departmental or unit planning: It involves development of specific plans for each

department or a division so as to accomplish divisional objectives.

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Decision –Making

Meaning

Decision-making is the process of selecting one alternative from among a number of

alternatives available. The need for decision-making will arise only when there are
options. If there is only one way of doing a task, there is nothing to decide. For example,
a business enterprise that wants to buy machinery may find several models of the
machinery. As it can buy only one model, it has to decide which model to buy. It will
select the best model by examining the merits and demerits of the entire alternative
models and will select the one that offers maximum benefits. The process of selecting the
best model among the available alternative models is called decision-making.

Definition of Decision-Making

In the words of George Terry, ‘Decision-making is selecting an alternative, from two or

more alternatives, to determine an opinion or a course of action’.

According to Haynes and Massie, ’Decision-making is a process of selection from a set

of alternative courses of action which is thought to fulfill the objective of the decision-
problem more satisfactorily than others’.

Characteristics of Decision –Making

The important characteristics or features of decision-making are given below:

1. It is a goal-oriented activity
The objective of decision-making is to attain a specific goal e.g., student, whose goal
is to become a commerce graduate, has to be admitted in a college. He may be
admitted either in the Day College or in the Evening College depending upon his
credentials. It is also possible that he may study by correspondence. There again, he
can choose the University from among the various universities that offer
correspondence courses. Thus, a series of decisions needs to be taken by the student.

2. Existence of alternative courses of action

The need for decision-making arises only when there are alternative ways of
performing a task. If there is only one course of action available there is nothing to
decide, for example, an outdated product, which cannot be updated, has to be
abandoned by a business and there are no alternatives. Similarly, a worker, who is
inefficient and without, commitment has to be sent out of the organization. In both
cases, there is no scope for decision-making at all. On the other hand, a product, that
offers scope for alteration or modification, may be altered and thereby updated.
Likewise, a worker, who is showing commitment for work, but is not picking up
things fast, may be given additional training to enable him to do better.

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3. It may be positive or negative
Another feature of decision-making is that the decision made may be either positive
or negative e.g., if the employees in an organization want their pay scales revised and
decide to go on strike if their demand is not conceded, the decision of the
management may either be positive or negative. It is positive, if it decides to concede
to the demands. It is negative, if the management refuses to concede the demands or
decides to take disciplinary action against the employees for resorting to strike.

4. It may also be a decision not to decide

It is always difficult to take a quick decision on a sensitive issue. An immediate ‘yes’
or ‘no’ is not always possible in all matters. In such a case, the tendency will be to
defer the decision to the extent possible. The decision, therefore, is ‘no decision’.

5. Decision-making is both a science and an art

As a science, decision-making requires knowledge of method, rule or principle
concerning the problem. As an art, it requires skill for making the decision a success.
For example, a revision of pay scales of employees in an organisation has to be done
by evolving or following a suitable method, formula or principle. But it requires skill
to make the employees accept the revised pay scales.

6. It is situational
It means that the decision-maker may make different decisions for the same problem
under different situations e.g., a teacher may permit a student coming late to enter the
class on a particular day but may not allow him on another day. Likewise, a worker
may be sanctioned leave on a particular day but may be refused leave on another day.

7. It may be voluntary or induced

When the decision-maker makes one without pressure from anyone, such a decision
is voluntary decision. He makes the decision spontaneously and with an open mind.
Likewise, when he is pressurized either by individuals or by the situation to make a
decision to solve a problem, the decision becomes induced. For example, if a
manufacturer, whose production activity pollutes the environment, comes forward to
install a pollution control device himself, such a decision is a voluntary one. If he is
careless about the adverse effect his production process has on the environment, he
may be required by the Pollution Control Authority to install pollution control device.
The decision then becomes an induced one.

8. It is a complex mental exercise

Decision-making involves careful consideration of the alternative courses of action,
evaluation of the same and selection of the best course of action. The entire process of
decision-making requires application of mind and intelligence. Then only, he can take
best decision.

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9. It is an ongoing activity
Decision-making is a continuous process. Decisions are to be taken in everyone’s life
right from cradle to grave. In a business organization too several decisions need to be
taken right from its inception to dissolution.

