Management Principles and Application Unit 2 Planning

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Management Principles and Application Unit 2 Planning

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(A) Fill in the blanks:

1. A plan is a trap laid to capture the ____________.

Ans: future.

2. Planning is the determination in ____________ of a line of action.

Ans: advance.

3. Planning is the opposite of ____________.

Ans: improvising.

4. Planning is looking ____________ about the future.

Ans: ahead.

5. Planning is based on some assumptions called ____________.

Ans: premises.

6. Long Range planning covers ____________ year or more.

Ans: five.

7. Short term planning covers ____________ year or less.

Ans: one.

8. ____________ planning is the process of determining overall objectives of the organization.

Ans: strategic.

9. Tactical planning is also known as ____________ planning.

Ans: intermediate.

10. ____________ plan of a company expresses the relationship between the company and its competitive environment.

Ans: Master.

(B) Say True or false:

1. Strategy is an interpretive policy.

Ans: True.

2. Strategy relates only external factors.

Ans: False.

3. Master strategy is also called grand strategy.

Ans: True.

4. Sub-strategy is also called programme strategy.

Ans: False.

5. Objectives or goals are the ends towards which activity is aimed.

Ans: True.

6. Policies are general statements that guide managers’ thinking in decision making.

Ans: True.

7. Procedure is the manual on mechanical means by which each operation is performed.

Ans: False.

8. Method is a series of interrelated sequential steps.

Ans: False.

9. MBO is both philosophy and an approach of management.

Ans: True.

10. MBO is a work-oriented process and not a goat oriented process.

Ans: False.

(c) Multiple Choice:

1. Which of the following is not an feature of MBO

(a) A philosophy.

(b) An Approach.

(c) Periodic Review of Performance.

(d) Work oriented.

Ans: (d) Work oriented.

2. Which of the following is not a feature of decision-making process

(a) Selection of best alternative.

(b) Rational process.

(c) Canal task.

(d) Goal oriented.

Ans: (c) Canal task.

3. Forecasting is the statistical analysis of –

(a) Past.

(b) Present.

(c) Future.

(d) Past and Present.

Ans: (d) Past and Present.

4. Which of the following is the limitation of planning

(a) Future is unpredictable.

(b) Require competing Potentials.

(c) Require effective coordination.

(d) All of above.

Ans: (a) Future is unpredictable.

5. Which is the principle of planning dealing with purpose

(a) Principle of planning premises.

(b) Principle of efficiency plans.

(c) Principle of Timing.

(d) Principle of commitment.

Ans: (b) Principle of efficiency plans.

6. Which of the following principle of planning deals with structure of plans.

(a) Primary principle.

(b) Principle of Limiting factor.

(c) Principle of Timing.

(d) Principle of Commitment.

Ans: (c) Principle of Timing.

7. Principle of Navigational change is the principle of planning deals with –

(a) Purpose.

(b) Structure.

(c) Process.

(d) None of above.

Ans: (c) Process.

8. Which of the following types of planning based on scope.

(a) Long Range Planning.

(b) Master Planning.

(c) Standing Planning.

(d) Tactical Planning.

Ans: (b) Master Planning.

9. Which type of following planning based on level of management

(a) Strategic planning.

(b) Functional planning.

(c) Standing planning.

(d) Short term planning.

Ans: (a) Strategic planning

10. Which of the following is the example of intangible premise

(a) Product market.

(b) Labour force.

(c) Government policy.

(d) Reputation of business.

Ans: (d) Reputation of business.


1. What is planning?

Ans: Planning is the process of defining organization’s objectives and selecting best possible future courses of action for achieving these objectives efficiently and effectively. It may even attempt deliberately to create change. It is a carefully controlled and coordinated activity.

2. What is a premise?

Ans: Management has to take policy decisions based on certain assumptions about the future happenings. Such assumptions are known as planning premises .Planning premises provide a framework for planning and a basis for action in the midst of uncertainties in the environment.

3. What is forecasting?

Ans: Forecasting is a scientific, systematic and logical technique of foreseeing the future eventualities with the help of available information and facts. Forecasting is an intellectual process requiring the exercise of human skill, knowledge and experience. Thus, forecasting is the inference of the future with the help of the data collected regarding past and present.

4. What is M.B.O?

Ans: According to Peter Drucker “Management by objective is regarded as a system for improving performance, both the individuals managers and the enterprise as a whole by setting of objectives at the corporate, departmental and individual manager’s level.” The process of MBO begins with the setting of subordinates’ objectives jointly by the immediate superior and subordinates and ends with the performance appraisal of the subordinates. Managers and their subordinates plan together to set common goals.

5. What is policy?

Ans: Policies are divided from objectives. They are designed to operationalise objectives and hence policies are also known as operational objectives. A policy may be defined as “a guideline that helps in attaining the objectives of the organization.” Policies are the guiding principles to think and act for them who have to make decision.

6. What is strategy?

Ans: A strategy involves preparing oneself for unforeseen and unpredictable events. In other words, a strategy means placing oneself in the position of competitions and seeing one’s own reaction in a similar situation.

Strategy means the long-range approach for dealing with organizations competitive environment with a view to win over competitors in business.

7. What is procedure?

Ans: A procedure is a systematic way of handling regular events. It lays down a series of steps to be taken to do a particular job. According to G.R. Terry, “A procedure is a series of related tasks that make up the chronological sequence and the established way of performing the work to be accomplished.”

8. What is Method?

Ans: Methods are subunits of a procedure; they show clearly as to how a step of procedure should be performed. They indicate the techniques to be employed to make the procedure effective. The primary focus is on finding out the best way of doing a piece of work.

9. What is rule?

Ans: A rule is a very specific and detailed guide to action. It is established to direct or restrict action in a fairly narrow manner. There is no scope for discretion or judgement. Rules must be followed precisely and observed strictly.

10. What is decision making?

Ans: Decision making is a process involving information, choice of alternative actions, implementations and evaluation that is directed to the achievement of certain stated goals. According to George R. Terry “Decision making is the selection based on some criteria from two or more possible alternatives.”

11. What is a strategic plan?

Ans: It is prepared to achieve the overall organizational goals. These plans aim at achieving the strategic goals through effective allocation of resources over different functional areas, in the light of its internal environment. These plans are prepared by the top manager in consultation with board members and middle level managers and generally relate to a period of 3 to 5 years.

12. What is Tactical plans?

Ans: These are the means to support and implement the strategic plans. These are intended to achieve the tactical goals of an organization. These are related to departmental goals. These plans are made by middle level management, in consultation with lower level managers and normally for a period of one to three years.

13. What is an operational plan?

Ans: These are the means to support tactical plans. These are intended to achieve the operational goals of an enterprise. These plans are highly specific and lay down exactly what is expected of different sections of the organization.

14. What is an objective?

Ans: Objectives are the goals or the end results towards which all management activities are directed. Koontz and O’Donnell state that “Objective is a term commonly used to indicate the end point of a management programme” Objectives should be specific and set for different periods.

15. What is action plan?

Ans: The action plan gives directions and ensures unity of purpose of organizational activities. It explains in detail exactly what is to be done, how the subordinate will proceed, what steps will be taken and what activities will be engaged in as the subordinate progresses. It provides a specific answer to the questions: “What is to be done?

16. What is pervasiveness of planning?

Ans. Pervasiveness of planning indicates that planning extends throughout the organization.

17. What are the types of planning?

Ans. In the basis of coverage of activities, planning is corporate and functional planning, on the basis of importance of contents,- strategic and tactical planning, on the basis of time-period long term and short-term planning, on the basis of approach adopted – proactive and reactive planning and on the basis of degree of formulation formal and informal planning.

18. What kind of approach is planning?

Ans. Planning adopts an open system approach. That means planning takes inputs from the environment, processes these and exports outputs to environmental. While adopting open system, managers have to take into account the dynamic features of the environment.

19. What is the basic nature of planning?

Ans. The basic nature of planning may be understood in terms of it being a rational approach, open-system approach and its pervasiveness.

20. What are the types of decisions involved in every organization?

Ans. Decisions are classified as programmed or non-programmed. These are further classified as strategic and tactical decisions.

21. What are the conditions of decision-making?

Ans. Decision-making involves three conditions ranging from conditions of perfect certainty, conditions of risk and conditions of complete uncertainty.

22. What do you mean by Business Environment?

Ans: Business Environment means the surrounding factors which influences the operation of a business. The businessmen consider these factors for their survival and for making reasonable profit out of his business venture.

23. Give six P’s of planning as fundamental requirements.

Ans: The six P’s of planning as fundamental requirements are—

(a) Purpose.

(b) Philosophy.

(c) Promise.

(d) Policies.

(e) Plans.

(f) Priorities.

24. Why planning is called a continuous process?

Ans: Planning is a never ending activity of a manager. Planning is always tentative and subject to revision and amendment, as new facts become known. Even in execution of planning there may be a change in settings and conditions necessitating modification on a somewhat continual basis. Generally, managers follow the practice of re-examining plans regularly and modify them, if necessary, in view of the new situations. In this way it will be possible to heed to new situations and overcome problems. Planning is necessary for situations when things are going well, as well as when troubles are faced. All types of situations require continuous planning.

25. “Planning is an intellectual process”- Comment.

Ans: Planning is intellectual in nature, it is mental work. The facts relevant to the situation are related to the manager’s experience and knowledge. A planner should develop a future course of action to be taken for implementation of plans.

Planning may be an easy task for some while difficult for others, depending upon their capabilities. A planner has to think about the following aspects:

(a) What is to be done?

(b) How is it being done?

(c) When is it to be done?

(d) By whom is it to be done?

A decision on these aspects will depend upon the capability of decision maker. Proper thinking about the practical aspects of various decisions will enable a right choice at the right moment.

26. Write five features of strategic planning.

Ans: The basic features of strategic planning are—

(a) The basic mission and goals of the organization, nature of business and the nature of customers are clearly stated.

(b) Strategic planning is a long term planning.

(c) It provides cohesiveness in company’s policies and activities over a long period.

(d) The more the functions of an organization affected by plans the more the strategic these are.

(e) It is concerned both with the formulation of goals and the selection of the means by which they are to be attained.

27. Briefly mention three needs of strategic planning.

Ans: The three needs of strategic planning are—

(a) Impact of External factors: There are a number of factors, which affect the operations of the business. These factors include international environment, political and government policies, economic trends, technological and social changes. Strategic planning must have provisions for the impact of these situations.

(b) Proper use of Resources: The natural resources are becoming scarce and human resources are changing every day. Strategic planning is needed for procuring these resources and allocating them properly. The traditional work force is giving way to more educated workers. The computers have taken over the routine jobs. The proper use of various resources requires a proper planning on the part of top management.

(c) Ensuring Success: An explosion in information technology has increased the knowledge and better methods of planning. Since strategic planning helps in achieving success, there is a need to undertake it in most of the companies.

28. Mention four distinctions between standing plans and single use plans.

Ans: The four distinctions between standing plans and single use plans are:

(a) Use: Standing plans are repetitive in nature and are used again & again. On the other hand single use plans are specific in nature and are used only for a particular purpose.

(b) Elements: Standing plans are polices, procedures, rules, methods. Single-Use plans are programmes, projects, and budgets.

(c) Purpose: Standing plans are meant to achieve unity and uniformity in action throughout the enterprise.

Single – use plans is meant to solve a specific purpose. It ceases to exist after the purpose is achieved.

(d) Scope: Standing plans are meant to meet a recurring situation. On the other hand single- use plans are meant to tackle a particular situations.

29. Write four features of a policy.

Ans: The following are the features of a policy:

(a) A policy is a standing plan that provides answers to recurring problems of a similar nature. It provides answers/guidelines to the members of an organization for deciding the future course of action. A policy provides and explains what a member should do rather than what he is doing.

(b) A policy limits an area within which a decision is to be taken for the achievement of organizational goals. It avoids repeated analysis of situations and allows delegation of powers and still having control over actions.

(c) Policies are models of thought and principles underlying the activities of an organization. They guide the behavior and decisions of the executive.

