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DAV CENTENARY PUBLIC SCHOOL, PASCHIM ENCLAVE, NEW DELHI-87

BUSINESS STUDIES, XII
PLANNING

Meaning of Planning
Planning is thinking in advance what to do and how to do. It bridges the
gap between where we are and where we want to go.
Definition of Planning
According to Koontz and O’ Donnell, “Planning is deciding in advance
what to do, how to do, when to do and who is to do it.”

Nature and scope of Planning

1. Planning focuses on achieving objectives – Every organisation is
established in order to achieve certain general purpose. Planning
helps in setting specific organizational objectives and also the ways
and means to achieve those objectives. Planning is purposeful. So,
we can say that planning helps in achieving organizational
objectives.
2. Planning is a primary function of management – All the
functions of management are inter-related and equally important.
But, planning is first among equals. It precedes other functions. It
forms the basis for all the functions of management.
3. Planning is pervasive – Planning is required in all types of
organizations and at all levels of management. But the scope of
planning done at each level of management may differ. The top
level is responsible for overall corporate planning. The middle level
is responsible for departmental planning and supervisory
management is responsible for operational planning.
4. Planning is continuous – The plans are prepared for a specific
period of time. At the end of that period, new or improved plans
are made in the light of environmental changes. So, planning cycle
involves framing the plan, implementing them and then framing
new plans. Thus, planning is a continuous process.
5. Planning is futuristic – Planning is a forward-looking functions.
For doing planning, future forecasts are predicted and analysed.
And on the basis of such forecasts, the future course of action is
laid. So, planning is futuristic. Also, past cannot be planned.
Example – an organization makes production and sales plans on
the basis of sales forecasting.
6. Planning involves decision-making – Planning involves choice
and decision-making. Actually, planning presupposes existence of
alternatives. If there is only one possible course of action, there is
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no need to plan. Example – if there is only one supplier of raw

material, then there is no need to plan that from where raw
material will be purchased. Planning has to be done only when a
number of alternatives are there, and then one best alternative is
to be chosen after careful evaluation.
7. Planning is a mental exercise – Planning is a thinking function
which requires intelligence, imagination, foresight and sound
judgement. It is an intellectual activity. It requires logical and
systematic thinking and not guesswork or wishful thinking.

Importance of Planning
Often it is said- “Well planned is half done.” The points highlighting
significance of planning are as follows –
1. Planning provides directions – Planning involves setting
organizational objectives. These objectives serve as a guide for
managers. The efforts of all the employees in an organisation are
directed towards achievement of those objectives. Thus, planning
provides aim and direction to the activities of the organization.
2. Planning reduces the risks of uncertainties – Planning is done
for future and future is uncertain. In the course of planning, the
managers anticipate the future events or changes in business
environment. On the basis of such prediction, future course of
action is laid. So, planning reduces the risk of uncertainties of
future.
3. Planning reduces overlapping and wasteful activities – Planning
serves as the basis of all organizational activities. Clearly stated
plans helps in avoiding confusion and all employees know that is
expected of them. So, work is carried on smoothly and useless
activities are eliminated. All this helps in achievement of
organizational objectives.
4. Planning promotes innovative ideas – Planning is a thinking
process which requires creativity and imagination. Using such
creativity and imagination, managers can develop new and
innovative ideas which take the form of concrete plans. Such
innovations help in growth and prosperity of business.
5. Planning facilitates decision-making – Planning involves defining
organizational objectives, identifying and evaluating the alternative
courses of action and then selecting the best alternative for
achieving the stated objectives. Thus, planning helps in rational
decision-making.
6. Planning establishes standards of controlling – Management
process involves planning, organising, staffing, directing and
controlling. the controlling function involves comparision of actual
performance with standards to find out deviation, if any, and
taking corrective action. The planning function provides the
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standards against which the actual performance can be compared.

So, without planning, controlling cannot be done. So, planning is
the basis of control.