Types of managerial decision:

Managerial decisions may be classified into the following categories:

1. Organizational and personal Decisions

Organizational decisions are those which an executive takes in his official capacity
and on behalf of the organization. On the other hand, personal decisions are those
which an executive takes in his individual capacity and not as a member of the
organization.

2. Routine and strategic decisions

Routine or tactical decisions are of a repetitive or recurring nature. They cover short-
term period and affect only a small segment of the organization. Strategic or basic
decisions involve long term commitments, large investment of funds and are of
permanent nature.

3. Programmed and Non-programmed decisions

According to Simon, programmed decisions are of routine and repetitive nature for
which systematic procedures already exist in the organisation. Non-programmed
decisions are of unstructured nature. Such decisions are generally made at higher
level of management.

4. Policy and operating decisions

Policy decisions are of fundamental nature as they affect the whole organisation.
Operating decisions are made for executing policy decisions.

5. Individual and group decisions

Decisions taken by a single individual are individual decisions. Group decisions are
those taken by a group of persons.

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The process of Decision-making:
The steps involved in decision-making process are:

1. Defining the Problem

The first step in decision-making is that of recognizing and identifying the problem.
The problem may arise due to unfulfilled goals or due to needs from the desired state
of affairs. The real problem may be unsuitable product, unsuitable price policy, faulty
distribution or lack of sales promotion. Clear understanding of the problem is
necessary.

2. Analyzing the problem

Analysis of the problem involves determining its causes and scope. The quality of
decision will depend upon the quality of information used. Therefore, collection of
accurate and appropriate data is very important in decision making.

3. Developing Alternative solutions

After defining and analyzing the problem with the help of relevant information, the
decision maker has to develop alternative solutions for the problem.

4. Evaluating the Alternatives

The various developed alternatives are compared and scrutinized to identify the pros
and cons of each alternative. Before evaluation, the criteria for evaluation should be
specified. Peter Drucker has suggested the following factors for evaluating alternative
courses of action: -
i. Risk
ii. Economy of effort
iii. Timing
iv. Limitation of resources

5. Selecting the Best Solution

Choosing the best alternative is the most critical part of the decision-making process.
Koontz and O’ Donnel have suggested the following basis for selection among
alternatives: -
i. Experience
ii. Experimentation
iii. Research and Analysis

6. Implementing the Decision

Once a decision is taken, it needs to be put into practice. Implementation involves
several steps. First the decision should be communicated to all concerned employees.
Secondly, responsibility for carrying out the decision is assigned to specific
individuals. Thirdly, any resistance to the decision has to be overcome.

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7. Feedback and control
Once the decision has been put into practice, actual results of action should be
compared with the expected results. If there is any deviation the same should be
analyzed to identify the causes.

Merits:
1. Decision making helps to adopt best course of action.
Decision making makes it possible to adopt the best course of action in carrying
out a given task. When there are different ways of performing a task, it becomes
necessary to find out the best way and that is what decision-making is all about.
The course of action finally selected should produce the best results.

2. Optimum use of resources.

By choosing the best method of doing any work, decision making ensures
optimum use of the enterprise resources, namely, men machines, materials and
money. Resources are always scarce and therefore, it is necessary to make a
proper use of the same.

3. It helps to find a solution.

Decision-making helps to find a solution to any problem in a work place. The
actual cause of the problem must be identified after which corrective action may
be taken. The management may have to decide on the right course of action to be
adopted. Thus, decision making helps management in finding solution.

4. It helps to promote efficiency.

Identification of best course of action in each given situation promotes the
efficiency of the organization. Then the course of action is acceptable to both the
workers and management. It results in higher output which is followed by a share
in gain to the workers. Thus, there is an improvement in the overall efficiency of
the Organisation.

5. It helps to resolve conflicts.

The management has to resolve the conflicts between the workers on their views
regarding better pay and improved working conditions. If the management avoids
taking a decision on this matter the workers will not be satisfied. Here the
decision should not be a one-sided one. So, the management has to evolve a
formula that is acceptable to the workers as well.