(d) Policies are framed by all managers in the organization. There is a need for giving guidelines for future course of action at every level of management. However, the importance of policy differs according to the level of management. At higher level of management important policies are decided while at lower level some less important or minor policies are required.

30. Write five purposes of policies.

Ans: The five purposes of policies are—

(a) The main purpose of policies is to ensure that there is no deviation from the planned course of action. The framework is set within which everybody is expected to work. Policies ensure that the broad guides for action are adhered to.

(b) Since policies chalk out a framework for each and every person, it ensures proper delegation of authority also. A manager knows the extent of authority required by a subordinate to undertake the work allotted to him. Policies serve the purpose of delegating adequate authority downwards.

(c) Policies allow the scope for interpretation. The main aspects are given in a policy but the concerned person decides the actual mode of implementation.

(d) Policies are helpful for future planning also. The impact and influence of policies help in thinking about the future.

(e) Policies also ensure consistency of action. The guidelines are similar for everybody and actions must confirm to the board outlines.

31. Mention five characteristics of decision-making.

Ans: Following are the characteristics of decision making:

(i) Decision-making is based on rational thinking. The manager tries to force various possible effects of a decision before deciding a particular one.

(ii) It is a process of selecting the best from among alternatives available.

(iii) It involves the evaluation of various alternatives available. The selection of best alternative will be made only when pros and cons of all of them are discussed and evaluated.

(iv) Decision-making is the end product because it is preceded by discussions and deliberations.

(v) Decision-making is aimed to achieve organizational goals.

32. Write five differences between programme decision and non-programmed decision.

Ans: Comparison between programmed and non-programmed decisions:

(i) Purpose: These are for solving day-to-day and routine problems and are repetitive in nature.

On the other hand, non-programmed decisions are for solving non-repetitive, tactical or unique problems.

(ii) Base: Rules and procedures are described for taking programmed decisions.

But every decision will have to be taken separately by analyzing and evaluating each problem of non-programmed decisions.

(iii) Period: Programmed decisions remain consistent for a relatively longer period of time and over many situations.

Every decision is different and there is no consistency of non-programmed decisions.

(iv) Scope: Programmed decisions are made for solving both simple and complex problems.

On the other hand non-programmed decisions are for solving complex problems.

(v) Nature: Programmed decisions are of routine nature requiring no judgement.

But non-programmed decisions require judgement in each case.

33. What are the difference between strategic decisions and Tactical decisions?

Ans: The differences between strategic decisions and tactical decisions are—

(i) Level of formation: Strategic decisions are taken at top management.

On the other hand tactical decisions are taken at lower level of managers.

(ii) Period: Strategic decisions are important and have long-term implications.

But Tactical decisions have short-term implications.

(iii) Relations: Strategic decisions are related to the growth, development and profitability of the organization.

On the other hand tactical decisions are concerned with simple, routine and repetitive problems.

(iv) Requirement: More judgement and skill is required for taking these decisions.

But tactical decisions are taken with reference to predetermined rules and procedures and require less judgement.

34. Differentiate between strategic and operative planning.

Ans: Strategic and operative planning differ from each others in the following respects:

(i) Duration: Strategic planning is for a longer duration, it can be said that more the duration of a plan, more strategic it is. Operational planning is concerned with short-term plans.

(ii) Scope: Strategic planning is broad in scope while operational planning is not strategic learning guides the choice among the broad directions while operational planning focusses on the ways and means to attain goals.

(iii) Environment: Strategic planning takes into account external environment and tries to relate it to the organization.

Operative planning is concerned with internal organizational environments so as to make effective use of resources.

(iv) Primary: Strategic planning proceeds operational planning, the former setting the trends and direction of the organisation while the latter implements what has been decided by the former.

35. What are the characteristics of a good plan?

Ans. A good plan consists of the following features—

(i) Clear objective: A good plan should be based on clearly defined objectives. If the objectives are not clear, there will be confusion.

(ii) Proper Understanding: The implementation of a plan depends upon the proper understanding by those who are to execute it.

(iii) Comprehensive: The plans should be comprehensive and should cover each and every aspect of the business.

(iv) Flexible: A plan should be flexible and should be able to keep pace with the changes coming up.

(v) Economical: The cost involved in preparing a plan should be as economical as possible and so should be the cost envolved in executing it.

36. What are the features of decision-making?

Ans. The features of decision-making are—

(i) Decision-making is based on rational thinking. The manager tries to foresee various possible effects of a decision before deciding a particular one.

(ii) Decision-making is aimed to achieve organizational goals.

(iii) It is the process of selecting the best from among the alternatives.

(iv) It involves the evaluation of various alternatives available.

(v) It is basically the end product as it is precluded by discussions and deliberations.

(vi) It involves certain commitment. It is committed to every decision it takes.

37. Specify few problems in decision-making.

Ans: The problems in decision-making are:

(i) Correctness of Decisions: Whether decisions taken are correct or not is the first problem faced by management. If proper facts and figures are not available then decision will be based on wrong premises.

(ii) Timing of Decision: Timing of decisions is another problem faced by management. It is important to take decision at appropriate time.

(iii) Effective communication of Decisions: It is very important that the decisions are communicated well otherwise they will be vain.

(iv) Participation in decision-making: Basically decision-making power is given at the top level alone, this creates problems. However if this power is distributed shared by all, then there will be no problems in decision-making.

38. What is formal and informal planning?

Ans. Formal planning is the form of well-structured process involving different steps. Generally, large organisations undertake planning in a formal way in which they create separate corporate planning cell placed at sufficiently high level in the organization. Generally such cells are staffed by people with different backgrounds.

Informal planning is undertaken generally by smaller organizations. The planning process is based on managers memory of events. Intuitions and get feelings rather than based on systematic evaluation of environmental happenings.

39. What are the chief measures for making planning effective?

Ans. The measures for making planning effective are as follows:

(i) Establishing climate for planning: First of all there should be an environment and climate for planning where every person in the organization takes planning action.

(ii) Initiative at top level: Planning to be effective must be supported by top management. It is the top management which is responsible for success or failure of an organizational process.

(iii) Participation in planning process: Top management can initiate planning process by providing goes and planning premises, effective planning can take place by the participation of subordinate managers.

40. What are the chief features of planning?

Ans. Following are the chief features of planning:

(i) Planning is a process rather than a behaviour at a given point of time. This process determines the future course of action.

(ii) Planning is concerned with looking into future.

(iii) Planning involves selection of suitable course of action. It means that there are a number of alternatives for achieving a particular objective or set of objectives.

(iv) Planning is undertaken at all levels of the organization.

(v) Planning is flexible as commitment is based on future conditions which are always dynamic.

(vi) Planning is a pervasive and extends through out the organization.

41. What is the Difference Between Short Term Planning and Long Term Planning?

Ans: Short term planning is conducted for immediate or short term concern, and its outcome is expected in less than one year’s time. On the other hand, long term planning drives the company in a strategic direction where the stability of the company and long term goals are evaluated in the projected future. So, this is the key difference between short term planning and long term planning.

Generally, in short term planning, the company focuses on the prevailing situation of the business, especially in terms of internal issues. Some of these may include lack of training, customer complaints, high rejection rates, drastic management changes etc. Thus, the work out a mitigation plan where they can see the actions within a limited time span. However, in long term planning, the company focuses on both external and internal issue that might have an impact on the business. These external issues may involve political situation prevailing in the country, global economic changes etc. Therefore, we can consider this also as a major difference between short term planning and long term planning. Besides, short term goals are very straightforward, but long term goals are complex and much more tactical.

42. Write three characteristics of business environment.

Ans: The three characteristics of business environment are as follows:

(i) Totality of external forces: The environment of a business firm is the sum total or aggregate of all forces external to it.

(ii) Dynamic: Business environment is dynamic in nature. It keeps on changing because of continuous changes in the demands of the forces such as investors, customers, labour etc.

(iii) Uncertainty: Business environment creates uncertainty for the business firm. It is very difficult to predict environment in future.


1. What is planning? Explain the different characteristics of planning.Describe the various principles of planning.

Ans: Planning is the primary function of management. Planning concentrates on setting and achieving objectives through optimum use of available resources.  Planning is necessary for any organization for its survival, growth and prosperity under a competitive and dynamic environment. 

The following characteristics of planning clearly explains its nature:

(a) Primary or basic function: Planning is the primary or basic management function. It is primary because it is the foundation on which all other managerial function rest. In other words, planning precedes all the other managerial functions. It sets the stage for execution of all other managerial functions. Terry has very highly stated that “without planning, there would be nothing to organize, no one to motivate, and no need to control.”

(b) Pervasive function: Another important feature of planning is that it is an all-pervasive function. Each and every manager has to perform this function regardless of his

(i) level. and 

(ii) area of operation.

Koontz and O’ donnell have here rightly remarked that “all managers – from presidents to foremen – plan. And planning must filter through the entire scope of management, from top to bottom.”

(c) Purposeful: Planning is purposeful or goal-oriented. Planning begins with some goal or objective that an organization wishes to achieve. Every manager plans to achieve the goal. And all the managers plan to contribute to the achievement of organization’s goal.

(d) Interdependent activity: It is true that planning is a primary and basic function of management. Planning is done while taking into consideration all other functions of managers. However, it is an interdependent activity. Moreover planning in one department is dependent on the planning of other department.

(e) A process: Planning is a process. In this process, managers anticipate future by analyzing environmental factors set goals or objectives, formulate plans to achieve the objectives.

(f) Planning is a path finding process: Planning is a path finding process. It is the process by which answers to following questions are discovered –

(i) Where are we now?

(ii) Where we want to go?

(iii) How to reach to the destination?

Planning bridges the gap between the places who we are and where we want to go. Planning is concerned with finding out the means/paths to reach from one place to another.

(g) A continuous process: Planning is a continuous and never-ending process. It does not end with the accomplishment of a particular objective. After achieving one objective, manager is to achieve the others. Therefore, the planning process goes on forever during the life of an organization.

(h) Dynamic process: Planning is a dynamic process. It is the process of adjustments and readjustments in accordance with the current and anticipated future situations. A manager constantly monitors the conditions, both within and outside the organization to determine the changes required in his plans. (Weihrich and Koontz)

(i) Intellectual process: Planning is regarded as an intellectual process. It requires managers to think intelligently and rationally before doing. It demands managers to act in the light of facts and to do the things in orderly manner.

(j) Futuristic: Planning is future oriented. Every plan is prepared by anticipating and considering future events, opportunities, challenges, threats etc. Moreover, every plan is prepared to face and win over the future challenges and threats.

(k) Time bound: Planning is always time bound. Planning may be short-range or medium-range or long-range. However, the long-range planning is the basis of short-range and medium range planning.

(l) Planning involves decision-making: Planning involves decision-making. It is a process of selecting one best course of action out of the available alternatives. Moreover, planning is the process of evaluating effects of today’s decision on future.

(m) Planning and controlling are inseparable: Planning and controlling are inseparable functions. They are two sides of the same coins. Any attempt to control without plans is meaningless. Plans furnish the standards against which actual performance is measured and controlled.  (Weihrich and Koontz)

(n) Forecasting is the basis of planning: Planning is more essential than forecasting. Forecasting is the process of predicting future environment. Planning is essentially based on forecasts. It is an activity prior to planning.

Weihrich and Koontz have suggested the following principles of planning:

(a) Principle of contribution to objectives: The principles state that the purpose of every plan and supporting plan must contribute to the accomplishment of the organizational objectives.

(b) Principle of Objective: This principle states that objectives of planning should be clear, attainable and verifiable. Ambiguous objectives are meaningless and useless for effective planning.

(c) Principle of primary planning: Planning must logically proceed. all other managerial functions i.e. organizing, directing and controlling. Execution of all other managerial functions must be dependent upon the planning function.

(d) Principle of efficiency of plans: This principle stresses that planning should be efficient. The cost of plans should not exceed their contribution.

(e) Principle of planning premises: This principle emphasizes the need for consistent planning premises. Planners should, therefore, thoroughly understand and utilize the planning premises. It will help planners in making more coordinated and effective planning.