Limitations of Planning

The following points depict limitations of planning –

1. Planning leads to rigidity – In planning, the future course of
action is laid down which the managers need to follow. So,
planning creates rigidity in the functioning of managers. It curbs
the freedom of managers to initiate changes. Following a pre-
determined plan is of no use when the circumstances have
changed.
2. Planning may not work in a dynamic environment – Business
environment is dynamic in nature. The economic, political, social,
legal and technological dimensions of environment keep on
changing continuously. Accordingly, the managers need to adapt
to these changes. So, planning becomes useless. Example – if
competition in the market has increased, it will have an impact on
sales budgets, cash budgets and the overall financial plans. So,
planning is of no use in dynamic business environment.
3. Planning reduces creativity – Planning is done by top
management and other managers are expected to implement the
plans laid by top management. This reduces the initiative and
creativity of those managers as they are not allowed to change the
plans or initiate any change. So, no new ideas or innovation comes
from the minds of these managers.
4. Planning involves huge costs – Planning involves huge costs in
terms of time and money. These include costs of boardroom
meetings, hiring of professional experts, surveys and investigation
of the issues etc. So, cost-benefit analysis must be done while
formulation of plans.
5. Planning is a time-consuming process – Planning is a time-
consuming process as making investigations, checking accuracy of
facts and figures require a lot of time. Sometimes the formulation
of plans take so much time that there is not much time left for
their implementation.
6. Planning does not guarantee success – Planning creates a false
sense of security that objectives will be achieved. But, planning
needs to be implemented properly to get success. Also, it is not a
surety that previously tried and tested plans will work in all
situations. The situations change and accordingly, the plans
should be changed. The following of pre-determined plans in a
dynamic business environment may not ensure success.
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Despite its limitations, planning is not a useless exercise. It is a tool

which has to be used cautiously. But, it is not a solution to all the
problems. It can be said, “Planning is not a substitute for executive
judgement, but merely an aid to it.”

PROCESS OF PLANNING
The following steps are to be followed for doing planning:
1. Setting Objectives – Objectives are the desired results that an
organization wants to achieve. The objectives or goals must be set for
entire organization, for each department and for each employee as well.
The managers’ ideas and suggestions should be incorporated by top
management for deciding objectives. The planned objectives and goals
should be clear, specific and unambiguous. Example – increase in sales
turnover by 30% by next year.

2. Developing Premises – Premises refer to assumptions about the future.

This requires anticipating the future environmental conditions relating to
various dimensions such as social, economic, political, legal and
technological. The planning premises are to be made to reduce the
uncertainties of future. Further, the same planning premises should be
used by all the managers. These premises serve as basis of planning.
Examples – change in government policies, change in tastes and
preferences of customers, increase in competition, etc. The accuracy of
premises determine the success of planning.

3. Identifying alternative courses of action – In this step, alternative

courses of action are to be identified for achievement of pre-decided
objectives. Alternatives so decided, can be routine alternatives or
innovative alternatives. If there is only one alternative to achieve a
particular objective, then there is no need to plan. More alternatives
should be identified in case the project is important. Example – For
increasing sales by 30% by next year, different alternatives can be
identified such as opening new branches/outlets, reducing prices, use of
sales promotional tools, improving quality of the product etc.

4. Evaluating alternative courses – Here, all the alternatives identified

above, are to be evaluated. The pros and cons of each alternative are to
be compared. The positive and negative consequences of each should be
anticipated. Their evaluation should be done on the basis of feasibility,
profitability and risk-return trade off. Example – The alternative of
opening new branch/outlet may seem to be attractive, but the business
might not have ample funds for its establishment. So, some other
alternative might have to be chosen.
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5. Selecting an alternative – Planning involves decision making. Here, the

managers need to decide about the best alternative course of action to
achieve objectives. The best alternative is that which is most feasible,
most profitable and with least negative consequences. Such a best
alternative may be chosen by use of mathematical tools such as
calculating Return on Investment (ROI), Earning Per Share (EPS) etc, or
by use of intuition and subjective judgment of managers. Sometimes, the
manager may select a combination of alternatives to achieve the
objectives.