De-merits:
1. Decision maker is unaware of the alternatives available.
Often the decision maker is oblivious of the alternatives available. So, he selects the
option according to his intuition. Best decisions can be made only if all the
alternatives are properly evaluated.

As the decision maker is unaware of the alternatives available, the decisions made by
him will not give the expected results.

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2. Indecisiveness.
It may not be possible for some managers to arrive at a decision easily. This may
result in loss of business opportunities. Sometimes they may take hasty decisions at
the last minute and such a decision may not produce the desired results.

3. Failure to make correct diagnosis.

A person suffering from headache may take a tablet to get rid of it. It may give him
relief sometimes but not always. If he gets headache often, the same tablet may not
give him relief. Proper diagnosis, in such case, is necessary. Likewise, in a work
place, lack of employee motivation cannot always be attributed to lack of tangible
benefits. The actual cause of problem therefore, has to be identified and only then
remedy can be provided.

4. Quick decision.
The decision-maker cannot always take his own time for making decisions. Certain
problems may be so urgent that a quick decision may be necessary. A stitch in time
saves nine. But only some managers are capable of making correct quick decisions. If
the decision is not made at the right moment, the enterprise may have to suffer.

5. Unavailability of necessary information.

The information needed for the purpose of decision may not be easily available. In
such a situation, the correct decision cannot be made. There may also be delay in
arriving at a decision. For example, if a business wants to consider giving credit to an
old customer who has approached after a long time, the decision can be made only if
information on his credit worthiness is readily available.

6. Resistance
In certain organizations, there may always be resistance by the subordinate staff to
any decision. They think that the decisions are made in the interest of the organization
and be detrimental to their personal interest. Overcoming this resistance to any
decision also poses problems.

7. Making decision by itself cannot solve any problem.

Implementation of the decision and periodical review alone can produce the expected
results. Implementation of decision will not solve the problem. Periodical review
about the process and follow- ups will only produce the expected results.

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Summary
Features of Planning
 Planning is the primary function of management
 It is goal oriented
 It is all-pervasive
 It is an intellectual activity
 It is future-oriented
 It requires an integrated approach
 It is a continuous process
 It involves decision making

Advantages of Planning
 It focuses on objective
 It helps to avoid wastage of resources
 It ensures efficiency as well as effectiveness
 It reduces risk and uncertainty
 It provides for co-ordination
 It facilitates control
 Planning also provides scope for decentralisation

Disadvantages of Planning
 Uncertain Nature
 Expensive
 Rigidity
 Loss of initiative
 Ignorance of subordinates interests 6. Complacent attitude

Kinds of Planning
 Long-term planning
 Medium-term planning
 Short-term planning
 Corporate planning
 Divisional planning
 Departmental or unit planning

Process of Planning
 Identifying business opportunities
 Establishment of objectives
 Determination of planning premises
 Identifying the alternative courses of action
 Evaluating the alternative courses of action
 Selecting the best course of action
 Formulation of derivative plans
 Periodic evaluation and review

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Characteristics of Decision Making
 It is a goal-oriented activity
 Existence of alternative courses of action
 It may be positive or negative
 It may also be a decision not to decide
 Decision-making is both a science and an art
 It is situational
 It may be voluntary or induced
 It is a complex mental exercise
 It is an ongoing activity

Types of Managerial Decision

 Organizational & personal decisions
 Routine and strategic decisions
 Programmed & non programmed decisions
 Policy and operating decisions
 Individual and group decisions

The Process of Decision Making

 Defining the problem
 Analyzing the problem
 Developing alternative solutions
 Evaluating the alternatives
 Selecting the best solution
 Implementing the decision
 Feedback and control

Merits of Decision Making

 Decision making helps to adopt best course of action
 Optimum use of resources
 It helps to find a solution
 It helps to promote efficiency
 It helps to resolve conflicts

De-Merits of Decision Making

 Decision maker is unaware of the alternatives available

 Indecisiveness
 Failure to make correct diagnosis
 Quick decision
 Unavailability of necessary information
 Resistance
 Making decision by itself cannot solve any problem.

