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Gas Authority of India (GAIL) – New Plans Planning 4 CHAPTER L E A R N I N...

Gas Authority of India (GAIL) – New Plans Planning 4 CHAPTER L E A R N I N G GAIL India, which has had a monopoly in the gas transmission sector is set to see some tough competition in the coming days. OBJECTIVES While Reliance is poised to get into the trunk pipeline segment, British Gas is trying to get into the city gas distribution sector. After studying this GAIL’s new chairman, shares his thoughts on how he plans to chapter, you will be take the company ahead. able to: What are GAIL’s main priorities? Going by its business strategy, the focus areas are gas sourcing, n State the meaning transmission, marketing, processing, petrochemicals, globalisation of planning; and city gas distribution. We are focussing on sourcing of gas from indigenous finds and through LNG and crossborder pipelines. We n Describe the intend to develop the gas market by extending our gas grid from features and 5,600 km to 10,000 km. The city gas project is expected to rise importance of from 6 to 45 by the end of the 11th five year Plan. What are GAIL’s plans for acquiring an exploration and planning; production (E&P) company abroad? n Explain the GAIL has plans to strengthen its exploration and production activities. To become a formidable company, GAIL is exploring limitations of options - acquiring an E&P company is one such option. planning; What are your Capex plans and how do you plan to fund it? GAIL’s budgeted Capex plan for FY 06-07 is Rs. 2967.28 crore. n Analyse the steps This includes capital expenditure of Rs. 2579.58 crore on pipeline in the planning and other projects and Rs. 387.7 crore on petrochemical projects. process; and This will be funded through internal reserves. What are your plans on city gas distribution? Will GAIL n Identity the continue with its plans on fuel management? different types of We have already established the business successfully in Mumbai, Delhi, Vadodara, Vijaywada, Agra, Lucknow, Kanpur. Till date GAIL plans. has formed eight joint venture companies to implement city gas projects. The projects have had an impact on the pollution levels. GAIL is in the process of forming state-wise Joint Ventures with oil marketing companies to implement city gas projects in Rajasthan. What are GAIL’s plans to diversify into telecom and what is the current status? 2015-16(21/01/2015) 96 Business Studies Gailtel, the telecom service arm of GAIL, offers telecom services commercially to lead telecom operators across India. Gailtel owns and operates approximately 13,000 route km of fibre optic network, GAIL is evaluating various options to work out its future growth plans. Source: The Economic Times, October 2006 Introduction hard in thinking about the future, You have just read about the plans of in making business predictions and Gas Authority of India Limited (GAIL), achieving targets. Dreams can be It is one of our leading public sector turned into reality only if business companies. The plans discussed by managers think in advance on what the Chairperson, GAIL are real plans to do and how to do it. This is the of the company and how they essence of planning. would like to go about achieving their objectives. Of course, these Concept are broad statements given by the Planning is deciding in advance what company and they have to be broken to do and how to do. It is one of the down into steps for implementation. basic managerial functions. Before This is an example of a company doing something, the manager must in the public sector with a nation- formulate an idea of how to work on wide reach striving to be one of the a particular task. Thus, planning is top companies in India. Further closely connected with creativity and more, every organisation whether innovation. But the manager would it is government-owned, a privately first have to set objectives, only then owned business or a company in the will a manager know where he has private sector requires planning. The to go. Planning seeks to bridge the government makes five year plans gap between where we are and where for the country, a small business we want to go. Planning is what has it’s own plans, while other managers at all levels do. It requires companies have big plans, sales taking decisions since it involves plans, production plans. All of them making a choice from alternative have some plans. courses of action. All business firms would like to be Planning, thus, involves setting successful, increase their sales and objectives and developing appropriate earn profits. All managers dream courses of action to achieve these obj­ of these and strive to achieve their ectives. Objectives provide direction goals. But to turn these dreams for all managerial decisions and into reality managers need to work actions. Planning provides a rational 2015-16(21/01/2015) Planning 97 of planning? One of the ways to do so would be to define planning as setting objectives for a given time period, formulating various courses of action to achieve them, and then selecting the best possible alternative from among the various courses of action available. Importance of Planning You must have seen in films and advertisements how executives Planning: Keeping the draw up plans and make powerful objective in view and presentations in boardrooms. Do being in action those plans actually work? Does it improve efficiency? After all why approach for achieving predetermined should we plan? These are numerous objectives. All members, therefore, questions to which we would like to need to work towards achieving find solutions. Planning is certainly organisational goals. These goals important as it tells us where to go, set the targets which need to be it provides direction and