(f) Principle of strategy and policy framework: This principle states that planner should clearly understand the strategies and policies of the enterprise. A clear understanding and implementation of these will help in creating an effective framework of plans. This will ultimately, help in effective implementation of the plans.

(g) Principle of limiting factor: A limiting factor is one, which creates problems in the way of achieving predetermined objectives. This principle states that planner must recognize and solve the limiting factors in order to formulate effective plans. If the planners can recognize and solve the limiting factors accurately, their chosen course of action will be the most effective. It may be noted that the principle of limiting factor is the essence of decision-making.

(h) Principle of commitment: The commitment principle states that planning should cover the period of time in future which is necessary to fulfill the commitment involved in the plan.

(i) Principle of flexibility: The principle of flexibility deals with the ability to change as and when needed. This principle states that plans should be flexible. Flexibility allows a manager to adjust the plans according to changing situations. This in turn, will reduce the danger of losses incurred through the unexpected events. However, cost of flexibility should not exceed its advantages.

(j) Principle of navigational change: This principle states that a manager is like a navigator of a ship in Ocean, must constantly check and monitor the conditions and change the plans as required by the changed conditions. In other words, a manager must constantly monitor and review the conditions affecting the plans and redraw the plans if required by the changed conditions.

In addition, following are the some other important principles of planning.

(k) Principle of pervasiveness: This principle states that planning should be done by all the managers irrespective of their level in the organization. However the managers at higher levels are more concerned with the strategic or long-range planning whereas the managers at lower levels are concerned with the short-term planning.

(l) Planning coordination: This principle stresses that all the plans of an organization should be coordinated. Long-range and the short-range plans should be integrated. Plans of different functional departments should also be integrated. The components of planning i.e. policies, procedures, rules, methods, programmes, budgets etc. should be mutually consistent. They should also contribute to coordinated effort in achieving the objectives.

(m) Principle of timing: This principle states that all the major and derivative plans should be synchronized as to the timing of their implementation. The timing in initiation and completion of all these plans should be arranged in such a manner that the overall plan is completed at the predetermined time.

(n) Principle of participation/acceptance: This principle stresses that the plans should be acceptable to all concerned in the organization. This is possible only when proper participation is given to all concerned in the planning process. Therefore, planning should start at the ‘grass-root’ level or at the lowest level. Then higher-level plans should be integrated with the lower level plans.

(o) Principle of competitive strategies: This principle states that planner should keep in view the strategies of competitors in the industry. This may give a competitive edge to the organization over the others.

2. Discuss the importance of planning. What are the essentials of an effective planning?

Ans: Planning is the most important and fundamental function of management. It precedes the execution of all other managerial functions. Moreover, planning is essential for effective performance of all the other functions of management. No organization can effectively utilize its resources without effectively planning. The importance or benefits of planning is briefly stated in the ensuring points —

(a) Helps define objectives: Establishing objectives is the first step in planning. Therefore, planning helps establish clear-cut and tangible objectives of the organization as well as of the each of its individual and department. Thus, every one in the organization becomes aware of his objectives. Every one may know where he is and where he is to go.

(b) Helps achieve objectives: Planning is the process of deciding courses of action to achieve the objectives. Thus, planning shows the rational path or way to attain the objectives. It prevents organization members drifting and working at cross-purposes.

(c) Reduces uncertainty: Planning involves the systematic forecasting of future events, trends and risks. The managers can, therefore, foresee the amount of uncertainty and risk involved in any business activity. Hence, they can better manage the uncertainty and reduce its impact on their organization.

(d) Prepares for change: No one can prevent change. But planning can prepare managers to face and cope with the change. It is because planning forces managers to foresee future, anticipate change and its impact and develop appropriate strategies to respond to the change suitably. Thus, planning enables managers to avoid tendency to let thing run down to waken to opportunities and to see things as they might be not as they are (Ferry and Franklen).

(e) Helps capitalize opportunities: In a dynamic environment opportunities and threats go hand in hand. Through sound planning managers try to search most suitable opportunities and capitalize on them.

(f) Help optimum utilization of resources: Planning helps in achieving optimum utilization of resources of an enterprise. Sound planning provides a logical basis of allocation of different resources among various plans and activities. Sound policies, procedures, methods, rules etc. ensure optimum utilization of resources.

(h) Provides competitive Strength: Planning enables a company to remain competitive. In fact, through planning a company may systematically add new lines of products, expand the plant capacity, change the method of work, and change the product quality and style. Such activities are the key to remain competitive in the industry.

(i) Facilities cooperation and coordination: Planning facilitates cooperation and coordination in an organization with the help of well defined objectives, policies, procedures, rules, methods etc. Every one knows where the organization is going and what they must contribute to reach the objective of the organization. Consequently managers can easily coordinate their activities and seek co-operation of each member (Robbins & coulter).

(j) Facilitates decentralization and delegation: Sound Planning ensures proper policies, procedures, methods, rules, programmes etc. in place. This facilitates decentralization and delegation of authority because managers are sure that the subordinates will exercise the authority according to the plans.

(k) Provides criteria for decision-making: The different elements of planning provide sound criteria for making decisions. These serve as a basis of uniform and unbiased decisions. These elements of planning guide all and sundry in making decisions in the organization. These elements provide a framework within which every one can make decisions with freedom and autonomy.

(m) Provides a basis of control: Planning is regarded as the twin of controlling. It ensures timely performance as per standards. Various types of plans or elements of planning serve as standards of performance as well as the deadlines for start and completion of activities. Thus, planning serve as a basis of control.

(n) Motivates employees: Plans, spell out goals as well as reward. Employees, therefore, tend to accomplish the goals in order to get the reward. They are inspired to work more and better to get the reward. Thus, planning motivates employees.

(o) Encourages innovation and creativity: Sound planning encourages innovation and creativity in the organization. It is so because good planning has scope for growth and development of an organization and its employees. One expert has rightly stated, “good planning process will provide avenues for individual participation, and will throw up more ideas about the company and its environment.” (D.E. Hursey).

Planning is essential and most important function of management. The need is to make it more effective. Planning or a plan can be more effective if the following factors are taken into consideration:

(a) Well-defined objectives: Well-defined objectives are the foundations of effective planning. Therefore, every plan should be based on well-defined objectives. Moreover the objective should be clear, concise and accurate.

(b) Simple and easy to understand: Planning proves more effective when plans are simple and easy to understand.

(c) Comprehensive: A sound plan should always be comprehensive. It should cover each and every aspect and action necessary for accomplishment of the objectives.

(d) Flexible: A plan should be flexible. It should be capable of being modified and adjusted to meet the changed conditions. However, the cost of flexibility should not exceed its benefits.

(e) Balanced: A sound plan is one that is well balanced. There should be a balance between objectives and resources in a plan. Moreover, balance should also be maintained between long-range and short-range plans.

(f) Economical: A good plan is one that achieves the objectives at a minimum possible cost. Therefore, cost involved in formulating and implementing a plan should be reasonably economical. It must justify in terms of its cost and benefits.

(g) Stable: A good plan should reasonably be stable in the usual business conditions. It should not require extensive changes and modifications merely because of changes in the long-term trend of the external environment of business. (W. Haynes)

(h) Continuity: Planning should have continuity. It means that new plan should have link and continuity with the existing plan. Every plan should be made in continuity of the earlier plans.

(i) Unity: There should be a unity in planning. As far as possible, all managers should operate under one overall plan at one time. However, subsidiary and contingency plans may be prepared for the accomplishment of the overall plan.

(j) Consistency: Efficiency of a plan depends upon its consistency. Therefore, every plan should be consistent with other departmental plans.

(k) Participation: A plan should be prepared with effective participation of all concerned. A manager should seek participation in the planning process of all those who are to implement the plan.

3. What are the various limitations of planning? Discuss briefly the steps involved in the planning process.

Ans: The main limitations of planning are discuss below:

(a) Ambiguous objectives and plans: Sometimes, established objectives and the plans to achieve them are ambiguous. Ambiguity may even arise when these are expressed in qualitative or intangible forms. In such cases, planning cannot succeed.

(b) Lack of reliable facts and information: Sometimes, planning is based on unreliable facts and information. If reasonably reliable facts and information are not available, planning is bound to fail.

(c) Inaccurate premises: Every plan is based on certain premises or assumptions. They must be accurate today and must remain accurate during the plan period. But sometimes, the assumptions remain no more valid and accurate during the implementation phase due to the change in conditions. Consequently, the value of the plan is lost.

(d) Stifles initiative: Another limitation of planning is that it may stifle initiative of members of organization for at least two basic reasons:

(i) The members are bound to work within the framework of policies, procedures, methods, rules etc.

(ii) Absence of proper reward or motivation system in the plans. Consequently, organization members instead of helping may hinder in planning.

(e) Rigid philosophy or lack of pragmatism: Some managers are very rigid to their philosophy of management. They become accustomed to do a job in a particular way. Thus, they lack pragmatism. They do not want to change their planning patterns in light of the changing situations. Therefore, their planning and plans may be idealistic but not pragmatic and practicable. Consequently plans serve no purpose.

(f) Resistance to change: Planning involves change in goals expectations, working patterns etc. And managers as well as employees have a tendency to resist change. They usually feel discomfort in status quo. Thus, the planning tends to lose its significance.

(g) Inflexibility of existing objectives and plans: Sometimes, the existing objectives and plans are found inflexible. Therefore, it becomes very difficult to make necessary changes in them. Thus, they become obstacles in further planning. Therefore, managers are bound to develop stereotype plan and do not change the existing planning system.

(h) Lack of planning skills: Planning is an intellectual and creative process. It needs conceptual, technical, human, and forecasting skills. But all managers are not equally intelligent and able to think in advance and conceive a sound plan. Moreover, some managers by their nature and temperament are doers rather than thinkers. Therefore, they fail to plan effectively.

(i) Biased mangers/ bosses: Every manager does not always behave rationally and objectively. Even planning is affected by the likes, dislikes, preferences, personal interests etc. of the managers or bosses. Hence, planning cannot serve the organizational purpose effectively and lose their utility.

(j) Failure to integrate with other functions: A sound planning system and plan fails because the manager fails to integrate planning function with other functions of management. If planning function is not effectively implemented, directed and controlled it is likely to fail miserably.

Planning is an intellectual process. This process consists of many steps. But it is very difficult to specify the exact number of steps in a planning process. Weihrich ad Koontz, and Richard T. Case have described six steps whereas Terry and Franklin have suggested eight steps in a planning process. However, an ideal planning may consist the following steps:

(a) Environment scanning: This is the step, which precedes planning. It is therefore, not strictly a part of the planning process. But this step is essential for sound planning. At this step, managers should scan the external as well as the internal environment of the organization. They look at the possible future opportunities and threats for them in the environment. Then they evaluate them in the light of their strengths and weaknesses. This process is known as SWOT analysis. This whole exercise will help them to understand what they can do. This will initiate the planning process.

(b) Setting objectives: The next step in the process is to set objectives. Initially, objectives are set for the entire organization. Then objectives are set for each and every department or key areas of the organization. The objectives should be set for the long-term as well as for the short-term.

(c) Establishing planning premises: The next step in a planning process is to establish planning premises. Planning premises are the assumptions about the future environmental conditions of the organization. These are the assumed conditions in which plan is to be executed.

All the managers should develop the planning premises. However, the premises should be limited to critical or strategic factors to a plan. Moreover, all the managers must agree on the premises and understand them well. The more thoroughly they understand and agree the planning premises, the more coordinated planning would be (Weihrich and Koontz)

(d) Searching alternatives: An analysis of the environment and the firm’s capabilities helps a firm determine the various strategic alternatives available to it. Some of these alternatives could be: to explore new markets; to redesign important products to improve their quality or reduce costs; or, to invest in promising sectors. A limited number of alternatives may be generated if only a minor change in the existing strategy is required. But if a totally different strategic approach is required, then more alternatives must be identified.

(e) Evaluating the alternatives: The next step is to evaluate the alternatives. The evaluation should be based on many factors such as the investment and risk involved, availability of resources, expected payback period, planning premises, the objectives of the organization etc. Planners may use scientific tools and techniques in evaluating the alternatives.

