Class 12 business studies Chapter 4 PLANNING
NCERT Notes for Class 12 business studies Chapter 4 PLANNING, (business studies) exam are Students are taught thru NCERT books in some state board and CBSE Schools. As the chapter involves an end, there is an exercise provided to assist students to prepare for evaluation. Students need to clear up those exercises very well because the questions inside the very last asked from those.
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NCERT Notes for Class 12 business studies Chapter 4 PLANNING
Class 12 business studies Chapter 4 PLANNING
Every organisation whether it is government-owned, a privately owned, small business or large business requires planning. The government makes five- year plans for the country, a small business has its own plans, while other companies have big plans, sales plans, production plans etc. All of them have some plans. Dreams can be turned into reality only if business managers think in advance on what to do and how to do it.
Meaning of Planning
Planning is the first function of management. Planning can be defined as “thinking in advance what is to be done, when it is to be done, how it is to be done and by whom it should be done”. Planning is the process of thinking before doing. Planning bridges the gap between where we are standing today and where we want to reach.
Planning involves setting up of objectives and developing appropriate courses of action to achieve these objectives. It is concerned with both ends and means i.e., what is to be done and how it is to be done.
Features of Planning
Planning focus on achieving objectives
Every organization has to fulfil certain objectives. Planning involves setting up of objectives and developing appropriate courses of action to achieve these objectives. Planning has no meaning unless it contributes to the achievement of predetermined organizational goals.
Planning is a primary function of management
Planning is the primary or basic function of management. All other managerial functions are performed within the frame work of plans drawn. Planning provides the basis of all other managerial functions.
Planning is pervasive
Planning is required at all levels of management. It is not an exclusive function of top management or of any particular department. But the scope of planning differs at different levels and among different departments. For example, the top management undertakes planning for the organisation as a whole. Middle management does the departmental planning. At the lowest level, day-to-day operational planning is done by supervisors.
Planning is continuous
Planning is a never ending or continuous process. Plans are prepared for a specific period of time, may be for a month, a quarter, or a year. At the end of that period there is need for a new plan to be drawn on the basis of new requirements and future conditions. Hence, planning is a continuous process.
Example-If the plan is made during boom period and during its execution there is depression period then planners have to make changes according to the conditions prevailing.
Planning is futuristic (Forward-looking)
Planning essentially involves looking ahead and preparing for the future. Planning is thinking in advance what is to be done, when it is to be done, where it is to be done, and who is to be done. In other words, planning relates to future.
Planning is a mental exercise
Planning is a mental exercise involving creative thinking and imagination. Planning is not guesswork but involves logical and systematic thinking. Thinking for planning must be orderly and based on the analysis of facts and forecasts.
Planning involves decision making
Planning essentially involves choice from among various alternatives. The need for planning arises only when alternatives are available. In actual practice, planning presupposes the existence of alternatives and choosing the most appropriate one.
Importance/Advantages of Planning
It is difficult to manage operations without formal planning. It is important for an organisation to move towards achieving goals. The major benefits of planning are given below:
Planning provides directions
Planning involves setting up of objectives and developing appropriate courses of action to achieve these objectives. By stating in advance how work is to be done planning provides direction for action. Due to planning, employees know in advance in which direction they have to work. If there were no planning, employees would be working in different directions and organization would not be able to achieve its desired goal.
Planning reduces the risks of uncertainty
Business organizations have to face many uncertainties and unexpected situations every day. Planning enables these enterprises to predict future events and prepare to face unexpected events. With the help of planning, manager can identify potential dangers and take steps to overcome them.Thus, planning helps to reduce risk and uncertainty.
Planning reduces overlapping and wasteful activities
Planning serves as the basis of coordinating the activities and efforts of different divisions, departments and individuals. It helps in avoiding confusion and misunderstanding. Since planning ensures clarity in thought and action, work is carried on smoothly without interruptions. Useless and redundant (out of work) activities are minimised or eliminated.
Planning promotes innovative ideas
Planning requires high thinking and it is an intellectual process. So, there is a great scope of finding better ideas, better methods and procedures to perform a particular job.
Planning facilitates decision making
Planning helps the management to take various decisions. As in planning goals are set in advance and predictions are made for future. These predictions and goals help the manager to take fast decisions.
Planning establishes standards for controlling
Through planning management decides the standard of performance in advance. With the help of these standards, comparison can be made with the actual. If there is any deviation with the standard, proper steps can be taken to correct it. Therefore, we can say that planning is a prerequisite for controlling. Therefore, planning provides the basis of control.
Planning improves efficiency
Planning results in systematic and smooth functioning of the company because planning is concerned with the predetermined course of action. The predetermination of action avoids confusion and clashes and wastage of scarce resources.