reduces achieved and against which actual the risk of uncertainty by preparing performance is measured. Therefore, forecasts. The major benefits of planning means setting objectives planning are given below: and targets and formulating an (i) Planning provides directions: action plan to achieve them. It By stating in advance how work is concerned with both ends and is to be done planning provides means i.e., what is to be done and direction for action. Planning ens­ how it is to be done. ures that the goals or objectives The plan that is developed has to are clearly stated so that they have a given time frame but time act as a guide for deciding what is a limited resource. It needs to be action should be taken and in utilised judiciously. If time factor which direction. If goals are well is not taken into consideration, defined, employees are aware of conditions in the environment may what the organisation has to do change and all business plans may and what they must do to achieve go waste. Planning will be a futile those goals. Departments and exercise if it is not acted upon or individuals in the organisation implemented. are able to work in coordination. Do you think from the above we can If there was no planning, empl­ formulate a comprehensive definition oyees would be working in different 2015-16(21/01/2015) 98 Business Studies directions and the organisation (v) Planning facilitates decision would not be able to achieve its making: Planning helps the desired goals. manager to look into the future (ii) Planning reduces the risks of and make a choice from amongst uncertainty: Planning is an activity various alternative courses of which enables a manager to look action. The manager has to eva­ ahead and anticipate changes. luate each alternative and select By deciding in advance the tasks the most viable proposition. to be performed, planning shows Planning involves setting targets the way to deal with changes and predicting future conditions, and uncertain events. Changes thus helping in taking rational or events cannot be eliminated decisions. but they can be anticipated and managerial responses to them (vi) Planning establishes standards can be developed. for controlling: Planning inv­ (iii) Planning reduces overlapping olves setting of goals. The entire and wasteful activities: Plan­ managerial process is concerned ning serves as the basis of with accomplishing predeter­ coordinating the activities and mined goals through planning, efforts of different divisions, organising, staffing, directing and departments and individuals. It controlling. Planning provides the helps in avoiding confusion and goals or standards against which misunderstanding. Since plan­ actual performance is measured. ning ensures clarity in thought By comparing actual performance and action, work is carried on with some standard, managers can smoothly without interruptions. know whether they have actually Useless and redundant activities are minimised or eliminated. It been able to attain the goals. If is easier to detect inefficiencies there is any deviation it can be and take corrective measures to corrected. Therefore, we can say deal with them. that planning is a prerequisite (iv) Planning promotes innovative for controlling. If there were no ideas: Since planning is the goals and standards, then finding first function of management, deviations which are a part of new ideas can take the shape controlling would not be possible. of concrete plans. It is the most The nature of corrective action challenging activity for the required depends upon the extent management as it guides all of deviations from the standard. future actions leading to growth Therefore, planning provides the and prosperity of the business. basis of control. 2015-16(21/01/2015) Planning 99 Features of Planning activities to be undertaken to achieve the goals. Thus, planning In the example of Polaris, the company is purposeful. Planning has no has plans of expansion. Their meaning unless it contributes objective is to increase their capacity to the achievement of predet­ so that they can employ 800 more ermined organisational goals. professionals. Their target time is six (ii) Planning is a primary function months. The objective of the current of management: Planning lays year has also been clearly stated which down the base for other func­ is to increase capacity by 1500-2000 tions of management. All other more professionals. Since planning is managerial functions are perfor­ the primary function of management med within the framework of they have set their objectives first. the plans drawn. Thus, planning Thus, all businesses follow a set precedes other functions. This is pattern of planning. You will be able also referred to as the primacy of to find some similarities in the features planning. The various functions of planning and what you see in real of management are interrelated life. Try and identify them. and equally important. However, The planning function of the planning provides the basis of all management has certain special other functions. features. These features throw light on its nature and scope. (iii) Planning is pervasive: Planning (i) Planning focuses on achieving is required at all levels of objectives: Organisations are management as well as in all set up with a general purpose departments of the organisation. in view. Specific goals are set It is not an exclusive function out in the plans along with the of top management nor of any Polaris Plans New Facility in Mumbai IT Company Polaris Software Lab is planning a new facility in Mumbai with a capacity for 800 professionals. The company currently has 1,200 professionals across its three centers in Mumbai, and the new facility is expected to come up in the next six months. Polaris chairman and CEO said that