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Planning 4 CHAPTER Indian Oil...

Planning 4 CHAPTER Indian Oil Company Limited (IOCL) - Plans to Energize with sustainability L E A R N I N G Indian Oil is India’s largest commercial organisation. It is top ranked Indian company in the latest Fortune ‘Global 500’ OBJECTIVES listings (2017). Indian Oil’s vision is driven by a group of After studying this dynamic leaders who have made it a name to reckon with. With over 34,000 strong work force, a Maharatna Company, chapter, you will be Indian Oil has been helping to meet India’s energy demands able to: and reaching petroleum products to every part of India for over five decades. It plans to increase its business operations n State the meaning all around the world. The company plans to invest ` 20,000 of planning; crore in 2017-18 acquisitions and plans to expand overseas. The company always believed to be ahead of the demand. Last n Describe the year too, IOC had invested close to ` 20,000 crore, including features and around ` 16,000 crore in various Indian projects and on importance of acquisition for upstream in Russia. It is noteworthy, between 2012-17, IOCL ended up investing planning; around ` 75,000 crore against the targeted planned investment n Explain the of around ` 56,200 crore. All investments have been in refinery expansion, upgradation of quality of refineries, building new limitations of pipelines, getting more aggressive in petrochemical projects, planning; setting up new natural gas facilities etc. IOC is also looking at the n Analyse the steps overseas market. Recently it was decided to open an office in Bangladesh apart from talking to the Government of Bangladesh in the planning on many accounts, especially regarding LPG and natural gas process; and where it is trying to take a linkage from IOC pipeline going up from Damra project and West Bengal border before finally n Identity the connecting to the Bangladesh network. For Nepal, IOC plans different types of to build a pipeline between Motihari terminal of IOCL, which is plans. currently coming up, and their own facilities inside Nepal. The company has already signed a memorandum of understanding (MoU) with Bhutan and looking at newly opening markets such as Myanmar. The company always feels that they have to keep their eyes open for new acquisitions. The company has got good reserves and were able to generate funds through internal accruals. But Reprint 2024-25 Ch_04.indd 91 08-08-2022 09:43:21  92 Business Studies on a project basis IOC will certainly go into the market — both India and Overseas, depending on which is cheaper — to borrow money, if needed. Source: https://www.business-standard.com/article/ companies/ioc-to-invest-around-rs-20-000-in-2017-18- plans-expansion-acquisitions-117051600438_1.html. Introduction managers think in advance on what You have just read about the plans to do and how to do it. This is the of Indian Oil Company Limited essence of planning. (IOCL). Of course, these are broad statements given by the company Concept and they have to be broken down Planning is deciding in advance what into steps for implementation. This to do and how to do. It is one of the is an example of a company with a basic managerial functions. Before nation‑wide reach striving to be one doing something, the manager must of the top companies in India. Further formulate an idea of how to work on more, every organisation whether a particular task. Thus, planning is it is government-owned, a privately closely connected with creativity and owned business or a company in the innovation. But the manager would private sector requires planning. The first have to set objectives, only then government makes five year plans will a manager know where he has for the country, a small business to go. Planning seeks to bridge the has it’s own plans, while other gap between where we are and where companies have big plans, sales we want to go. Planning is what plans, production plans. All of them managers at all levels do. It requires have some plans. taking decisions since it involves All business firms would like to be making a choice from alternative successful, increase their sales and courses of action. earn profits. All managers dream Planning, thus, involves setting of these and strive to achieve their objectives and developing appropriate goals. But to turn these dreams courses of action to achieve these obj­ into reality managers need to work ectives. Objectives provide direction hard in thinking about the future, for all managerial decisions and in making business predictions and actions. Planning provides a rational achieving targets. Dreams can be approach for achieving predetermined turned into reality only if business objectives. All members, therefore, Reprint 2024-25 Ch_04.indd 92 08-08-2022 09:43:21  Planning 93 definition 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 Planning: Keeping the advertisements how executives objective in view and being in action draw up plans and make powerful presentations in boardrooms. Do those plans actually work? Does it improve efficiency? After all why need to work towards achieving should we plan? These are numerous organisational goals. These goals questions to which we would like to set the targets which need to be find solutions. Planning is certainly achieved and against which actual important as it tells us where to go, performance is measured. Therefore, it provides direction and reduces planning means setting objectives the risk of uncertainty by preparing and targets and formulating an action plan to achieve them. It forecasts. The major benefits of is concerned with both ends and planning are given below: means i.e., what is to be done and (i) Planning provides directions: how it is to be done. By stating in advance how The plan that is developed has to work is to be done planning have a given time frame but time provides direction for action. is a limited resource. It needs to be Planning ens­ures