(f) Selecting the most appropriate alternative or plan: After evaluating different alternatives, planners select the most appropriate alternative course of action i.e. plan. Sometimes planners select two or more plans rather than one. The selection is made in the light of objectives and planning premises.

(g) Formulating derivative plans: Once a plan is selected, managers need to formulate derivative or supporting plans. These plans must be coordinated with the basic or overall plan. These plans are necessary to implement and support the basic plan.

(h) Budgeting i.e. committing resources: The next logical step is the budgeting or committing the resources necessary for plans. At this stage, basic and derivative plans are translated into budgets. In other words, the plans are reduced to quantitative terms or more specifically to monetary terms. The statements of income (output) and expenses (inputs) of all the plans are prepared. Thus, the management commits resources necessary for implementation of plans. This establishes a framework for implementation of plans.

(i) Implementing the plans: Finally plans are implemented. Implementation requires managers to perform the three management functions i.e. organizing, directing and controlling. Managers prepare the organization structures. They assign the task and responsibilities and ensure timely supply of needed resources. They communicate and explain plans to the people’s responsibilities for their implementation. They also direct, motivate and provide leadership for effective implementation of the plans.

(j) Follow-up-action: The last step in the planning process relates to follow-up action. This step is mainly related to the controlling function of management. At this stage, planners regularly monitor the progress of the plan under implementation and they need to identify its weakness and limitations.

4. Discuss the different types of planning. Discuss the various components of planning.

Ans: Any organization can have different plans. We can classify the types of plans in the following ways:

On the basis of Nature

(a) Operational Plan: Operational plans are the plans which are formulated by the lower level management for a short term period of up to one year. It is concerned with the day to day operations of the organization. It is detailed and specific. It is usually based on past experiences. It usually covers functional aspects such as production, human resources, etc.

(b) Tactical Plan: The tactical plan is the plan which is concerned with the integration of various organizational units and ensures implementation of strategic plans on day to day basis. It involves how the resources of an organization should be used in order to achieve strategic goals. The tactical plan is also known as a coordinative or functional plan.

(c) Strategic Plan: A strategic plan is a plan which is formulated by top-level management for a long period of time of years or more. They decide the major goals and policies to achieve their goals. It takes in a note of all the external factors and risks involved and makes a long-term policy of the organization. It involves the determination of strengths and weaknesses, external risks, missions, and control systems to implement plans.

On the basis of the Managerial Level

(a) Top-level Plans: Plans which are formulated by general managers and directors are called top-level plans. Under these plans, the objectives, budget, policies, etc. for the whole organization are laid down. These plans are mostly long term plans.

(b) Middle-level Plans: The managerial hierarchy at the middle level includes the departmental managers. A corporation has many departments like the purchasing department, sales department, nance department, personnel department, etc. The plans formulated by the departmental managers are called middle-level plans.

(c) Lower level Plans: These plans are prepared by the foreman or the supervisors. They take the existence of the actual work and the problems connected with it. They are formulated for a short period of time and called short term plans.

On the basis of Time

(a) Long Term Plan: The long-term plan is the long-term process that business owners use to reach their business mission and vision. It determines the path for business owners to reach their goals. It also reinforces and makes corrections to the goals as the plan progresses.

(b) Intermediate Plan: Intermediate planning covers 6 months to 2 years. It outlines how the strategic plan will be pursued. In business, intermediate plans are most often used for campaigns.

On the basis of Use

(a) Single Plan: These plans are connected with some special problems. These plans end the moment of the problems to be solved. They are not used, once after their use. They are further re-created whenever required.

(b) Standing Plan: These plans are formulated once and they are repeatedly used. These plans continuously guide managers. That is why it is said that a standing plan is a standing guide to solving the problems. These plans include mission, policies, objectives, rules, and strategy.

The main components or elements of planning are as follows—

(a) Objectives.

(b) Strategies.

(c) Policies.

(d) Procedures.

(e) Methods.

(f) Rules.

(g) Standards.

(h) Programmes.

(i) Schedules.

(j) Budgets.

(k) Projects. and

(l) Tactics.

(a) Objectives: Objectives are the desired results that an organization wants to achieve within a specific period of time. They are the end points towards which activities and energies are directed. It is the destination where an organization wants to reach.

It may be noted that the terms purpose, mission, goal and objectives are often used interchangeably.

(b) Strategies: The term strategy means the long-range approach for dealing with the organizations competitive environment with a view to win over competitors in business.

The purpose of Strategy is to provide directional cues to the organization to achieve its objectives. It furnishes a framework for thinking and action to achieve objectives.

(c) Policies: Policies are guidelines in decision-making. In the words of Weihrich and Koontz, ‘policies also are plans”. They further state that ‘Policies are general statements or understandings that guide or channel thinking in decision-making.”

Thus policies are the guidelines set to provide direction in decision-making. These set the boundaries around which decisions are made.

(d) Procedures: A procedure is a chronological sequence of steps or actions to be taken to accomplish a specific task or job. It lays down a standard path to accomplish a job.

(e) Method: A method is a prescribed way of completing a step in a procedure. Thus, method relates to a step in the procedure. It is a component part or sub-unit of a procedure.

(f) Rules: Rules are definite recorded directions to do or not to do certain things in a given situation. It may be noted that rules are the ultimate directions allowing no room for discretion.

In the words of Robbins and Coulter, “A rule is an explicit statement that tells a manager what he or she ought to or not ought to do.”

(g) Standards: A standard is a measure against which the level of performance is measured or evaluated. A standard is a basis of control. It may be in quantitative and qualitative terms as well. However, a standard, as far as possible, should be in quantitative terms or verifiable.

(h) Programmes: Programme is a precise plan consisting of sequence of steps that are required to be taken in order to accomplish a given task. Thus, a programme is an action plan consisting sequence and timing of steps necessary to achieve objectives. It covers all actions necessary for achieving objectives. It also indicates the persons responsible for performing the actions. It is usually supported by budgets.

(i) Schedules: A schedule is an operational plan. A schedule is a plan which indicates the time of

(i) Commencement of task.

(ii) Passing through the different stages or processes. and

(iii) finalizing the task.

Thus, schedule sets the time for start and completion of a task and its sub-processes.

(j) Budgets: A budget is a numerical or quantitative plan. Weihrich and Koontz state that “a budget is a statement of expected results expressed in numerical terms.”

Thus, a budget is a numerical plan containing expected results in quantitative numerical terms i.e. rupees, number of units, human hours and so on.

(k) Projects: A project is a special action plan, which forms a distinct part of a programme.

Thus, a project is a smaller action plan and a distinct part of a programme. Its scope is narrower than that of a programme but contains specific directives with regard to the assignment of tasks and time of their completion.

(l) Tactics: A tactics is a short-term action plan for implementing strategies. These are narrower plans for dealing with some particular small problems that arise in the implementation of long-range plans.

5. Write the Key Differences Between Tactics and Strategy Planning.

Ans: The following are the major differences between tactics and strategy:

(i) Tactics are the properly organized actions that help to achieve a certain end. The strategy is the integrated plan that ensures the achievement of organization objectives.

(ii) Tactics is a subset of strategy, i.e. without the strategy, tactics can do nothing.

(iii) Tactics try to find out the methods through which strategy can be implemented. Conversely, Strategy is a unified set of activities that can help the organization to gain an advantageous position.

(iv) Tactics are formulated by middle-level management, whereas top level management formulates a strategy.

(v) Tactics involve lower risk as compared to strategy.

(vi) Tactics are preventive in nature while Strategy is competitive in nature.

(vii) Tactics are defined as a trip, i.e. typically for a short duration, but the strategy is a journey that lets the company travel from one position to another. Hence it is for a long duration.

(viii) Tactics frequently change with the changes in the market conditions; however, the strategy remains same for a long period.

(ix) Tactics have a reactive approach, unlike strategy.

(x) Tactics are made for coping with the present situation. In contrast to strategy, they are made for future.

6. Distinguish between, Objectives and policies.


(a) AimObjectives determine the final goal of the enterprise.Policies are framed to achieve objectives efficiently.
(b) Level of ManagementObjectives are determined by the owners or the top level management.Policies are determined by top, middle and Lower level of management.
(c) WhatObjectives determine what is to be done.Policies decide how the work is to be done.
(d) HowObjectives decide the way in which a specific job to be done.Policies decide the procedures to be adopted for completion of the job.

7. What do you mean by Strategic planning? Write its features. Explain the Process of Strategic Planning in detail.

Ans: Strategic planning means planning for strategies and implementing them to achieve organizational goals. Strategic planning helps in knowing what we are and where we want to go so that environmental threats and opportunities can be exploited, given the strengths and weaknesses of the organisation. Strategic planning is the process of determining a company’s long-term goals and then identifying the best approach for achieving those goals.

The following are the salient features of strategic planning:

(a) Process of Questioning: It answers questions like where we are and where we want to go, what we are and what we should be.

(b) Time Horizon: It aims at long-term planning, keeping in view the present and future environmental opportunities. It helps organizations analyze their strengths and weaknesses and adapt to the environment. Managers should be farsighted to make strategic planning meaningful.

(c) Pervasive Process: It is done for all organizations, at all levels; nevertheless, it involves top executives more than middle or lower-level managers since top executives envision the future better than others.

(d) Focus of Attention: It focuses organization’s strengths and resources on important and high-priority activities rather than routine and day-to-day activities. It reallocates resources from non-priority to priority sectors.

(e) Continuous Process: Strategic planning is a continuous process that enables organizations to adapt to the ever-changing, dynamic environment.

(f) Coordination: It coordinates organisations internal environment with the external environment, financial resources with non- financial resources and short-term plans with long-term plans.

The process of strategic planning consists of the following steps:

(a) Determination of Mission and Objectives: Strategic planning starts with the determination of the mission for the organization. The principal objectives for which the organization has been set up should be clearly defined. Strategic planning is concerned with an organization’s long-term relationship to its external environment. So, the business mission should be fixed in terms of social impact of the organization.

(b) Environmental Analysis: In order to identify the opportunities and threats, the external environment of the organization is analyzed. A list of important factors likely to affect the organization’s activities is prepared.

(c) Self-appraisal: In the next step, the strengths and weaknesses of the organization are analyzed. Such an analysis will enable the enterprise to capitalize on its strengths and to minimize its weaknesses. The enterprise can utilize the external opportunities by concentrating on its internal capacity. By matching its strengths with the environmental opportunities, an enterprise can face competition and achieve growth.

(d) Strategic Decision-making: Strategic alternatives are then generated and evaluated. After that, a strategic choice is made to reduce the performance gap. The organization must select the alternative that is best suited to its capabilities. For instance, in order to grow, an enterprise may enter into new markets or develop new products or sell more in the present markets. Choice of strategy depends upon external environment, managerial perception, the managers’ attitude towards risk, past strategies and managerial power and efficiency.

(e) Strategy Implementation and Control: Once the strategy is determined, it must be translated into tactical operational plans. Programmes and budgets are developed for each function. Short term operational plans are prepared to use the resources. Control should be developed to evaluate performance as the strategy is put into use.

Wherever actual results are below the expectation, the strategy should be reviewed or reappraised. It must be modified and adapted to the changes in the external environment.

8. Explain the Advantages and Disadvantages of Strategic planning.

Ans: Strategic planning offers the following benefits:

(a) Financial Benefits: Firms that make strategic plans have better sales, lower costs, higher EPS (earnings per share) and higher profits. Firms have financial benefits if they make strategic plans.

(b) Guide to Organizational Activities: Strategic planning guides members towards organizational goals. It unifies organizational activities and efforts towards the long-terms goals. It guides members to become what they want to become and do what they want to do.

(c) Competitive Advantage: In the world of globalisation, firms which have competitive advantage (capacity to deal with competitive forces) capture the market and excel in financial performance. This is possible if they foresee the future; future can be predicted through strategic planning. It enables managers to anticipate problems before they arise and solve them before they become worse.

(d) Minimises Risk: Strategic planning provides information to assess risk and frame strategies to minimize risk and invest in safe business opportunities. Chances of making mistakes and choosing wrong objectives and strategies, thus, get reduced.