the company was well on the track to meet its earlier announcement to increase the headcount by 1,500-2,000 professionals in the current year to reach the 9,000 mark by March 2007. We will look at acquisition of small boutique consulting companies that are focused on banking, financial services and insurance (BFSI) space. This will strengthen customer service and account management capabilities. Source: The Economic Times, October 06 2015-16(21/01/2015) 100 Business Studies particular department. But the for example, sales forecasting is scope of planning differs at diff­ the basis on which a business erent levels and among different firm prepares its annual plan for departments. For example, the production and sales. top management undertakes (vi) Planning involves decision planning for the organisation making: Planning essentially inv­ as a whole. Middle management olves choice from among various does the departmental planning. alternatives and activities. If there At the lowest level, day-to-day is only one possible goal or a operational planning is done by possible course of action, there supervisors. is no need for planning because (iv) Planning is continuous: Plans there is no choice. The need are prepared for a specific period for planning arises only when of time, may be for a month, a alternatives are available. In actual quarter, or a year. At the end of practice, planning pre­supposes that period there is need for a new the existence of alternatives. plan to be drawn on the basis of Planning, thus, involves thorough new requirements and future examination and evaluation of conditions. Hence, planning is a each alternative and choosing continuous process. Continuity the most appropriate one. of planning is related with the (vii) Planning is a mental exercise: planning cycle. It means that a Planning requires application plan is framed, it is implemented, of the mind involving foresight, and is followed by another plan, intelligent imagination and sound and so on. (v) Planning is futuristic: Planning Planning: the first essentially involves looking ahead step to management and preparing for the future. The purpose of planning is to meet future events effectively to the best advantage of an organisation. It implies peeping into the future, analysing it and predicting it. Planning is, therefore, regarded as a forward looking function based on forecasting. Through forecasting, future events and conditions are anticipated and plans are drawn accordingly. Thus, 2015-16(21/01/2015) Planning 101 judgement. It is basically an interventions, legal regulations, all intellectual activity of thinking affect our business plans. Plans then rather than doing, because need to be modified. If we cannot planning determines the action adhere to our plans, then why do to be taken. However, planning we plan at all? This is what we need requires logical and systematic to analyse. The major limitations of thinking rather than guess work planning are given below: or wishful thinking. In other (i) Planning leads to rigidity: In words, thinking for planning an organisation, a well-defined must be orderly and based on the plan is drawn up with specific analysis of facts and forecasts. goals to be achieved within a specific time frame. These plans Limitations of Planning then decide the future course of We have seen how planning is action and managers may not be essential for business organisations. in a position to change it. This It is difficult to manage operations kind of rigidity in plans may without formal planning. It is impo­ create difficulty. Managers need rtant for an organisation to move to be given some flexibility to be towards achieving goals. But we have able to cope with the changed often seen in our daily lives also, that circumstances. Following a pre- things do not always go according decided plan, when circum­ to plan. Unforeseen events and stances have changed, may not changes, rise in costs and prices, turn out to be in the organisations environmental changes, government interest. International Ambitions of Essar The Essar group is looking to step up its global operations by entering the riskier but profitable markets of Africa, eastern Europe and the Middle East. In its core business of steel, the Essar group is also looking at a proposal to acquire an integrated steel plant in Eastern Europe. The group has also announced its intention of setting up Greenfield steel manufacturing operations in Sharjah, Qatar and Iran. It has plans to set up a 50-50 joint venture with state-owned Qatar Steel Company for a 1.5 million ton steel plant along with a 1 million ton steel rolling plant on the outskirts of Sharjah and another ton per annum steel plant in Iran, according to a recent Essar newsletter. Even the Indonesia branch of Essar, where the group runs a cold-rolling complex, is expected to look for merger and acquisitions (M & A) opportunities in the region. Source: Business World, 25th September 06 2015-16(21/01/2015) 102 Business Studies (ii) Planning may not work in a carry out orders. Thus, planning dynamic environment: The in a way reduces creativity since business environment is dyn­ people tend to think along the amic, nothing is constant. The same lines as others. There is environment consists of a nothing new or innovative. number of dimensions, economic, (iv) Planning involves huge costs: political, physical, legal and social When plans are drawn up huge dimensions. The organisation costs are involved in their has to constantly adapt itself to formulation. These may be in changes. It becomes difficult to terms of time and money for accurately assess future trends example, checking accuracy of in the environment if economic facts may involve lot of time. policies are modified or political Detailed plans require scientific