Kihara _ Snr. Lecturer @KEWI 21/11/2019 35

Project
Try to solve the following management problems:

A Car manufacturing Ltd. is facing a problem of declining market share due to increased
competition from other new and existing players in the market. Its competitors are
introducing lower priced models for mass consumers who are price sensitive. For quality
conscious consumers, the company is introducing new models with added features and
new technological advancements.

Questions

1. Prepare a model business plan for the company to meet the existing challenge. You
need not be very specific about quantitative parameters. You may specify which type
of plan you are preparing.

Hints:

Set the objective of the plan

i. What are the different alternatives available?

ii. ii. Pros and cons of the alternatives
iii. Select the best alternative
iv. Implementation of the chosen alternative
v. What are the follow up actions to be taken?
2. Identify the limitations of such plans.
i. Is it flexible in all situations?
ii. Is it futuristic?
iii. Is it time bound and rigid?
iv. Will it involve huge cost and is it time consuming?
3. How will you seek to remove these limitations?

4. Interview a local entrepreneur about how their objectives are set and the time taken to
achieve them. How do their answers compare with what you have learnt in the
chapter?

Hints:

i. What are the long term and short term objective?

ii. What are the factors he has taken into consideration while setting the objectives?
iii. What are the parameters under consideration for setting theses objectives?

Kihara _ Snr. Lecturer @KEWI 21/11/2019 36

Part A
Objective Type Questions (One Mark) _ [Choose the correct answer:] - One mark

1. Planning is.....oriented
a) Past
b) Future
c) Present
d) None of the above

2. Planning is.... activity

a) Intellectual
b) Mental
c) Intelligence
d) All the above

3. Planning makes it possible to make optimum use of the available resources of.......
a) Money
b) Materials
c) Machines
d) All the above.

4. Planning provides for

a) Co-ordination
b) Co-operation
c) Motivation
d) Organisation.

5. ......... help the enterprise to know whether the plan has been successfully
implemented
a) Control
b) Motivation
c) Decision-making
d) None of the Above.

6. Planning is necessary to make an analysis of.......

a) Internal Environment
b) External Environment
c) Internal & External environment
d) None of the Above.

7. ...... are the factors influencing the internal environment of the business
a) Employees Attitudes
b) Technology Used
c) Managerial Decision making process
d) All the Above.

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8. The various elements of planning are.......
a) Policy
b) Procedures
c) Rules
d) All the Above.

9. ...... specifies time limits within which activities are to be completed.

a) Schedule
b) Budgets
c) Projects
d) None of the Above.

10. ...... is a process of selection from a set of alternative courses of action

a) Communication
b) Decision-Making
c) Planning
d) Staffing

11. ...... decisions are those which an executive takes in his official capacity
a) Organizational
b) Personal
c) Routine
d) None of the Above.

12. Decisions taken by single individual is known as....

a) Individual Decision
b) Group Decision
c) Policy Decision
d) Operating Decision.

13. ...... has suggested the factors for evaluating alternative courses of action
a) Peter Drucker
b) F.W. Taylor
c) Henry Fayol
d) None of the Above.

14. Koontz & O.Donnel has suggested ---- is / are the basis for selections among
alternatives
a) Experience
b) Experimentation
c) Research & Analysis
d) All the Above.

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 15. Decision-making ensures optimum use of the enterprise resources of.......
a) Men
b) Material
c) Machinery
d) All the Above.

Answers:
1. (c) Future
2. (d) All the Above
3. (d) All the Above
4. (a) Co-ordination
5. (a) Control
6. (c) Internal & External Environment
7. (d) All the Above
8. (d) All the Above
9. (a) Schedule
10. (b) Decision Making
11. (a) Organizational
12. (a) Individual Decision
13. (a) Peter Drucker
14. (d) All the Above
15. (d) All the Above

II. Write the Answer in One or Two Words:

1. Which one is deciding in advance?

2. ...... is done by every one at every level of Management?
3. What type of approach is required for planning?
4. What can be reduced with the help of planning?
5. What is known as decentralization?
6. Why do plans lead to monotony & boredom?
7. Mention anyone of the assumptions made about the future happenings?
8. Which is the first step in planning?
9. What is a financial statement of expected results expressed in numerical terms?
10. Mention the number of kinds of planning?
11. What is the process of selecting one alternative from among a number of alternatives?
12. Who can install a pollution control device?
13. Who defined programmed decisions?
14. Who can take group decisions?
15. What is the first step in decision-making process?