(e) Beneficial for Companies with Long Gestation Gap: The time gap between investment decisions and income generation from those investments is called gestation period. During this period, changes in technological or political forces can disrupt implementation of decisions and plans may, therefore, fail. Strategic planning discounts future and enables managers to face threats and opportunities.

(f) Promotes Motivation and Innovation: Strategic planning involves managers at top levels. They are not only committed to objectives and strategies but also think of new ideas for implementation of strategies. This promotes motivation and innovation.

(g) Optimum Utilisation of Resources: Strategic planning makes best use of resources to achieve maximum output.

Following are the limitations:

(a) Problems of Change: The factor works more as limiting factor in the light of changes in future conditions. In a complex and rapidly changing environment, the succession of new problems is often magnified by implications that make planning most difficult. The problem of change is more complex in long-range planning.

(b) The process is very complex: Strategic planning process consists of many steps that are connected to each other and must be constantly adjusted. Some unexpected factors also appear that may change the whole strategy and as a result, strategic planning process.

(c) Low rate of successful implementation: Due to its complexity and heavy commitment to strategic goals, strategic planning is rarely implemented successfully. Often, the poor implementation is the reason for failure, although it is more often the case of misaligned operational and strategic goals.

(d) Inflexibilities: Manager while going through the strategic planning process have to work in a set of given variables. These variables may be more in terms of organizational or external. These often provide considerably less flexibility in planning action.

(e) Lack of Accurate Information: The first basic limitation of strategic planning is the lack of accurate information and facts relating to future. Planning concerns future activity and its quality will be determined by the quality of forecast of future events. As no manager can predict completely and accurately the events of future, the planning may pose problems in operation.

(f) Time and Cost: While going through the strategic planning process managers should also take into account both time and cost factors. The various steps of planning may go as far as possible because there is no limit of precision in planning tools. But planning suffers because of time and cost factors.

Time is a limiting factor for every manager in the organisation on, and if they are busy in preparing elaborate reports and instructions beyond certain level, they are risking their effectiveness. Excessive time spent on securing information and trying to fit all of it into a compact plans is dysfunctional in the organization.

(g) Rigidity: Often people feel that planning provides rigidity in managerial action. Many types of internal inflexibilities, may be results of planning itself. The planning stifles employee initiative and forces managers into rigid or straitjacket mode of executing their work. In fact, rigidity may make managerial work more difficult than it need be. This may result in it delay in work performance, lack of initiative, and lack of adjustment with changing environment.

(h) Failure of People: There are many reasons why people fail in planning, both at the formulation level as well as implementation level. Some of the major failures are lack of commitment to planning, failure to. develop, sound strategies, lack of clear and meaningful objectives, tendency to overlook planning premises, failure to see the scope of the plan, failure to see planning as a rational approach, excessive reliance on the past experience, failure to use the principles of limiting factors, lack of top management support lack of delegation of authority, lack of adequate control techniques, and resistance to change.

These factors are responsible for either inadequate planning or wrong planning in the organizations concerned.

9. Distinguish between policy and Strategy.


(i) MeaningPolicies are guidelines which facilitate the achievement of predetermined objectives.A strategy is a plan prepared for meeting the challenge posed by the activities of competitors or some other external environmental forces.
(ii) Purpose/AimFormulated to deal with repetitive problems.Formulated to counter environmental threats and capitalize on opportunities.
(iii) Concern/ CoverageConcerned with the company as a whole or particular departments.Concerned with the company as a whole.
(iv) Nature of PlanIt is a type of standing plan to be used repetitively again and again.It is a single use plan for meeting challenges. After its implementation, it is not used again.
(v) SituationThe situations to be faced by a policy are comparatively known.A strategy is formulated to deal with an unknown environment in future.

10. What is the difference between strategic and operational planning?

Ans: (a) Duration: Strategic planning is for a longer duration, it can be said that more the duration of a plan, more strategic it is. These plans are concerned with decisions that have enduring effects and are difficult to reverse. Strategic planning can also be called long range planning. Operational planning is concerned with short-term plans or plans having short duration. Both the plans complement each other and cannot be separated.

(b) Scope: Strategic planning is broad in scope while operational planning is narrow. The more the functions of an organization’s activities are affected by a plan, the more strategic it is. Strategic planning guides the choice among the broad directions in which the organization seeks to move and operational planning focuses individual functions may be programmed for attaining the organizational goals.

(c) Environment: Strategic planning takes into account external environment and tries to relate it to the organization. It encompasses all the functional areas and is affected within the existing and long-term future characteristics of various environmental factors. Operational planning is monthly concerned with internal organizational environments so as to make effective use of resources.

(d) Primary: Strategic planning precedes operational planning, the former is concerned with setting the trends and direction of the organization while the later implements what has been decided by the former. Strategic planning is for fairly a long period while operational planning is for a short period. Strategic planning also limits the scope of operational planning because the later is to operate within the overall limits fixed by the former.

11. What is Environmental Analysis? Explain its characteristics.Explain the need and importance of environmental analysis.

Ans: Environmental Analysis can be defined as the process which examines all the components whether internal or external that has an influence on the performance of the organization. Here, the internal components indicates the strength and weaknesses of the business entity whereas the external components indicates the opportunities and threats outside the organization.

In other words, Environmental Analysis is the process through which an organization monitors and comprehends various environmental forces so as to determine the opportunities and threats that lie ahead in the future. Further, Environmental Analysis is also known as Environmental Appraisal or Environmental Scanning.

Some of the features or characteristics of Environmental Analysis are:

(i) Holistic View: Environmental Analysis is a holistic exercise in the sense that it must comprise a total view of the environment rather than viewing a trend piecemeal. The corporate must scan the circumference of its environment in order to minimize the chances of surprises and to maximize its utility.

(ii) Continuous Process: The analysis of environment must be a continuous process rather than being an intermittent scanning system. It must operate continuously in order to keep track of the rapid pace of development. So, Environmental analysis becomes essential due to the dynamic nature of the environment.

(iii) Exploratory Process: While the Monitoring aspect of the environment is concerned with the present development, a large part of the process seeks to explore the unknown dimensions of possible future. The analysis emphasizes on “What could happen” and not necessarily “What will happen.”

The following is the need and importance of environmental scanning:

(i) Identification of strength: Strength of the business firm means capacity of the firm to gain advantage over its competitors. Analysis of internal business environment helps to identify strength of the firm. After identifying the strength, the firm must try to consolidate or maximize its strength by further improvement in its existing plans, policies and resources.

(ii) Identification of weakness: Weakness of the firm means limitations of the firm. Monitoring internal environment helps to identify not only the strength but also the weakness of the firm. A firm may be strong in certain areas but may be weak in some other areas. For further growth and expansion, the weakness should be identified so as to correct them as soon as possible.

(iii) Identification of opportunities: Environmental analyses helps to identify the opportunities in the market. The firm should make every possible effort to grab the opportunities as and when they come.

(iv) Identification of threat: Business is subject to threat from competitors and various factors. Environmental analyses help them to identify threat from the external environment. Early identification of threat is always beneficial as it helps to diffuse off some threat.

(v) Optimum use of resources: Proper environmental assessment helps to make optimum utilization of scare human, natural and capital resources. Systematic analyses of business environment helps the firm to reduce wastage and make optimum use of available resources, without understanding the internal and external environment resources cannot be used in an effective manner.

(vi) Survival and growth: Systematic analyses of business environment help the firm to maximize their strength, minimize the weakness, grab the opportunities and diffuse threats. This enables the firm to survive and grow in the competitive business world.

(vii) To plan long-term business strategy: A business organization has short term and long-term objectives. Proper analyses of environmental factors help the business firm to frame plans and policies that could help in easy accomplishment of those organizational objectives. Without undertaking environmental scanning, the firm cannot develop a strategy for business success.

(viii) Environmental scanning aids decision-making: Decision-making is a process of selecting the best alternative from among various available alternatives. An environmental analysis is an extremely important tool in understanding and decision-making in all situation of the business.

12. “Planning is an intellectual process, the conscious determination of course of action, the basis of decisions on purpose, facts and considered estimates.” Discuss.

Ans: Mainly 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 & by whom it should be done.” Planning is “an intellectual process, the conscious determination of courses of action, the basing of decisions on purpose, facts and considered estimates.Planning is a primary function. That is, it is a primary requisite to the managerial functions of organizing, staffing directing, motivating, coordinating, communicating and controlling. A manager must do planning before he can undertake the other managerial functions.Business enterprises operate in an uncertain environment and face several types of risks. Planning enables these enterprises to predict future events and prepare to face the unexpected events. With the help of planning, managers can identify potential dangers and take steps to overcome them. Thus, planning helps risk and uncertainty. Planning is thinking in advance and, therefore, there is scope of finding better ideas and better methods and procedures to reach the objectives/goals of the enterprise. This forces managers to think differently about the future of the organizations from the present. Thus, planning makes the managers innovative and creative.In order to make planning effective, some premises or presumptions have to be made on the basis of which planning has to be undertaken. Plans are generally not properly structured. The reason being that planning premises are not properly developed. This principle lays emphasis on properly analyzing the situation which is going to occur in future.While formulating own. Plans a manager should keep in mind the plans of competitors. The plans should be framed by thinking of what the. Competitors will do in similar situations.

13. Explain the Steps Involved in Environmental Analysis. Explain the techniques of Environmental Analysis in detail.

Ans: The Steps Involved in Environmental Analysis are:

Identifying: First of all, the factors which influence the business entity are to be identified, to improve its position in the market. The identification is performed at various levels, i.e. company level, market level, national level and global level.

Scanning: Scanning implies the process of critically examining the factors that highly influence the business, as all the factors identified in the previous step effects the entity with the same intensity. Once the important factors are identified, strategies can be made for its improvement.

Analyzing: In this step, a careful analysis of all the environmental factors is made to determine their effect on different business levels and on the business as a whole. Different tools available for the analysis include benchmarking, Delphi technique and scenario building.

Forecasting: After identification, examination and analysis, lastly the impact of the variables is to be forecasted.

Environmental analysis is an ongoing process and follows a holistic approach, that continuously scans the forces effecting the business environment and covers 360 degrees of the horizon, rather than a specific segment. 

The following techniques are generally pressed into service while carrying out environmental scanning:

(i) SWOT Analysis: SWOT is an acronym for the internal strengths and weaknesses of a firm and the external opportunities and threats facing that firm. SWOT analysis helps managers to have a quick overview of the firm’s strategic situation and assess whether there is a sound fit between internal resources, values and external environment.

A good ‘fit’ maximizes a firm’s strengths and opportunities and minimizes its weaknesses and threats. The primary purpose of SWOT analysis is to identify the key internal and external factors that are important to achieving the goals. One useful way of putting SWOT analysis to good effect is to exploit market opportunities by leveraging on the strengths of a firm.

At the same time a firm can also convert its weaknesses or threats into strengths or opportunities by proactively taking appropriate steps. An example of such a conversion strategy is to find new markets. If the threats or weaknesses cannot be converted a firm should try to minimize or avoid them.

Key Issues in SWOT Analysis: In order to carry out a good SWOT, the firm should look into certain key issues (Thompson).

Key Issues in Swot Analysis

(a) A distinctive competence?(a) No clear strategic direction?
(b) Adequate financial resources?(b) A deteriorating competitive position?
(c) Good competitive skills?(c) Obsolete facilities?
(d) Well thought of by buyer?(d) Subpar profitability because..?
(e) A acknowledged market leader?(e) Lack of managerial depth and talent?
(f) Well-conceived functional area strategies?(f) Missing any key skills or competen-cies?
(g) Access to economics of scale?(g) Poor track record in implementing strategy?
(h) Insulated (at least somewhat) from strong competitive pressures?(h) Plauged with internal operating problems?
(i) Proprietary technology?(i) Vulnerable to competitive pressures?
(j) Cost advantages?(j) Falling behind in R & D?
(k) Competitive advantages?(k) Too narrów a product line?
(l) Product innovation abilities?(l) Weak market image?
(m) Proven management?(m) Competitive disadvantages?
(n) Others?(n) Below-average marketing skills?
(o) Unable to finance needed changes in strategy?
(p) Other?
(a) Enter new markets or segments?(a) Likely entry of new competitors?
(b) Add to product line?(b) Rising sales of substitute products?
(c) Diversity into related products?(c) Slower market growth?
(d) Add complementary products?(d) Adverse government policies?
(e) Vertical integration?(e) Growing competitive policies?
(f) Ability to move to better strategic group?(f) Vulnerability to recession and busi-ness cycle?
(g) Complacency among rival firms?(g) Growing bargaining power of custo-mers or suppliers?
(h) Faster market growth?(h) Changing buyer needs and tastes?
(i) Other?(i) Adverse demographic changes?
(j) Other?