Limitations of planning
We have often seen in our daily life that things do not always go according to plan. Unforeseen events and changes, rise in costs and prices, environmental changes, government interventions, legal regulations, all affect our business
plans. Plans then need to be modified. The major limitations of planning are given below:
Planning leads to rigidity
In an organistion a well-defined plan is drawn up with specific goal to be achieved with a specific time period. These plans decide the future course of action to be followed. Once a well-defined plan is drawn, managers may not be able to change it. The business environment change rapidly but mangers is committed to execute the predefined plan. It may not bring positive result to the business
Planning may not work in a dynamic environment
The business environment is dynamic as it keeps on changing. The environment consists of a number of dimensions, economic, political, physical, legal and social dimensions. These factors are beyond the control of a business. Since, planning cannot foresee everthing, and there may be obstacles to effective planning. Under the conditions of rapid changes, the plans become outdated and irrelevant even before they are implemented.
Planning reduces creativity
Planning is an activity which is done by the top management. Usually the rest of the members are blind followers of the plan. Employees only carry out orders. Employees do not even attempt to formulate plans. Thus, much of the initiative or creativity inherent in them gets lost or reduced.
Planning involves huge costs
Planning is an expensive process. Collection, analysis, and evaluation of the different information, facts and alternatives involve a lot of expenses. Sometimes, costs incurred may not justify the benefits derived from the plans.
Planning is a time-consuming process
Planning process is a time-consuming process because it take long time to evaluate the alternatives and select the best one. Lot of time is needed to develop planning premises. Whenever there is a need for prompt and immediate decision then we have to avoid planning.
Planning does not guarantee success
The success of an enterprise is possible only when plans are properly drawn up and implemented. Managers have a tendency to rely on previously tried and tested successful plans.But, It is not always true that a plan which has worked before, will work effectively again.
Planning means deciding in advance what is to be done, when it is to be done, how it is to be done etc. It is a process of decision making. It involves certain logical steps. They are as follows.
The first and foremost step is setting objectives. Objectives are the end- results which manager’s wish to achieve. Objective must be specific and clear. Objectives may be set for the entire organisation and each department or unit within the organisation. They give direction to all departments. If the end result (objective) is clear it becomes easier to work towards the goal.
Planning is concerned with the future which is uncertain and every planner is using assumptions about future. These assumptions are called premises. Premises are the base on which plans are made.Forcast is the technique of gathering information. Forecast can be made about the demand for a product, change in government policy, tax rate, competition etc. Accurate assumptions/ premises become essential for successful plans.
Identifying various alternative courses of action
Once objectives are set and assumptions are made, then the next step is to act upon them. There are alternative ways to achieve the stated objectives. All the alternative courses of action should be identified.
For example: In order to achieve the organizational objective of ‘increasing profits’, the alternatives ways may be:
- Increasing selling price
- Purchasing new technology machines
- Increase the efficiency of workers by giving proper training
Evaluating alternative courses of action
In this stage, management will evaluate the merits and demerits of various alternatives in the light of various objectives of the business and planning premises. Alternatives are evaluated in the light of its risk, return, feasibility etc.
Selecting an alternative
After analyzing the merits and demerits, the most appropriate alternative is selected. This is the real point of decision making. The best plan is to be adopted and implemented. It would be the most feasible, profitable, and with least negative consequences.
Example: Selecting ’Purchasing new technology machine’ as the best solution
for increasing profits.
Implementing the plan
Implementing is the stage at which the best selected alternative is put into action. Implementing the plan means putting the plan into action so as to achieve the objective of the business.
For example: The business already decided to buy new machinery as part of its goal of maximizing profit. At this stage the company takes steps to acquire that machinery.
Planning is a continuous process so manager’s job does not get over simply putting the plan into action. To see whether plans are being implemented and activities are performed according to schedule is also part of the planning process. During follow up many adjustments are made in the plan. Monitoring the plans is equally important to ensure that objectives are achieved.
- Setting Objectives
- Developing Premises
- Identifying Alternative courses of Action
- Evaluating Alternative Courses
- Selecting an Alternative
- Implementing the Plan
- Follow-up Action
Types of plans
Fig: Planning Process
An organization has to prepare a plan before making any decision related to business operation, or undertaking any project. Plans can be classified into several types based on the use and length of the planning period. Certain plans have short term horizon (prospects) and helps to achieve organizational goalsTwo types of plans in business are designed and implemented depending on the size, scope and nature of the plan being written: standing plans and single-use plans
A standing plan is a business plan that is intended to be used many times. It is designed to guide managerial decisions and actions that tend to be recurring. It is used over a long period, sometimes indefinitely, and is altered as circumstances change. Standing plans include objectives, strategy, policy, procedure, method and rules. Standing plans define actions to take in certain situations or actions that must be completed to accomplish a particular goal.