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Answers:
1. Planning
2. Planning
3. Integrated approach
4. Risk and uncertainty
5. Dispersal of authority
6. Lack of flexibility
7. Employee attitudes / Technology used / Managerial decision making process
8. Objectives
9. Budget
10. Six
11. Decision-making
12. Pollution control authority
13. Simon
14. Group of persons
15. Defining the problem

Part – B _ Four Marks

What is planning?
1. Define Planning?
2. What is Decision-making?
3. Define the term Decision-making?
4. Write short notes on budget?
5. What is long term planning?
6. What is an organizational decision?
7. What is programmed decisions?
8. What are policies?
9. What are Rules?
10. What do you mean by routine and strategic decisions?
11. What do you mean by Individual and group decisions.

Part – C _ Ten Marks

1. What are the features of planning?
2. What is the process of planning?
3. Explain the kinds of planning.
4. What are the types of managerial decisions?
5. What are the demerits of decision making?

Part – D _ Twenty Marks

1. What are the merits and de-merits of planning?

2. What are the elements of planning?
3. Explain the characteristics of decision-making.
4. Explain the decision making process.
5. Explain the merits and demerits of decision making.

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Organisation and Delegation of Authority
Learning objectives: After reading this chapter you will be able to understand

Organisation – Meaning – Definition- Nature / Characteristics – Principles Advantages –

Steps/Process – Formal – Informal – Differences – Organisation Structure – Organisation
Charts & Manuals – Delegation of Authority – Meaning – Definition –
Characteristics – Steps/Process – Merits & Demerits – Principles – Meaning, Definition
of Centralization & De-centralization- Merits & Demerits of Centralization – Difference
between Centralization & De-centralization

Meaning:
The word ‘organization’ has come from the word ‘organism’ which means a structure of
interrelated and interdependent parts. The parts or components of organization consist of
men, machines, materials, methods, money, functions, authority and responsibility. The
task of organization is to unite or integrate these components effectively for the purpose
of attaining the common goal.

Definitions:

1. ‘Organizing is the process of identifying and grouping the work to be performed,

defining and delegating responsibility and authority, and establishing relationships for
the purpose of enabling people to work most effectively together in accomplishing
objectives’ – Louis A Allen.
2. Organisation is the structural frame work within which the various efforts are
coordinated and related to each other-Theo Haimann.

Nature (Characteristics) of organization:

The main characteristics of an organization are given below:

1. Common Purpose:
Every organization exists to accomplish some common goals.
2. Division of Labour:
The total work of an organization is divided into functions and sub-functions and
assigned to particular individual. It ensures specialization.
3. Authority Structure:
There is an arrangement of positions into a graded series. The authority of every
position is defined. The chain of superior – subordinate relationship is known as chain
of command.
4. People:
An organization is basically a group of persons. People constitute the dynamic human
element of an organization.
5. Communication:
Every organization has its own channels of Communication. It is necessary for
mutual understanding and co-operation among the members of an organization.

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6. Coordination:
Coordinating different activities and parts of Organisation is essential to achieve its
common goal. Co-operative effort is a basic feature of organization.
7. Environment:
An organization function is an environment comprising economic, social, political
and legal factors.
8. Rules and Regulations:
Every organization has some rules and regulations for orderly functioning of people.

Principles of Organisation
The following principles are helpful in developing a sound organization structure.

1. Unity of Objectives
Every part of the organization should be designed to facilitate the achievement of
common objectives. Therefore, the objectives must be stated in clear and concise
terms.
2. Division of work
The total work should be divided in such a way that as far as possible every
individual performs a single function.
3. Span of control
No executive in the organization should be required to supervise more subordinates
than he can effectively manage.
4. Scalar principle
The line of authority (called the chain of command) from the top executive to the
lowest level should be clear and unbroken.
5. Principle of Exception
Every manager should take routine decision himself. Only exceptional matters
beyond the scope of authority should be referred to higher authorities.
6. Unity of command
Each individual should receive orders from and be accountable to only one boss.
7. Functional definition
The authority and responsibility of every individual should be clearly defined. The
relationships between different jobs should be clearly specified.
8. Unity of Direction
There must be one head and one plan for a group of activities directed towards the
same objectives.
9. Delegation
Authority delegated to an individual should be adequate to enable him to accomplish
the results expected of him.
10. Correspondence
Authority and responsibility must be equal. Authority delegated to a position should
be commensurate with responsibility of that position and vice-versa.
11. Absoluteness of Responsibility
No superior should be allowed to avoid his responsibility by delegating authority to
his subordinates. He must be held accountable for the acts of his subordinates.