(ii) TOWS Matrix: The TOWS matrix is used for strategic planning and helps marketers identify opportunities and threats and measure them against internal strengths and weaknesses. It is actually a variant of the SWOT analysis which focuses attention on external opportunities and threats and compares them to a company’s internal strengths and weaknesses.

(SWOT analysis aims to use strengths and weaknesses to reduce threats and maximize opportunity). TOWS and SWOT are acronyms for different arrangements of the words Strengths, Weaknesses, Opportunities and Threats.

TOWS, basically, tries to answer the following four questions:

(i) Strengths and Opportunities (SO)- How can your current strengths help you to capitalize on your opportunities?

(ii) Strengths and Threats (ST)- How can your current strengths help you identify and avoid current and potential threats?

(iii) Weaknesses and Opportunities (WO)- How can you overcome your current weaknesses by using your opportunities?

(iv) Weaknesses and Threats (WT)- How can you best diminish your weaknesses and avoid current and potential threats?

SWOT and TOWS use the same factors for analysis, and the terms are sometimes used interchangeably without regard to the order that strengths, weaknesses, threats and opportunities are examined.

SWOT or TOWS analysis. It helps managers and for that matter individuals too. The TOWS matrix can be used in any type of business or industry, as well as for a piece of a business or a project, as long as clear factors are defined.

It helps to answer the following questions in an appropriate manner:

(a) Make the most of your strengths?

(b) Circumvent your weaknesses?

(c) Capitalize on your opportunities?

(d) Manage your threats?

(iii) WOTS-UP Analysis: As mentioned previously a SWOT analysis is a strategic planning tool that assesses an organization’s Strengths, Weaknesses, Opportunities and Threats. Two other terms are interchangeably used in business analysis to convey the same; TOWS analysis or WOTS up analysis. Regardless, the elements in each abbreviation are the same.

The basic purpose of a SWOT analysis is to evaluate the internal and external environment of a project, business or organization. The Strengths and Weaknesses are the internal factors, while Opportunities and Threats refer to the external factors. This analysis helps organizations summarize supportive and unsupportive factors.

All types of organizations, including businesses, non-profit groups and government agencies, can use SWOT/TOWS/WOTS-up analysis SWOT or WOTS-up analysis helps an organization to think strategically and capitalize on its strengths, assess opportunities and minimize threats. It also helps managers avoid, if not alleviate, weaknesses.

14. What is Internal Environment? Explain the factors influencing internal environment.

Ans: Internal Environment is that part of the business environment which is concerned with the different factors present within the organization. It comprises of conditions, forces, members and events which has the capability to influence the company’s decisions and operations.

It determines the procedures and methods in which activities are carried out in the organization, as well as it includes all of the immediate and information resources, such as technical, financial and physical resources of the organization.

These factors are:

(i) Value System: Value system consists of all those components that are a part of regulatory frameworks, such as culture, climate, work processes, management practices and norms of the organization. The employees should perform the activities within the purview of this framework.

(ii) Vision, Mission and Objectives: The company’s vision describes its future position, mission defines the company’s business and the reason for its existence and objectives implies the ultimate aim of the company and the ways to reach those ends.

(iii) Organizational Structure: The structure of the organization determines the way in which activities are directed in the organization so as to reach the ultimate goal. These activities include the delegation of the task, coordination, the composition of the board of directors, level of professionalization, and supervision. It can be matrix structure, functional structure, divisional structure, bureaucratic structure, etc.

(iv) Corporate Culture: Corporate culture or otherwise called an organizational culture refers to the values, beliefs and behaviour of the organization that ascertains the way in which employees and management communicate and manage the external affairs.

(v) Human Resources: Human resource is the most valuable asset of the organization, as the success or failure of an organization highly depends on the human resources of the organization.

(vi) Physical Resources and Technological Capabilities: Physical Resources refers to the tangible assets of the organization that play an important role in ascertaining the competitive capability of the company. Further, technological capabilities imply the technical know-how of the organization.

Internal environmental factors have a direct impact on a firm. Further, these factors can be altered as per the needs and situation, so as to adapt accordingly in the dynamic business environment.

15. Write short notes:

(i) Process of Planning.

Ans: Steps in the process of Planning.

(a) Setting organizational objectives: The first and foremost step in the planning process is setting organizational objectives or goals, which specify what the organization wants to achieve. For example, an increase in sales by 20% could be the objective of the organization. Objectives may also be set for each individual department. They give direction to all departments.

(b) Developing planning premises: Planning is concerned with the future, which is uncertain. Therefore, the manager is required to make certain assumptions about the future. These assumptions are called premises. Assumptions are made in the form of forecasts about the demand for a particular product, government policy, interest rates, tax rates, etc. 

(c) Selecting the best possible alternative: This is the real point of decision making. The best/ideal plan has to be adopted, which must be the most feasible, profitable and with least negative consequences. The manager must apply permutations and combinations and select the best possible course of action. 

(d) Implementing the plan: Once the plans are developed, they are put into action. For this, the managers communicate the plans to all employees very clearly and allocate them resources (money, machinery, etc.

(e) Follow-up action: The managers monitor the plan carefully to ensure that the premises are holding true in the present condition or not. If not, adjustments are made in the plan.

(ii) Planning premises.

Ans: Managerial plans are based on certain assumptions which are called planning premises. They constitute the ground on which plans will stand. Meaningful premises facilitate consistency and coordination of plans. The premises may be of:

(a) Non-controllable premises such as economic conditions, political situations, tastes, preferences of people etc.

(b) Semi-controllable premises such as firms market shares, union management relations etc.

(c) Controllable premises such as policies of the organization, procedures, rules etc.

Effective Premising:

(a) To effectuate the planning premises following guidelines may be adopted.

(b) Selection of the premises that bear materially on program.

(c) Development of alternative premises for contingency planning.

(d) Verification of the consistency of premises.

(e) Communication of the premises.   

16. What is External Environment? Explain the factors influencing external environment.

Ans: External Business environment comprises of all the extrinsic factors, influences, events, entities and conditions, often existing outside the company’s boundaries but they have a significant influence on the operation, performance, profitability and survival of the business enterprise.

For the purpose of continuous and uninterrupted functioning of the business, the enterprise has to act, react or adjust according to these factors. These factors are not under the control of the enterprise.

The elements of the external environment are divided into two categories:

(A) Micro Environment: Otherwise called as task environment, these factors directly influence the company’s operations, as it covers the immediate environment that surrounds the company. The factors are somewhat controllable in nature. It includes:

(i) Competitors: Competitors are the business rivals, which operate in the same industry, offering the same product and services, and cater to the same audience.

(ii) Suppliers: To carry out the production process, the raw material is required which is provided by the suppliers. The behaviour of the supplier has a direct impact on a company’s business operations.

(iii) Customers: Customers are the target audience, i.e. the one who purchases and consumes the product. The customers are given the most important place in every business, because, the products are created and promoted for customers only.

(iv) Intermediaries: There are a number of individuals or firms that help the business enterprise in the promotion, selling, distribution and delivery of the product to the end buyer, which are called as marketing intermediaries. It includes agents, distributors, dealers, wholesalers, retailers, delivery boys, etc.

(v) Shareholders: Shareholders are the actual owners of the company, as they invest their money in the company. They get their share in the profits also, in the form of a dividend. In fact, they have the right to vote at the company’s general meeting.

(vi) Employees: Employees refers to the company’s staff, who are hired to work for the company to help the company reach its mission. Therefore, it is very important for the firm, to employ the right people, retain and keep them motivated so as to get the best out of them.

(vii) Media: Media plays an important role in the life of every company because it has the capability to make the company’s product popular overnight or it can also defame them, in just one go. This is due to the fact that the reach of media is very large and so every content which is going to air on any form of media can affect the company positively or adversely depending on what kind of information it contains.

(B) Macro Environment: Otherwise called as general environment, macro environment affects the entire industry and not the firm specifically. That is why these factors are completely uncontrollable in nature. The firm needs to adapt itself according to the changes in the macro-environment, so as to survive and grow. It includes:

(i) Economic Environment: The economic conditions of the region and the country as a whole has a significant bearing on the company’s profitability. This is because the purchasing power, saving habits, per capita income, credit facilities etc. depends greatly on the country’s economic conditions, which regulates the demand for the company’s products.

(ii) Political and Legal Environment: The political and legal environment consists of the laws, rules, regulations and policies which the company needs to adhere. The changes in these laws and government may affect the company’s decisions, open doors of new opportunities for the business or pose a threat to the business.

(iii) Technological Environment: Technology is ever-changing, as everyday a new and improved version of something is launched which is created with the state-of-the-art technology. This can be a plus point if the company is the first mover in the race, subject to the success of the product. However, if it turns out as a failure, it will prove as a wastage of time, money and efforts. Further, every company has to keep itself updated with the changing technology.

(iv) Socio-Cultural Environment: Socio-cultural environment consist of those factors which are concerned with human relationships such as customs, traditions, beliefs, values, morals, tastes and preferences of the society at large. The company must consider these factors on various matters such as the hiring of employees, advertising the product and service, decision making etc.

(v) Demographic Environment: As the name suggests, the demographic environment covers the size, type, structure, education level, and distribution of population in a geographical area. The knowledge of this environment will help the firm in deciding the optimal marketing mix for the target population.

(vi) Global Environment: Due to liberalization domestic company’s can offer their products and services for sale to other countries. In fact, there are many companies which are operating in a number of nations worldwide. Hence, such companies have to follow the laws prevalent in these countries as well as they have to adhere to international laws and guidelines. Further, the responses and the company’s norms must be in alignment with the global environment.

17. What are the Key Differences Between Internal and External Environment?

Ans: The difference between the internal and external environment can be drawn clearly on the following grounds:

(i) The internal environment is composed of all those factors, events, conditions, etc. which exist inside the company and has the capability to influence the company’s strategic decisions and functions, as well as they can be influenced by company’s decisions. On the contrary, the external environment is that part of the business environment consisting of all those factors which do not exist within the company but can affect the company’s operations, decisions, survival, growth and profitability.

(ii) Internal environmental factors are controllable in nature, in the sense that the company has supremacy over these factors. Conversely, external environmental factors are largely uncontrollable in nature.

(iii) Internal environmental factors, either impart strength or cause weakness to the firm. As against, external environmental factors either give opportunities or poses threats.

(iv) Changes in internal environmental factors affect the company only, as the factors belong specifically to the company. In contrast, changes in external environmental factors have an impact on the industry as a whole and so all the companies operating in the industry gets affected by it.

(v) The internal environment consists of those factors which have the potential to influence the company’s decisions, working and strategies. On the flip side, the external environment comprises of those factors which can affect the survival, growth, reputation and expansion of the company positively or negatively. 

18. What do you mean by Business Environment? Explain its nature. Write in brief three importance of study of business environment.

Ans: According to Andrews, “The environment of a company as the pattern of all external influences that affect its life and development”.

The business environment is always changing and is uncertain. It is because of dynamism of environment. As it is already said that the business environment is the sum of all the factors outside the control of management of a company, the factor, which are constantly changing, and they carry with them both opportunities and risks or uncertainties which can, make or mark the future of business.

Business environment encompasses all those factors that affect a company’s operations and includes customers, competitors, stakeholders, suppliers, industry trends, regulations other government activities, social and economic factors and technological developments. Thus, business environment refers to the external environment and includes all factors outside the firm, which lead to opportunities and threats of a firm.