that the goals utilised judiciously. If time factor or objectives are clearly stated is not taken into consideration, so that they act as a guide for conditions in the environment may deciding what action should be change and all business plans may taken and in which direction. go waste. Planning will be a futile If goals are well defined, exercise if it is not acted upon or employees are aware of what implemented. the organisation has to do and Do you think from the above we what they must do to achieve can formulate a comprehensive those goals. Departments and Reprint 2024-25 Ch_04.indd 93 08-08-2022 09:43:23  94 Business Studies individuals in the organisation of concrete plans. It is the most are able to work in coordination. challenging activity for the If there was no planning, empl­ management as it guides all oyees would be working in future actions leading to growth different directions and the and prosperity of the business. organisation would not be able (v) Planning facilitates decision to achieve its desired goals. making: Planning helps the (ii) Planning reduces the risks of manager to look into the uncertainty: Planning is an activity future and make a choice from which enables a manager to look amongst various alternative ahead and anticipate changes. courses of action. The manager By deciding in advance the tasks has to evaluate each alternative to be performed, planning shows and select the most viable the way to deal with changes proposition. Planning involves and uncertain events. Changes setting targets and predicting or events cannot be eliminated future conditions, thus helping but they can be anticipated and in taking rational decisions. managerial responses to them (vi) Planning establishes standards can be developed. for controlling: Planning (iii) Planning reduces overlapping involves setting of goals. The and wasteful activities: Planning entire managerial process is serves as the basis of coordinating concerned with accomplishing the activities and efforts of different predeter­ m ined goals through divisions, departments and planning, organising, staffing, individuals. It helps in avoiding directing and controlling. confusion and misunderstanding. Since planning ensures Planning provides the goals or clarity in thought and action, standards against which actual work is carried on smoothly performance is measured. By without interruptions. Useless comparing actual performance and redundant activities are with some standard, managers can minimised or eliminated. It is know whether they have actually easier to detect inefficiencies and been able to attain the goals. If take corrective measures to deal there is any deviation it can be with them. corrected. Therefore, we can say (iv) Planning promotes innovative that planning is a prerequisite ideas: Since planning is the for controlling. If there were first function of management, no goals and standards, then new ideas can take the shape finding deviations which are a Reprint 2024-25 Ch_04.indd 94 08-08-2022 09:43:23  Planning 95 part of controlling would not be contributes to the achievement possible. The nature of corrective of predetermined organisational action required depends upon goals. the extent of deviations from the (ii) Planning is a primary function standard. Therefore, planning of management: Planning lays provides the basis of control. down the base for other functions of management. All Features of Planning other managerial functions are In the example of Polaris, the performed within the framework of company has plans of expansion. the plans drawn. Thus, planning Their objective is to increase their precedes other functions. This is capacity so that they can employ 800 also referred to as the primacy of more professionals. Their target time planning. The various functions is six months. The objective of the of management are interrelated and equally important. However, current year has also been clearly planning provides the basis of all stated which is to increase capacity other functions. by 1500-2000 more professionals. Since planning is the primary (iii) Planning is pervasive: Planning is required at all levels of function of management they have management as well as in all set their objectives first. Thus, all departments of the organisation. businesses follow a set pattern of It is not an exclusive function planning. You will be able to find of top management nor of any some similarities in the features of particular department. But planning and what you see in real the scope of planning differs at life. Try and identify them. different levels and among different The planning function of the departments. For example, the management has certain special top management undertakes features. These features throw light planning for the organisation as on its nature and scope. a whole. Middle management (i) Planning focuses on achieving does the departmental planning. objectives: Organisations are At the lowest level, day-to-day set up with a general purpose operational planning is done by in view. Specific goals are set supervisors. out in the plans along with the activities to be undertaken (iv) Planning is continuous: Plans to achieve the goals. Thus, are prepared for a specific period planning is purposeful. Planning of time, may be for a month, a has no meaning unless it quarter, or a year. At the end Reprint 2024-25 Ch_04.indd 95 08-08-2022 09:43:23  96 Business Studies of that period there is need need for planning because for a new plan to be drawn on there is no choice. The need the basis of new requirements for planning arises only when and future conditions. Hence, alternatives are available. planning is a continuous In actual practice, planning process. Continuity of planning presupposes the existence of is related with the planning alternatives. Planning, thus, cycle. It means that a plan is involves thorough examination framed, it is implemented, and and evaluation of each is followed by another plan, and alternative and