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12. Simplicity
The organization structure should be kept simple with minimum numbers of levels.
13. Flexibility
The organization structure should be adoptable to changing circumstances. There
should be scope for expansion without disrupting the basic design.
14. Efficiency
The organization structure should enable the enterprise to function efficiently and to
achieve its objectives with minimum cost and effort.
15. Continuity
The organization structure should be continued for a long period of time.

Advantages of Organisation:
Sound organization is essential for the continuity and success of every enterprise. The
main advantages of sound organization are:

1. Aid to Management:
Organisation is the mechanism through which management coordinates and controls
the business. It serves as an effective instrument for realizing the objectives of the
enterprise. It is through the framework of organization that plans are put into practice
and other managerial functions are carried out. It helps to focus the attention and
action of management on the accomplishment of enterprise objectives. If the
organization is ill-designed, management is rendered difficult and ineffective.
2. Facilitates Growth:
It enables the enterprise to enter new lines of business. The enterprise possesses
necessary adaptability to face new challenges.
3. Ensures Optimum Use of Resources:
A good organizational set-up permits adoption of new technology. It helps to avoid
duplication of work. Overlapping efforts and other types of waste. As a result it
facilitates the best possible utilization of human and physical resources.
4. Stimulates Creativity:
Sound organization encourages creative thinking and initiative on the part of
employees. Delegation of authority provides sufficient freedom to lower level
executives for exercising discretion and judgment. New and improved ways of
working can be developed.
5. Facilitates Continuity:
A well-designed organization provides for training and development of employees at
all levels. It provides opportunities for leadership and helps in ensuring the stability of
the enterprise through executive development.
6. Helps in Coordination:
Organisation is an important means of integrating individual efforts. It helps in
putting balanced emphasis on different departments and divisions of the enterprise. It
makes for co-operation and harmony of actions.

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Steps / Process of Organizing:
The main steps involved in the process of organizing are:

1. Determining the activities to be performed:

The first step in the organizing process is to identify the activities required for the
accomplishment of organizational objectives. For this purpose the total work has to
be divided into number of functions and sub functions. For example, in a
manufacturing concern, the activities may be divided into purchase, production, sales,
storage, advertising, accounting etc.

2. Grouping of activities:
Once the activities are identified they are grouped into departments and division on
the basis of their similarity and relatedness. Identical or closely related activities are
grouped in one department. Each department is placed under the charge of a
departmental manager. For example, purchasing and assembling function is grouped
under one department.

3. Assignment of duties:
After grouping activities into manageable units, each group of activities is assigned to
particular position. While assigning duties qualifications, experience and aptitude of
people should be duly considered. Right man should be selected for each job and
proper physical environment should be provided for efficient performance of jobs.

4. Delegation of Authority:
Appropriate amount of authority is delegated to each individual for enabling him to
perform the duties assigned. For example, the purchase manager is given authority to
purchase goods and pay for them.

5. Defining authority relationships:

After granting authority, relationships between different members of the organisation
are created. Each and every individual knows his or her boss, from whom he or she
has to take orders and to whom he will be answerable. Similarly he or she must know
who his or her subordinates are and to whom he or she can issue orders.

Therefore, the process of organizing consists of defining the individual tasks, grouping
and classification of tasks, the delegation of authority for their accomplishment and the
specification of authority relationships between managers.

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Formal and Informal Organisation

Formal Organisation
‘Formal organization’ is deliberately and consciously created for the accomplishment of
the enterprise objectives. It provides for official relationships between the individuals.
The communication channel in a formal organisation is also formal or official. It has
well-established rules, regulations and procedures.