The nature of business environment is as follows:

(a) Complex: Business environment is compound in nature. Environment consists of a number of factors, events, conditions and influences arising from different sources which impact business thus making the business complex.

(b) Interdependence: The environment of the business is made of social, economic, legal, cultural, technological, and political factors. These factors of the environment are inter-dependable. The economic status of a country affects the development of technology. A rich country can make sufficient expenditure on the research and development.

(c) Dynamic: Business environment is constantly changing process. Business environment is dynamic as it keeps on changing in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. The various forces in the environment keep on changing from time to time thus making business dynamic and not static.

(d) Inter-relatedness: The different factors of business environment are correlated. For example, let us suppose that there is a change in the import-export policy with the coming of a new government. In this case, the coming of new government to power and change in the import-export policy are political and economic changes respectively. Thus, a change in one factor affects the other factor.

(e) Impact: Business environment has both long term and short term impact. Environment therefore has different effects on different firms in the same industry, for example, drugs.

(f) Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.

(g) Relativity: It is a relative concept since it differs from country to country and region to region. Political conditions in the USA, for example differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France.

Three importance of business environment are given below:

(i) Early warning system: Environmental awareness can help managers to identify various threats and risk that may be faced by the venture in future operation by early warning.

(ii) Formation of strategies: Business environment help the organization to scrutinize the environment and to frame sound managerial strategy. It assist in top and corporate level decision making.

(iii) Identifying challenges and threats: Business environment helps in identifying the ways in which challenges may directly or indirectly influences the organization. This also help us to indicates the threats, challenges, problems emerging inside and outside the venture.

(iv) Helps in Improving Performance: Enterprises that are thoroughly scanning their environment not only deal with the changes presented but also flourish with them. Adapting to the external forces help the business to improve the performance and survive in the market.

(v) Helps in Tapping Useful Resources: Careful scanning of the Business Environment helps in tapping the useful resources required for the business. It helps the firm to track these resources and convert them into goods and services.

(vi) Assistance in Planning: This is another aspect of the importance of the business environment. Planning purely means what is to be done in the future. When the Business Environment presents a problem or an opportunity, it is up to the business to decide what plan would it have to come up with in order to address the future and solve the problem or utilize the opportunity. After analyzing the changes presented, the business can incorporate plans to counteract the changes for a secure future.

(vii) Coping with Changes: The business must be aware of the ongoing changes in the business environment, whether it be changes in customer requirements, emerging trends, new government policies, technological changes. If the business is aware of these regular changes then it can bring about a response to deal with those changes.

(viii) Enables to Identify Business Opportunities: All changes are not negative. If understood and evaluated them, they can be the reason for the success of a business. It is very necessary to identify a change and use it as a tool to solve the solve the problems of the business or populous.

19. Explain the important steps of Decision-making process. Explain the process of decision making.

Ans: The decision-making process depends upon the nature of problem and the nature of organization. The following are the simple process followed in taking a decision in normal situations.

(a) Identification of a problem: Identification of a problem means recognition of problem. Problem arises due to difference between what is and what should be. The changes of business environment form the main reason for creating of a problem. So, the manager should define what the problem is. The manager should continuously watch the decision-making environment and understand the real problem and its causes.

(b) Diagnosing the problem: There is a slight difference between problem identification and diagnosing the problem. A doctor can diagnose the disease of a patient. A patient cannot find out what is the real disease. But a doctor can do so with the information given by a patient. Information is very useful to the doctor. In management the manager acts as a doctor while diagnosing the problem.

(c) Collect and Analyze the Relevant information: In this step the required information should be collected by the manager. Then the manager has to study the information with great care. It is very useful to analyze the problem from different angles. If the problem is analyzed from different angles, the manager may take a quality and quick decision. The manager should see that only relevant information alone is collected and analyzed.

(d) Generating Alternative course of Action: Creative thinking is necessary to develop or discover many alternative courses of action.

It is advisable to the manager that he should discover a number of alternatives. The manager also considers the problem of limiting factors. Some alternatives cannot be selected due to limiting factors. Time and cost are the probable limiting factors of most of the organization.

(e) Evaluation of Alternatives: The pros and cons of available alternatives are analyzed. Some alternatives offer maximum benefits than others. An alternative is compared with other alternatives. The decision makers should prepare a list of limits for each alternative.

(f) Screening of Alternatives: The available alternatives are screened in the order of maximum benefits derived from them. Each alternative is evaluated in terms of risks involved in implementing them. Both tangible and intangible factors are considered while evaluating or screening each alternative.

(g) Selection of Best Alternative: An alternative, which gives maximum benefits to the organization, is selected. At the same time, the selected alternatives should fit with the organizational objectives. The following approaches may be adopted while selecting an alternative.

(i) Experience: A manager can select an alternative on the basis of his past experience. Past decision may be rationally amended to suit the present situation. So, the past experience helps a lot to the manager in taking a decision.

(ii) Experimental: Each alternative is put into practice and the results are observed under this approach. An alternative, which gives best result, will be selected.. The approach, being expensive and time consuming should be used on limited scale.

(iii) Research and analysis: This approach is also rarely adopted. Incase of critical situation a decision is taken under this approach. If a lot of calculation is required, they are completed with the help of computers.

(h) Conversion of decision into action: The future course of action is scheduled on the basis of selected alternative or decision. Here, the managers have to consider the policy of the management. The selected alternative decision is communicated to concerned person. This communication facilitates easy implementation of decision. The language of decision should be simple and easily understandable.

(i) Implementation: Decision-making process comes to an end with the actual implementation of decision. Implementation plan should provide for time and procedure sequence. Necessary resources should also be allocated and responsibility for specific tasks should be assigned to individuals.

(j) Verifying the decision: It is the duty of every manager to see whether the decision is properly implemented or not. Verification of decision ensures the achievement of objectives. This is the simple process of decision-making.

The decision-making process consists of the following steps:

(i) Specific objective: The need for decision-making arises in order to achieve certain specific objectives. Therefore starting point in any analysis of decision-making involves the determination of whether a decision needs to be made.

(ii) Identification of problems: Identification of problems is the real beginning of decision making. In this context, these is a need of diagnosis of problem its that is knowing the gap between what is and what ought to be identifying the reasons for the gap and understanding the problem etc. and then of course, analysis of problem.

(iii) Search for Alternatives: There are many ways or alternatives for solving a problem so there is a need to search for alteratives. A decision maker can use serval sources for identifying alternatives.

(iv) Evaluation of Alternatives: The next step of course is to evaluate the alternatives and select the one that will meet the choice criteria.

(v) Choice of Alternative: Next course of action is choice of alternative. In choosing an alternative, the decision maker can use past experience. Then they can go for experimentation of a particular alternative and putting it into practice. They of course have to go for research and analysis.

(vi) Action: Once the alternative is selected, next step is to put the alternative into action. Truly speaking, the actual process of decision-making ends with the implementation of decision.

(vii) Results: Once decision is put into action, it brings results. The results must correspond with objectives if good decisions have been made and implemented properly.

20. What are the essentials of a sound decision-Making?


Discuss the principle of Decision-making.

Ans: A quality decision may be taken by the manager if he adopts certain principles. These principles are discussed below –

(a) Marginal Theory of Decision Making: Many economists have suggested marginal theory of decision-making. They believe that a business is started to earn profits. A manager must take a decision, which results in maximizing the profits. Therefore, economists argue that the very purpose of an organization is aimed at maximizing profits.

Decision Making should be based on marginal analysis. Here, the manager adopts the principle of Law of Diminishing Returns. If the management appoints additional labor and used additional capital, the production may be increased proportionately at reduced rates. A time comes when there is no increase in production with the appointment of additional labor and using additional capital. Then, the appointment of additional labor and using of additional capital will be stopped. In this way the production of the last unit is marginal. Thus this marginal principle is applied while taking decisions relating to sales, advertisement, promotion, training and like.

(b) Mathematical Theory: Venture analysis, game theory, probability theory and waiting theory are some of the mathematical theories. A manager takes a decision on this basis of mathematical theory. Mathematical theory gives scientific approach to the manager while taking a decision.

(c) Psychological Theory: A manager takes a decision on the basis of his aspiration, technological skill, personality, social status and organization status. Though the manager is expected to take a decision confined to the scope of his responsibility and authority, there is an impact of psychology over the decision. The reason is that decision-making is a mental process.

(d) Principle of Alternatives: If there is only alternative to solve a problem, there is no need of taking a decision. Decision is a selection process. All the alternatives are evaluated and screened in the order of their usefulness. Finally, the best alternative is selected according to the circumstances and purpose.

(e) Principle of Limiting factors: The fundamentals of a problem are studied. An inference or a conclusion is drawn on the basis of study. The manager takes a decision with the help of conclusion or inference. The decision may be based on a limiting factor. The limiting factor may be time, cost or resources. Decisions are supposed to be good and the limiting factor is considered while taking a decision. This decision can be implemented in a particular situation only.

(f) Principle of participation: This principle is based on human behavior and human relationship. Each and every person wants to be treated as an important person. So, the management allows the employee to have a say in the process of decision making.

(g) Principle of Rationality: A manager should not be influenced by emotion while taking decision. The manager should try to make logical and objective decision considering all the factors affecting the decisions. However, rationality should be combined with reality of situation.

(h) Principle of Flexibility: Decision should be flexible to face the anticipated and unexpected changes in the environment. A flexible decision can produce the required results.

(i) Principle of Timing: This principle implies that decision should be timely taken and implemented. Timeliness is the most crucial factors for roundness of a decision. However, decisions should not be taken in haste since haste makes waste.

(j) Principle of communication: The decision made should be properly and timely communicated to all concern. The mode and medium of communication should also be effective to communicate the decision in proper and correct sense and manner. This will ensure better cooperation of all and lead to better coordinated efforts.

21. Describe the different techniques of decision-making process. What are the different types of decisions?

Ans: Various techniques of decision making process are discuss below:

(a) Experience or Judgment: This technique is found on the saying ‘experience is the best teacher’. In this technique, a manager makes decisions on the basis of his knowledge and experience gained through working in a particular position over the years.

(b) Intuition: It is the knowledge based on instant inner feelings rather than reasoning. It is based on faith. Many managers use the intuitive knowledge in making decisions.

(c) Habits: Established habits can be used as a technique of decision making managers try to solve repetitive and routine problems through their established habits. This technique requires least or no effort in making decisions.

(d) Standing plans and procedures: These are standing plans and procedures in every organization such as policies, rules, procedures, methods etc. All these serve as techniques of decision-making. These plans and procedure create organizational habits.

(e) Economic and Financial Techniques: There are many economic and financial techniques of decision-making. Marginal cost analysis break-even analysis, utility analysis, sensitivity analysis etc. are some of the most important economic theory techniques. Payback analysis, inflow-outflow analysis, ratio analysis are some of the financial techniques of decision-making. These techniques serve as useful methods of analysis and evaluation of alternatives and help in choosing one appropriate alternative.

(f) Linear Programming: It is a mathematical technique used for determining optimal combination of limited resources. It helps in making decisions regarding allocation of limited resources among various competitors’ demands in an optimum way.

(g) Game Theory: It is a technique of making decisions under competitive and conflicting situations. In this technique, one member chooses one such course of action that frustrates and defeats the action of the competing member and helps him in winning the game.

(h) Waiting Line or Queuing Theory: This technique is used to decide on problem of waiting line in an organization. Banks, petrol pumps, transport organization etc. usually face problem of waiting line of customers. With the help of this technique, managers decide optimum rate of flow through service points by balancing the cost of making customers wait against the costs of servicing them more rapidly.

(i) Network Techniques: PERT and CPM are the two important network techniques for planning and controlling. These techniques help managers in making decisions regarding planning and controlling of complex projects. These help managers in deciding a logical sequence of activities required for completing a complex project. With the help of these techniques, managers can minimize the time and cost involved in the completion of a project.