conditions in the country are calculations to ascertain facts not stable or there is a natural and figures. The costs incurred calamity. Competition in the sometimes may not justify the market can also upset financial benefits derived from the plans. plans, sales targets may have to There are a number of incidental be revised and, accordingly, cash costs as well, like expenses on budgets also need to be modified boardroom meetings, discussions since they are based on sales with professional experts and figures. Planning cannot foresee preliminary investigations to find everything and thus, there may be out the viability of the plan. obstacles to effective planning. (v) Planning is a time-consuming (iii) Planning reduces creativity: process: Sometimes plans to be Planning is an activity which is drawn up take so much of time done by the top management. that there is not much time left Usually the rest of the members for their implementation. just implements these plans. As (vi) Planning does not guarantee a consequence, middle manage­ success: The success of an ment and other decision makers enterprise is possible only when are neither allowed to deviate plans are properly drawn up and from plans nor are they permitted implemented. Any plan needs to act on their own. Thus, much to be translated into action or of the initiative or creativity it becomes meaningless. Mana­ inherent in them also gets lost gers have a tendency to rely or reduced. Most of the time, on previously tried and tested employees do not even attempt successful plans. It is not always to formulate plans. They only true that just because a plan 2015-16(21/01/2015) Planning 103 has worked before it will work (i) Setting Objectives: The first again. Besides, there are so and foremost step is setting many other unknown factors objectives. Every organisation to be considered. This kind of must have certain objectives. complacency and false sense Objectives may be set for the of security may act­ ually lead entire organisation and each to failure instead of success. department or unit within the However, despite its limitations, organisation. Objectives or goals planning is not a useless specify what the organisation wants to achieve. It could mean exercise. It is a tool to be used an increase in sales by 20% with caution. It provides a base which could be objective of the for analysing future courses of entire organisation. How all dep­ action. But, it is not a solution artments would contribute to to all problems. the organisational goals is the plan that is to be drawn up. Planning Process Objectives should be stated clearly for all departments, units and Planning, as we all know is deciding employees. They give direction to in advance what to do and how to do. all departments. Departments/ It is a process of decision making. units then need to set their How do we go about making a plan? own objectives within the broad Since planning is an activity there framework of the organisation’s are certain logical steps for every philosophy. Objectives have to manager to follow. percolate down to each unit Ministry Draws up Plan to Turn Around SEB’s by ’08 To give a boost to the financial health of state electricity boards (SEBs), the power ministry has outlined an 11-point agenda to initiate their financial turnaround by 2007-08. Suggestions include changes in the way distribution utilities submit tariff- fixation petitions to the regulators and introduction of the concept of a proper time- bound business plan. The ministry has asked all utilities to adopt a multi-year tariff approach while filing the next tariff petition for 2007-08 before the state regulator. This must be undertaken before December 2006. It has also asked utilities to have a state- approved business plan with identifiable goals for a three, six and 12-month period. Also, approval needs to be sought from the state regulator for automatic tariff adjustment to recover additional fuel and other unanticipated costs. Source: The Economic Times, September 06 2015-16(21/01/2015) 104 Business Studies and employees at all levels. At assumptions are made. Then the the same time, managers must next step would be to act upon contribute ideas and participate them. There may be many ways in the objective setting process. to act and achieve objectives. They must also understand All the alternative courses of how their actions contribute to action should be identified. The achieving objectives. If the end course of action which may be result is clear it becomes easier taken could be either routine or to work towards the goal. innovative. An innovative course (ii) Developing Premises: Planning may be adopted by involving is concerned with the future more people and sharing their which is uncertain and every ideas. If the project is important, planner is using conjecture about what might happen in future. then more alternatives should Therefore, the manager is required be generated and thoroughly to make certain assumptions discussed amongst the members about the future. These assum­ of the organisation. ptions are called premises. Assu­ (iv) Evaluating alternative courses: mptions are the base material The next step is to weigh the pros upon which plans are to be and cons of each alternative. Each drawn. The base material may be course will have many variables in the form of forecasts, existing which have to be weighed against plans or any past information each other. The positive and about policies. The premises negative aspects of each proposal or assumptions must be the need to be evaluated in the light same for all and there should of the objective to be achieved. be total agreement on them. All In financial plans, for example, managers involved in planning the risk-return trade-off is very should be familiar with and common. The more risky the use the same assumptions. For investment, the higher the returns example, forecasting is important it is likely to give. To evaluate such in developing premises as it is a proposals detailed calculations technique of gathering inform­ of earnings, earnings per share, ation. Forecasts can be made about the demand for a particular interest, taxes, dividends are product, policy change, interest made and decisions taken. rates, prices of capital goods, Accurate forecasts in conditions tax rates etc. Accurate forecasts, of certainty/uncertainty then therefore become essential for become vital assumptions for successful plans. these proposals. Alternatives are (iii) Identifying alternative courses evaluated in the light of their of action: Once objectives are set, feasibility and consequences. 