Examples of standing plans include policies for employee interaction, emergency operations procedures in the event of a companywide disaster, instructions (rules) for reporting internal issues in the company and regulations regarding what is allowable and what is prohibited in the business.
A single-use plan, otherwise known as a specific plan, is used for nonrecurring, one-time situations in business. A single-use plan is meant to solve one particular problem and then be discarded. The single-use plan becomes obsolete after its intended and specific use. The length of a single- use plan differs depending on the project as a single event plan may only last one day (organising an event or a seminar or conference) while a single project may last weeks or months (An advertising campaign for a new product launch).
A single use plan is developed for a one –time event (eg. Plan for Asianet Film Award Night, conference) or projects.
A standing plan is used for activities that occur regularly over a period of time.
Types of Standing Plans
Objectives are the ends toward which activity is aimed. It is the desired future position that the management would like to reach. Objectives are prerequisite for planning. Objectives are expressed in quantitative or measurable terms. Objectives are result oriented not activity oriented.
- An organization may have an objective of increasing sales by 10%
- Reduction in quality rejects from existing 5% to 2%.
- Crossing 30,000 crore marks in sales 2020
- An organization may have an objective of increasing its profit by 10%
A business strategy can be defined as the combination of all the decisions taken and actions performed by the business to accomplish the business goals. It is a comprehensive (complete) plan for accomplishing organisation’s objectives. A business objective without a strategy is just a dream.
Example: Objective is to increase company’s profit by 10%.To achieve this objective, company can adopt strategies like create and launch new products or models, introduce new distribution channels like online sale, select new advertisement media like internet marketing, implement new sales promotion techniques etc.
Policies are the general guidelines for conducting an action. It ensures uniformity in decision making for achievement of predetermined objectives. Policies define boundaries within which decisions can be made. Policy is a standing plan.
The management of Union Bank of India decided to promote employees on the basis of merit only. (Example for policy)
Recruitment Policy (Hiring only university-trained engineers)
Sales Policy (Selling product only on cash basis or only wholesale) Mobile phone policy (Allow in working hours or not)
Payment will be provided for overtime work only if it is allowed by the management.
Procedure is a series of steps, taken together, to achieve a desired result. They are specified in a chronological order. It describes the exact manner in which the work is to be performed. Procedure is necessary to speed up the performance. Procedures are rigid; there is no possibility for deviation. Procedure is a standing plan.
Example-Methods of selecting employees, placement of order, Procedure for selection of employees, procedure to produce a product
A method is the prescribed way in which a task has to be performed considering the objectives. It deals with the best way to perform a particular task. Selection of proper method saves time, money and effort and increases efficiency. Methods are helpful in the simplification, standardization and systematization of work. Method is a standing plan. Example: For the valuation of stock, the organization must decide in advance what method has to be adopted (LIFO or FIFO), different payment options in online purchase etc.
Rules are specific statements that inform what is to be done and what is not to be done.They do not allow any deviations/ flexibility. Rules are made for the purpose of creating discipline in the organization. Rules is a standing plan.
Example: No smoking, no admission without permission, 0using mobile phone during office hours is prohibited
Types of single use plans
Programmes are detailed statements about a project. Programme may be taken as a combination of policies, procedures, rules, tasks, human and physical resources required, budgets etc. The same programme may not be used for achieving other goals.
Example:Programmes for construction of shopping mall,programmes for opening a new department in our business.
Budget is a projection designed to define the anticipated costs and results in numerical terms of single project. Budget is a recorded plan of action expressed in quantitative terms. It may be expressed in time, money or physical units.
It is an instrument of both planning and controlling. Budget preparation involves forecasting; therefore, it comes under planning. Budget is a control device because budget helps to compare actual figures with budgeted figure and take corrective action if necessary.
Example-Cash budget, sales budget
Types of plans in a nut shell
Standing Plan– to deal with situations that can occur again and again
- Objectives– Objectives are the ends toward which activity is aimed.
- Strategy– It is the combination of all the decisions taken and actions performed by the business to accomplish the business goals.
- Policy– Policies are the general guidelines for conducting an action.
- Procedure– Procedure is a series of steps, taken together, to achieve a desired result.
- Method– A method is the prescribed way in which a task has to be performed considering the objectives.
- Rule– Rules are specific statements that inform what is to be done and what is not to be done.
Single Use Plan– It is one-time plan specifically designed to achieve a particular goal.
- Programme– Programmes are detailed statements about a project, includes combination of policies, procedures, rules, tasks, budgets etc.
- Budget– Budget is a projection designed to define the anticipated costs and results in numerical terms of single project.