(j) Heuristic Technique: This technique is based on the assumption that scientific and rational processes cannot solve complex problems. This technique allows managers to consider and use less rational processes. It is a trial and error technique of finding solutions to complex problems by breaking it into small components. This technique implies the use of computers.

(k) Participative Technique: It is a technique of making decisions with the participation of the employees. This is a technique, which encourages industrial democracy.

Various types of decisions are:

(i) Programmed and Non-programmed decision: Programmed decision are of routine and are taken within the specified procedures. These decisions are made with regard to routine and recurring problems which require structured solutions.

Non-programmed decisions are related to problems which are unique and non-repetitive. This information and knowledge about such decisions is not available. Such decisions are made under new and unfamiliar circumstances. Non-programmed decisions are usually for solving unstructured problems which keep on changing from time to time.

(ii) Strategic and Tactical decisions: Strategic decisions relate to policy matters and need the development and analysis of alternatives. These decisions influence on the functioning and direction of the organization and have long-term implications. Tactical decisions whereas are taken at lower level of managers. They have short term implications and are concerned with simple and repetitive problems.

(iii) Individual and group decisions: A decision taken by one person is known as individual decision. In a small concern, normally the owner takes most of the decisions. Such decisions are taken as per predetermined rules and procedures and require less application of judgement and skill.

When decisions are taken by two or more persons, these are known as group decisions. Generally strategic and other decisions are taken by groups instead of individuals because of risk involved in group decisions are important and have long-term implications.

22. What are the techniques or basis for decision making?

Ans. Following are the techniques of decision making:

(i) Intuition: Decision-making by intuition refers to about the inner feeling of the person. Decisions are taken as per dictates of the person. Decisions are taken as per dictates of the person. He thinks about the problem and an answer is found in his mind. Past knowledge, training and decision making plays an important role in this context.

(ii) Facts: Facts are considered as the best basis of decision-making. A decision based on facts has its roots in factual data. Such decisions will be sound and proper. The increasing use of computers has helped in systematic analysis of data. The information has become a major tool in managerial decision-making.

(iii) Experience: Past experience of a person becomes a good basis for taking decisions. When a similar situation arises then the manager can rely on his past decision and take similar decisions.

(iv) Considered Opinions: Sometimes considered opinions are also used as a basis for decision making. Besides permanent statistics, opinions are also given due weighted.

(v) Operations research: Operations research is one of the techniques used by modern management for deciding important matters. It helps manager by providing scientific basis for solving organizational problems involving interaction of components of the organization.

(vi) Linear Programming: Linear programming can be used to determine the best use of limited resources for achieving given objectives. This is based on the assumption that there exists a linear relationship between variable and limits of variations could be ascertained.

23. What is Group and Committee Decision making?

Ans: Group decision making is a type of participatory process in which multiple individuals acting collectively, analyze problems or situations, consider and evaluate alternative courses of action, and select from among the alternatives a solution or solutions. The number of people involved in group decision-making varies greatly, but often ranges from two to seven. The individuals in a group may be demographically similar or quite diverse. Decision-making groups may be relatively informal in nature, or formally designated and charged with a specific goal. The process used to arrive at decisions may be unstructured or structured. The nature and composition of groups, their size, demographic makeup, structure, and purpose, all affect their functioning to some degree. The external contingencies faced by groups (time pressure and conflicting goals) impact the development and effectiveness of decision-making groups as well.

Committees are small managerial groups formed inside an organization for decision making purpose. A committee is a group appointed by the parent organization which meets to investigate a problem and later to formulate a report or recommendation.

In recent years, more food and beverage companies have adopted a different perspective on decision-making. Rather than having one person making unilateral decisions, many businesses have shifted toward a “decision-by-committee” approach, where a small group of stakeholders are part of the process. This trend is especially prevalent in larger companies that are adopting a more inclusive corporate culture. The goal is to foster greater pride and buy-in from employees by including diverse perspectives in decisions that affect them.

The purpose behind the decision-by-committee process is admirable, but like anything, it has its advantages and disadvantages. To gain the most value from group decision-making, consider these pros, cons and best practices.

Working of a Committee—

(i) Get a clear perspective or collect data.

(ii) Explore attitudes and sentiments of the members.

(iii) Combine the logical and psychological elements.

(iv) Arrive at a decision.

(v) Have a faithful record of decisions.

The four different type of committees in an organization:

(i) Standing committees: Committees which meet regularly for making day to day management decisions.

(ii) Executive committees: Committees which take important management decisions.

(iii) Advisory committees: Committee of experts formed for crucial decision making.

(iv) Ad-hoc committees: Committees formed for a particular purpose.

24. Write the advantages and disadvantages of Group decision making.  Write the advantages and disadvantages of Committee decision making.

Ans: Advantages of Group Decision Making:

Group decision making provides two advantages over decisions made by individuals: synergy and sharing of information. Synergy is the idea that the whole is greater than the sum of its parts. When a group makes a decision collectively, its judgment can be keener than that of any of its members. Through discussion, questioning, and collaboration, group members can identify more complete and robust solutions and recommendations.

The sharing of information among group members is another advantage of the group decision-making process. Group decisions take into account a broader scope of information since each group member may contribute unique information and expertise. Sharing information can increase understanding, clarify issues, and facilitate movement toward a collective decision.


There are many potential disadvantages to group decision-making. Groups are generally slower to arrive at decisions than individuals, so sometimes it is difficult to utilize them in situations where decisions must be made very quickly. One of the most often cited problems is groupthink. Irving Janis, in his 1972 book Victims of Groupthink, defined the phenomenon as the “deterioration of mental efficiency, reality testing, and moral judgment resulting from in-group pressure.” Groupthink occurs when individuals in a group feel pressure to conform to what seems to be the dominant view in the group. Dissenting views of the majority opinion are suppressed and alternative courses of action are not fully explored.

Research suggests that certain characteristics of groups contribute to groupthink. In the first place, if the group does not have an agreed upon process for developing and evaluating alternatives, it is possible that an incomplete set of alternatives will be considered and that different courses of action will not be fully explored. Many of the formal decision-making processes (e.g., nominal group technique and brain-storming) are designed, in part, to reduce the potential for groupthink by ensuring that group members offer and consider a large number of decision alternatives. Secondly, if a powerful leader dominates the group, other group members may quickly conform to the dominant view. Additionally, if the group is under stress and/or time pressure, groupthink may occur. Finally, studies suggest that highly cohesive groups are more susceptible to groupthink.

Group polarization is another potential disadvantage of group decision-making. This is the tendency of the group to converge on more extreme solutions to a problem. The “risky shift” phenomenon is an example of polarization; it occurs when the group decision is a riskier one than any of the group members would have made individually. This may result because individuals in a group sometimes do not feel as much responsibility and accountability for the actions of the group as they would if they were making the decision alone.

The advantages of decision-making by committee are:

(i) Diverse ideas from a bigger audience: By nature, a decision-by-committee approach will yield contributions from more diverse perspectives, including from those who may have more experience.

Also, these committees typically involve members from various departments, such as: Management, Engineering, Operations, Maintenance, IT.

Including stakeholders from these different disciplines allows them to provide specific feedback on a more nuanced level. For example, when it comes to food plant design meetings, maintenance personnel can provide input on the installation of valves and the operations team can tweak the layout of processing lines. Even if all the ideas can’t be implemented, your company is benefiting from hearing more options and can apply the best ones.

(ii) Vendors and contractors better understand your company’s needs: Having these diverse perspectives involved in big decisions allows your vendors, partners and contractors to better understand your company. In the case of our past food plant construction projects, the Stellar team established relationships with various team members instead of just one point of contact. This allowed us to better understand the various challenges and needs of different departments, resulting in greater trust from employees and a higher-quality project.

(iii) Decisions don’t hinge on one person’s availability: When you have one person making all the decisions, a project can come to a halt when that person is unavailable or out of the office. With a group, decisions can move forward even in the absence of a stakeholder—meaning a project timeline doesn’t hinge on one person’s schedule.

It’s worth noting that this point can also be a disadvantage if expectations and procedures for the committee aren’t set up properly. (More on that later in the “cons” section.)

(iv) Employees feel valued and collaboration is encouraged: Seeking input and feedback from various departments allows employees to feel heard and involved. Plus, these discussions generate dialogue and encourage a culture of collaboration. If executive leaders work together and value everyone’s opinions, mid-level managers and other employees across the company are more likely to follow suit.

The disadvantages of decision-making by committee are:

(i) Longer decision-making process: The most obvious disadvantage of the decision-by-committee approach is that more stakeholders yields more discussion, which means it can take longer to arrive at an agreement. Plus, it can be more difficult to align the schedules of multiple people for a meeting.

This is often the downfall of many committees, but it doesn’t have to be. If you’re committed to group decision-making, build this extra time into your schedule so your next project doesn’t fall behind. (See best practices below!)

(ii) Varying communication styles: When you bring together a cross-section of people, it can be difficult to find an ideal communication method that works for everyone.

• Do people reply to emails?

• Are conference calls efficient?

• What about texting for quick decisions?

• How often do you need to meet in-person?

And it’s not just the mode of communication that can be challenging. Members from different generations may have different expectations when it comes to communication styles and how things are said, which can create friction.

(iii) Catching up latecomers: Sometimes the decision-making committee may change over the course of a project. A new person may be hired into the company or someone may change positions. This can slow down the process, because that person likely has to be brought up to speed and they may have feedback on decisions that have already been made. This can be tedious if not managed well.

25. What is Perfect and Bounded rationality?

Ans: The Perfect rational decision-making process involves careful, methodical steps. The more carefully and strictly these steps are followed, the more rational the process is. Perfect Rational decision making is a multi-step process, from problem identification through solution, for making logically sound decisions. It is a multi-step process for making choices between alternatives. The process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. Decision strategy that is fully informed, perfectly logical, and geared toward maximum economic gain (profit).

Assumptions of the Rational Decision-Making Model:

The rational model of decision making assumes that people will make choices that maximize benefits and minimize any costs. The idea of rational choice is easy to see in economic theory. For example, most people want to get the most useful products at the lowest price; because of this, they will judge the benefits of a certain object (for example, how useful is it or how attractive is it) compared to those of similar objects. They will then compare prices (or costs). In general, people will choose the object that provides the greatest reward at the lowest cost.

The rational model also assumes:

(i) An individual has full and perfect information on which to base a choice.

(ii) Measurable criteria exist for which data can be collected and analyzed.

(iii) An individual has the cognitive ability, time, and resources to evaluate each alternative against the others.

The rational-decision-making model does not consider factors that cannot be quantified, such as ethical concerns or the value of altruism. It leaves out consideration of personal feelings, loyalties, or sense of obligation. Its objectivity creates a bias toward the preference for facts, data and analysis over intuition or desires.

Bounded rationality is the idea that rationality is limited, when individuals make decisions, by the tractability of the decision problem, the cognitive limitations of the mind, and the time available to make the decision. Decision-makers, in this view, act as satisficers, seeking a satisfactory solution rather than an optimal one.

Herbert A. Simon proposed bounded rationality as an alternative basis for the mathematical modeling of decision-making, as used in economics, political science and related disciplines. It complements “rationality as optimization”, which views decision-making as a fully rational process of finding an optimal choice given the information available. Simon used the analogy of a pair of scissors, where one blade represents “cognitive limitations” of actual humans and the other the “structures of the environment”, illustrating how minds compensate for limited resources by exploiting known structural regularity in the environment. Many economics models assume that people are on average rational, and can in large enough quantities be approximated to act according to their preferences. With bounded rationality, Simon’s goal was “to replace the global rationality of economic man with a kind of rational behavior that is compatible with the access to information and the computational capacities that are actually possessed by organisms, including man, in the kinds of environments in which such organisms exist.” In short, the concept of bounded rationality revises notions of “perfect” rationality to account for the fact that perfectly rational decisions are often not feasible in practice because of the intractability of natural decision problems and the finite computational resources available for making them.

The concept of bounded rationality continues to influence (and be debated in) different disciplines, including economics, psychology, law, political science and cognitive science. Some models of human behavior in the social sciences assume that humans can be reasonably approximated or described as “rational” entities, as in rational choice theory or Downs Political Agency Models.

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