2015-16(21/01/2015) Planning 105 (v) Selecting an alternative: Types of Plans This is the real point of decision making. The best plan has to be Single-use and standing plans adopted and implemented. The An organisation has to prepare a plan ideal plan, of course, would be before making any decision related to the most feasible, profitable and business operation, or undertaking with least negative conseq­uences. any project. Plans can be classified Most plans may not always be into several types depending on the subjected to a mathematical use and the length of the planning analysis. In such cases, period. Certain plans have a short- subjectivity and the manager’s term horizon and help to achieve exp­ erience, judgement and at operational goals. These plans can be times, intuition play an impor­ classified into single-use plans and tant part in selecting the most standing plans. viable alternative. Sometimes, Single-use Plan: A single-use plan a comb­ ination of plans may is developed for a one-time event or be selected instead of one best project. Such a course of action is not course. The manager will have likely to be repeated in future, i.e., to apply permutations and they are for non-recurring situations. combinations and select the best The duration of this plan may depend possible course of action. upon the type of the project. It may (vi) Implementing the plan: This is span a week or a month. A project may the step where other managerial sometimes be of only one day, such functions also come into the as, organising an event or a seminar picture. The step is concerned or conference. These plans include with putting the plan into action, budgets, programmes and projects. i.e., doing what is required. For They consist of details, including example, if there is a plan to the names of employees who are increase production then more responsible for doing the work and labour, more machinery will be contributing to the single-use plan. For required. This step would also example, a programme may consist of involve organising for labour and identifying steps, procedures required purchase of machinery. for opening a new department to deal (vii) Follow-up action: To see whether with other minor work. Projects are plans are being implemented and similar to programmes but differ in activities are performed according scope and complexity. A budget is a to schedule is also part of the statement of expenses, revenue and planning process. Monitoring income for a specified period. the plans is equally important Standing Plan: A standing plan is to ensure that objectives are used for activities that occur regularly achieved. over a period of time. It is designed 2015-16(21/01/2015) 106 Business Studies to ensure that internal operations of Objectives, Strategy, Policy, Procedure, an organisation run smoothly. Such Method, Rule, Programme, Budget. a plan greatly enhances efficiency in routine decision-making. It is usually Objectives developed once but is modified from time to time to meet business needs The first step in planning is setting as required. Standing plans include objectives. Objectives, therefore, can policies, procedures, methods and be said to be the desired future position rules. that the management would like to Policies are general forms of standing reach. Objectives are very basic to plans that specifies the organisations the organisation and they are defined response to a certain situation like the as ends which the management admission policy of an educational seeks to achieve by its operations. institution. Procedures describe Therefore, an objective simply stated steps to be followed in particular is what you would like to achieve, circumstances like the procedure i.e., the end result of activities. For for reporting progress in production. example, an organisation may have Methods provide the manner in which a task has to be performed. Rules are an objective of increasing sales by very clearly stated as to exactly what 10% or earning a reasonable rate of has to be done like reporting for work return on investment, earn a 20% at a particular time. profit from business. They represent Single-use and standing plans the end point of planning. All are part of the operational planning other managerial activities are also process. directed towards achieving these There are other types of plans which objectives. They are usually set by usually are not classified as single- top management of the organisation use or standing plans. A strategy, for and focus on broad, general issues. example, is part of strategic planning They define the future state of affairs or management. It is a general plan which the organisation strives to prepared by top management outlining realise. They serve as a guide for resource allocation, priorities and overall business planning. Different takes into consideration the business environment and competition. departments or units in the organ- Objectives are usually set by the top isation may have their own objectives. management and serve as a guide Objectives need to be expressed for overall planning. Each unit then in specific terms i.e., they should be formulates their own objectives keeping measurable in quantitative terms, in view the overall organisational goals. in the form of a written statement of Based on what the plans seek to desired results to be achieved within achieve, plans can be classified as a given time period. 