Informal Organisation
Informal organization arises from the personal and social relations of people. It is not
formally designed. It is developed spontaneously out of interactions between persons. It
is influenced by personal attitudes, likes and dislikes. Informal relations occur among
individuals. According to Barnard, ‘informal organization is joint personal activity
without conscious common purpose though contributing to joint results.

Differences between Formal and Informal Organizations

The differences are tabulated below:

No. Formal Organizations Informal Organizations

1. It is consciously and deliberately created. It arises spontaneously.
2. Authority and responsibility are vital for It is only personal factors such as
its functioning. friendship, affinity, trust and
confidence that are important.
3. Rules and procedures are important. Personal relationship between
individual is more important.
4. It can be shown on the organization It cannot be shown.
chart.
5. Authority flows downwards and There is no flow of authority and
responsibility flows upwards. responsibility.
6. It is deliberately created only to attain the It is created to fulfill the social needs
enterprise objectives. of an individual. How-ever, it may also
contribute to the enterprise goal.
7. Designations and official positions are Designations and official positions are
very important. unimportant.
8. It is permanent and stable. It is unstable.

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Organisation Structure:
The various forms of internal organisation or patterns of organisation structure are:-
1. Line organization
2. Functional organisation
3. Line and staff organisation
4. Committee organization
5. Project organization
6. Matrix organization

Line Organisation:
Line organization is the oldest type of organisation. It is also known as scalar or military
organization. In this type of organisation, there is a vertical line of authority running from
the top to bottom of organisation.

D: Line - Commodities & Production Areas Organization.

The man at the top has the highest authority and it is reduced to each successive level
down the hierarchy. Every person is in direct chain of command. He gets orders from the
man immediately above him and is directly accountable to only one superior.

Advantages:
Line organization offers the following benefits:
1. It is very simple to establish and can be easily understood by employees.
2. The authority and responsibility of each position is clearly defined. Each individual
knows to whom he is responsible.
3. It facilitates prompt decisions and speedy action is possible.
4. There is unity of command and each executive has full control over his subordinates.
5. It ensures better discipline.
6. Each individual can be held accountable for results and he cannot shift his
responsibility to others.
7. It is very economical.

Limitations:
Line organization suffers from the following draw backs:
1. There is lack of specialization
2. Key executives are over burdened with administrative work.
3. It may result in autocratic control.
4. Subordinates may lose initiative and independent thinking.

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5. Line organization may lack stability and continuity.
6. Thus line organization is suitable for small concerns employing few persons and
carrying on routine work.

Functional Organisation:
Functional organization is based on the concept of “Functional Foremanship” developed
by F.W.Taylor. Under functional organisation, the organisation is divided into a number
of functional areas. Each function is managed by an expert in that area. Every functional
area serves all other areas in the organization.

For example, the purchase department handles purchases for all departments. The
executive in charge of a particular function issues orders throughout the organization with
respect to his function only. Thus, an individual in the organisation receives instructions
from several functional heads.

Advantages:
Functional organization contains the following benefits:
1. Functional organization promotes division of work which leads specialization.
2. Every functional head looks after only one function; therefore, burden on top
executives is reduced.
3. Control becomes more effective.
4. Recruitment, selection and training of managers is simplified because; each
individual is required to have knowledge of one functional area only.
5. Every individual in the organisation concentrates on one function only, which ensures
higher efficiency.
6. It adopts scope for expansion and growth of the organisation.

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Disadvantages:
Functional organization suffers from the following weakness:
1. A person may be accountable to several superiors. In the absence of unity of
command, responsibility for results cannot be fixed easily.
2. There are many cross-relationships which create confusion.
3. Decision-making process in functional Organisation is slow.
4. Executives at the lower level do not get opportunity of all-round experience.
5. Functional organization lacks co-ordination among various departments. Functional
organization is generally suitable for large and medium sized concerns.

Line and Staff Organisation:

Line and staff organization is a combination of line and functional structures. Under it,
line authority flows in a vertical line in the same manner as in the line organization. In
addition, staff specialists are attached to line positions to advise them on important
matters. These specialists do not have power of command over subordinates in other
departments.

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