6. Implementing the plan – This step is very crucial. If this step is not
undertaken properly, then entire planning becomes useless. So, this step
should be undertaken carefully. This step involves putting the plans into
action. The implementation of plan requires assembling of required
resources. Example-procuring labour and machinery to increase
production.

7. Follow-up action – It involves continuous review and monitoring of the

plans to ensure proper implementation of plans. This also helps in
making modifications in the plans according to changed environmental
conditions. This further ensures achievement of planned objectives.

Types of Plans

1. Objectives –
 Setting objectives is the first step in planning process.
 Objectives mean end-points or desired results of activities
that an organization wants to achieve. Example – increase in
profit by 10% by next year.
 They represent end point of planning since all managerial
activities are directed towards achievement of objectives.
 These are set by top management.
 These focus on broad and general issues.
 These serve as a guide to overall business planning. All
departmental plans are based on organizational objectives.
 Specifications of good objectives –
o They should be measurable or in quantifiable terms.
o They should have a time deadline for achievement.
o They should be challenging but achievable.
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2. Strategy –
 Strategy represents the broad contours of an organisation’s
business. It means future decisions defining organisation’s
direction and scope in the long run.
 It is a comprehensive plan for achieving organizational
objectives. It has 3 dimensions –
o Determining long term objectives.
o Adopting a particular course of action.
o Allocating resources for achieving objectives.
 The trends in business environment must be considered
while forming business strategy.
 Examples of strategic decisions – whether organization will
continue with the same product line on large scale
(Expansion strategy) or will be manufacturing new products
(Diversification strategy).
 Marketing strategy of a company will include kind of
customers, demand for the product, distribution channel to
be used, pricing policy, advertising media etc.
3. Policy –
 Policies are general statements that guide thinking or
channelise energies towards a particular direction.
 These serve as a guide to managerial decision-making and
action.
 Policy represents general response to a particular problem or
situation. So, it helps in solving routine problems easily.
 Policies are made for all the levels. There may be major
policies (policies for customers, competitors etc) or minor
policies (policies for employees – leaves to be given to them,
facilities provided to them etc.)
 Managers have the discretion in implementation of policies.
 Example – purchase policy includes decisions on make or
buy packages, method of selecting suppliers, number of
suppliers form which raw material will be purchased etc.
Other example can be selling the goods only on cash basis.
4. Procedure – Procedure involves a series of steps to be followed in a
chronological order. These show the exact manner as to how the
work will be performed. These are generally meant for insiders. The
procedure helps in implementation of policies.
5. Methods –
 Methods means formalized and standardized way of
performing routine jobs.
 Selection of proper method saves time, money and efforts,
leading to increase in efficiency.
 Examples of methods – straight line and written down value
methods for charging depreciation, LIFO (Last In First Out)
and FIFO (First In First Out) methods for valuation of stock.
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 The methods to be used differ according to the job/task.

Example – For giving training to managers at top level,
orientation programmes, lectures and seminars may be
organized. But for training operational managers, on-the-job
training methods are suitable.
 A method is more limited in scope than a procedure. It is one
step of the procedure.
6. Rule – The rules are specific statements of what should or should
not be done. These allow no discretion. These have to be followed.
Also, these are simplest types of plans. A rule reflects a
management decision that a certain action must or must not be
taken. Example – No smoking in the factory.
Rules and Procudure – A procedure may be seen as a sequence of
rules. But, a rule may or may not be a part of procedure.
Rules and Policies – The managers have some discretion in
implementation of policies but no discretion is allowed for
implementing the rules.
7. Programmes – The programmes are a combination of goals,
policies, procedure, tasks, steps to be followed and resources to be
used to carry out a project. These are concrete, well-defined,
comprehensive schemes designed to accomplish specific objectives.
These are ordinarily supported by budgets. Example – Training
programme, Advertising programme, New product introduction
programme etc.
8. Budget –
 A budget is a statement of expected results in numerical
terms for a definite period of time in future.
 It is a plan which quantifies facts and figures. Example – A
sales budget may forecast the sales of different products in
each area for a particular month.
 Budget provides standards against which actual
performance can be compared. So, a budget also serves as a
controlling device.
 Examples – Production budget, sales budget, cash budget
etc. A cash budget is a device that helps in planning and
controlling the use of cash in business. It shows estimated
cash inflows (sales) and outflows (costs). The net cash
position is determined by the cash budget.
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DIFFERENCES AMONGST VARIOUS TYPES OF PLANS