2015-16(21/01/2015) Planning 107 Strategy Policy A strategy provides the broad contours Policies are general statements that of an organisation’s business. It will guide thinking or channelise energies also refer to future decisions defining towards a particular direction. Policies the organisations direction and scope provide a basis for interpreting strategy in the long run. Thus, we can say a which is usually stated in general terms. strategy is a comprehensive plan They are guides to managerial action for accomplishing an organisation and decisions in the implementation objectives. This comprehensive plan of strategy. For example, the company will include three dimensions, may have a recruitment policy, pricing (i) determining long term objectives, policy within which objectives are set (ii) adopting a particular course of and decisions are made. If there is an action, and (iii) allocating resources established policy, it becomes easier necessary to achieve the objective. to resolve problems or issues. As such, Whenever a strategy is formulated, a policy is the general response to a the business environment needs to particular problem or situation. be taken into consideration. The There are policies for all levels changes in the economic, political, and departments in the organisation social, legal and technological envi­ ranging from major company policies ronment will affect an organisation’s to minor policies. Major company strategy. Strategies usually take the policies are for all to know i.e., course of forming the organisation’s customers, clients, competitors identity in the business enviro­ etc., whereas minor polices are nment. Major strategic decisions applicable to insiders and contain will include decisions like whether minute details of information vital the organisation will continue to to the employees of an organisation. be in the same line of business, or But there has to be some basis for combine new lines of activity with the divulging information to others. existing business or seek to acquire Policies define the broad param­ a dominant position in the same eters within which a manager may market. For example, a company’s function. The manager may use marketing strategy has to address his/her discretion to interpret and certain questions i.e., who are the apply a policy. For example, the customers? what is the demand decisions taken under a Purchase for the product? which channel of Policy would be in the nature of distribution to use? what is the pricing manufacturing or buying decisions. policy? and how do we advertise Should a company make or buy its the product. These and many more requirements of packages, transport issues need to be resolved while services, printing of stationery, water formulating a marketing strategy for and power supply and other items? any organisation. How should vendors be selected 2015-16(21/01/2015) 108 Business Studies for procuring supplies? How many management to supervisory, different suppliers should a company make methods can be adopted. For purchases from? What is the criteria example for higher level management for choosing suppliers. All these orientation programmes, lectures queries would be addressed by the and seminars can be organised Purchase Policy. whereas at the supervisory level, on the job training methods and work- Procedure oriented methods are appropriate. Procedures are routine steps on how Rule to carry out activities. They detail Rules are specific statements that the exact manner in which any inform what is to be done. They do not work is to be performed. They are allow for any flexibility or discretion. specified in a chronological order. For It reflects a managerial decision that example, there may be a procedure for a certain action must or must not requisi­ tioning supplies before be taken. They are usually the production. Procedures are specified simplest type of plans because there steps to be followed in particular is no compromise or change unless a circumstances. They are generally policy decision is taken. meant for insiders to follow. The sequence of steps or actions to be Programme taken are generally to enforce a Programmes are detailed statements policy and to attain pre-determined about a project which outlines the objectives. Policies and procedures objectives, policies, procedures, rules, are interlinked with each other. tasks, human and physical resources Procedures are steps to be carried required and the budget to implement out within a broad policy framework. any course of action. Programmes will include the entire gamut of activities as well as the organisation’s Method policy and how it will contribute Methods provide the prescribed ways to the overall business plan. The or manner in which a task has to be minutest details are worked out i.e., performed considering the objective. procedures, rules, budgets, within It deals with a task comprising one the broad policy framework. step of a procedure and specifies how this step is to be performed. The Budget method may vary from task to task. A budget is a statement of expected Selection of proper method saves results expressed in numerical time, money and effort and increases terms. It is a plan which quantifies efficiency. For imparting training to future facts and figures. For example, employees at various level from top a sales budget may forecast the sales 2015-16(21/01/2015) Planning 109 of different products in each area for plan and control the use of cash. It is a particular month. A budget may a statement showing the estimated also be prepared to show the number cash inflows and cash outflows of workers required in the factory at over a given period. Cash inflows peak production times. would generally come from cash Since budget represents all items sales and the cash outflows would in numbers, it becomes easier to gener­ally be the costs and expenses compare actual figures with expected associated with the operations of the figures and take corrective action business. The net cash position is subsequently. Thus, a budget is also determined by the cash budget i.e., a control device from which deviations inflows minus (–) outflows = surplus can be taken care of. But making a or deficiency. budget involves forecasting, therefore, The management has to hold it clearly comes under planning. It is adequate cash balances for various a fundamental planning instrument purposes. But at the same time, it in many organisations. should avoid excess balance of cash Let us take an example of Cash since it gives little or no return. Budget. The cash budget is a basic The business has to assess and tool in the management of cash. It is plan its need for cash with a degree a device to help the management to of caution. Key Terms Planning Objectives Goals Decisions Standards Controlling Premises Assumptions Alternatives Strategy Policy Procedure Rule Programme Budget Summary Planning Planning is deciding in advance what to do and how to do. It is one of the basic managerial functions. Planning therefore involves setting objectives and developing an appropriate course of action to achieve these objectives. Importance of Planning Planning provides directions, reduces risks of uncertainty, reduces overlapping and wasteful activities, promotes innovative ideas, facilitates decision making, establishes standards for controlling. Features of Planning Planning focuses on achieving objectives; It is a primary function of management; Planning is pervasive, continuous, futuristic and involves decision making; It is a mental exercise. 2015-16(21/01/2015) 110 Business Studies Limitations of Planning Planning leads to rigidity; reduces creativity; involves huge costs; It is a time consuming process; Planning does not work in a dynamic environment; and does not guarantee success. Planning Process Setting objectives: Objectives may be set for the entire organisation and each department or unit within the organisation. Developing premises: Planning is concerned with the future which is uncertain and every planner is using conjucture about what might happen in future. Identifying alternative courses of action: Once objectives are set, assumptions are made. Then the next step would be to act upon them. Evaluating alternative courses: The next step is to weigh the pros and cons of each alternative. Selecting an alternative: This is the real point of decision making. The best plan has to be adopted and implemented. Implement the plan: This is concerned with putting the plan into action. Follow-up action: Monitoring the plans are equally important to ensure that objectives are achieved. Types of Plans Objectives: Objectives therefore can be said to be the desired future position that the management would like to reach. Strategy: A strategy provides the broad contours of an organisation’s business. It will also refer to future decisions defining the organisations direction and scope in the long run. Policy: Policies are general statements that guide thinking or channelise energies towards a particular direction. Procedure: Procedures are routine steps on how to carry out activities. Rule: Rules are specific statements that tell what is to be done. Programme: Programmes are detailed statements about a project which outlines the objectives, policies, procedures, rules, tasks, human and physical resources required and the budget to implement any course of action. Budget: A budget is a statement of expected results expressed in numerical terms. It is a plan which quantifies future facts and figures. Exercises Short Answer Type 1. What are the main points in the definition of planning. 2. How does planning provide direction? 2015-16(21/01/2015) Planning 111 3. Do you think planning can work in a changing environment? 4. If planning involves working out details for the future, why does it not ensure success? 5. Why are rules considered to be plans? 6. What kind of strategic decisions are taken by business organisations. Long Answer Type 1. Why is it that organisations are not always able to accomplish all their objectives? 2. What are the main features to be considered by the manag­ ement while planning? 3. What are the steps taken by management in the planning process? 4. Is planning actually worth the huge costs involved? Explain. Activities Interview a local small-business manager about how their objectives are set and the time taken to achieve them. How do their answers compare with what you have learnt in the chapter. Case Problem An auto company C Ltd. is facing a problem of declining market share due to increased competition from other new and existing players in the market. Its competitors are introducing lower priced models for mass consumers who are price sensitive. For quality conscious consumers, the company is introducing new models with added features and new technological advancements. Questions 1. Prepare a model business plan for C Ltd. to meet the existing challenge. You need not be very specific about quantitative parameters. You may specify which type of plan you are preparing. 2. Identify the limitations of such plans. 3. How will you seek to remove these limitations? 2015-16(21/01/2015)