 Policies and Objectives

Basis Policies Objectives

1. Meaning Already done Already done
2. Nature These determine These determine what is to be
how the work is to be done.
done.
3. Need These may or may These have to be laid by every
not be laid. organization. No organization
can function without the
objectives.
4. Level of These are These are determined at top
Management determined at top, level management.
middle and
supervisory levels.
5. Scope Their scope is Their scope is wide. Other plans
limited. These serve like policies, procedure,
as guide to decision programmes, methods etc are
making. laid to achieve the objectives.
6. Examples To sell goods on To increase the sale of product A
cash basis only. by 5% in the next year.

 Policies and Procedures

Basis Policies Procedures

1. Meaning AD AD
2. Need These are needed to help These are needed for
in achievement of implementation of policies.
organizational objectives.
3. Flexibility These are flexible. These are more or less rigid.
4. Discretion These allow some No discretion is allowed to the
discretion for managers. managers for the
implementation of procedures.
5. Expression These are expressed in the These are expression in
form of general statements. specific terms.
6. Derivation These are derived from These are derived from
objectives. policies.
7. Examples To sell goods on cash Procedure to execute an
basis. order.

 Policies and Rules

Basis Policies Rules

1. Meaning AD. AD
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2. Nature These depict the These indicate what should or

management attitude. should not be done.
3. Guide These serve as guide to These serve as guide to
decision making. behaviour.
4. Flexibility These are flexible. These are rigid.
5. Discretion These allow some These have to be
discretion for managers. implemented. No discretion is
allowed.
6. Expression These are expressed as These are expressed as
general statements. specific statements.
7. Examples The policy of promoting No smoking in the factory.
from within the
organisation.

 Rules and Methods

Basis Rules Methods

1. Meaning AD AD.
2. Need These are needed to These are needed to increase
ensure discipline in the efficiency.
organization.
3. Basis/ These are based on These are based on research
derivation common sense and and analysis.
objectives.
4. Nature These are official and These are logical and rational.
authoritative.
5. Concern These are concerned with These are concerned with
the behaviour of physical and technical tasks.
individuals and groups.
6. Penalty Penalty is there for There is no penalty for not
violation of rules. following any method.
7. Control These are associated with These are not associated with
control. control.
8. Examples No smoking in the factory. Methods to charge
depreciation – straight line
method, written down value
method etc.

 Policies and Strategies

Basis Policies Strategies

1. Meaning AD AD
2. Purpose To deal with To counter environmental
repetitive problems threats and avail environmental
opportunities.
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3. Nature of It is a type of It is a single use plan for meeting

plan standing plan to be challenges.
used repetitively.
4. Scope Narrow. Broad, as it includes policies.
Example – marketing strategy
will include pricing policy.
5. Examples Policy of selling goods Expansion strategy,
only on cash basis. diversification strategy etc.

SINGLE USE AND STANDING PLANS

A single-use plan (also called ad-hoc plan) is a plan which is developed

for one-time project or for achievement of a specific objective. Example –
Budget, Programme etc.
 Such plans are made for events that do not repeat.
 Such plans are made keeping in mind the unique situation.
 The length of such plan may be a single day, few days, weeks or
even months.

A standing plan (also called repeated use plan) is a plan which is

developed for situations that repeat often. Such plans are used ove
and over again. They retain their value over a number of years.
Example – Rule, Policy, Procedure etc.

DAV CENTENARY PUBLIC SCHOOL, PASCHIM ENCLAVE, NEW DELHI - 110087