choosing the so on. most appropriate one. (v) Planning is futuristic: Planning (vii) Planning is a mental exercise: essentially involves looking Planning requires application ahead and preparing for the of the mind involving foresight, future. The purpose of planning intelligent imagination and sound is to meet future events effectively judgement. It is basically an to the best advantage of an intellectual activity of thinking organisation. It implies peeping rather than doing, because into the future, analysing it planning determines the action and predicting it. Planning is, to be taken. However, planning therefore, regarded as a forward requires logical and systematic looking function based on thinking rather than guess forecasting. Through forecasting, work or wishful thinking. future events and conditions are anticipated and plans are drawn Planning: the first accordingly. Thus, for example, step to management sales forecasting is the basis on which a business firm prepares its annual plan for production and sales. (vi) Planning involves decision making: Planning essentially inv­olves choice from among various alternatives and activities. If there is only one possible goal or a possible course of action, there is no Reprint 2024-25 Ch_04.indd 96 08-08-2022 09:43:24  Planning 97 In other words, thinking for Following a pre-decided plan, planning must be orderly and when circum­stances have based on the analysis of facts changed, may not turn out to and forecasts. be in the organisations interest. (ii) Planning may not work in a Limitations of Planning dynamic environment: The We have seen how planning is business environment is essential for business organisations. dynamic, nothing is constant. It is difficult to manage operations The environment consists without formal planning. It is of a number of dimensions, important for an organisation to economic, political, physical, move towards achieving goals. But legal and social dimensions. we have often seen in our daily lives The organisation has to also, that things do not always go constantly adapt itself to according to plan. Unforeseen events changes. It becomes difficult to and changes, rise in costs and prices, accurately assess future trends environmental changes, government in the environment if economic interventions, legal regulations, all policies are modified or political affect our business plans. Plans then conditions in the country are need to be modified. If we cannot not stable or there is a natural adhere to our plans, then why do calamity. Competition in the we plan at all? This is what we need market can also upset financial to analyse. The major limitations of plans, sales targets may have planning are given below: to be revised and, accordingly, (i) Planning leads to rigidity: In cash budgets also need to be an organisation, a well-defined modified since they are based plan is drawn up with specific on sales figures. Planning goals to be achieved within cannot foresee everything and a specific time frame. These thus, there may be obstacles to plans then decide the future effective planning. course of action and managers (iii) Planning reduces creativity: may not be in a position to Planning is an activity which is change it. This kind of rigidity done by the top management. in plans may create difficulty. Usually the rest of the members Managers need to be given some just implements these plans. flexibility to be able to cope with As a consequence, middle the changed circumstances. management and other decision Reprint 2024-25 Ch_04.indd 97 08-08-2022 09:43:24  98 Business Studies makers are neither allowed to (vi) Planning does not guarantee deviate from plans nor are they success: The success of an permitted to act on their own. enterprise is possible only Thus, much of the initiative when plans are properly drawn or creativity inherent in them up and implemented. Any also gets lost or reduced. Most plan needs to be translated of the time, employees do not into action or it becomes even attempt to formulate plans. meaningless. Mana­gers have a They only carry out orders. tendency to rely on previously Thus, planning in a way reduces tried and tested successful creativity since people tend to plans. It is not always true think along the same lines as that just because a plan has others. There is nothing new or worked before it will work innovative. again. Besides, there are so (iv) Planning involves huge costs: many other unknown factors When plans are drawn up huge to be considered. This kind of costs are involved in their complacency and false sense formulation. These may be in of security may act­ ually lead terms of time and money for to failure instead of success. example, checking accuracy of However, despite its limitations, facts may involve lot of time. planning is not a useless Detailed plans require scientific exercise. It is a tool to be used calculations to ascertain facts with caution. It provides a base and figures. The costs incurred for analysing future courses of sometimes may not justify the action. But, it is not a solution benefits derived from the plans. to all problems. There are a number of incidental costs as well, like expenses Planning Process on boardroom meetings, Planning, as we all know is deciding discussions with professional in advance what to do and how to do. experts and preliminary It is a process of decision making. investigations to find out the How do we go about making a plan? viability of the plan. Since planning is an activity there (v) Planning is a time-consuming are certain logical steps for every process: Sometimes plans to be manager to follow. drawn up take so much of time (i) Setting Objectives: The first that there is not much time left and foremost step is setting for their implementation. objectives. Every organisation Reprint 2024-25 Ch_04.indd 98 08-08-2022 09:43:24  Planning 99 must have certain objectives. own objectives within the broad Objectives may be set for the framework of the organisation’s entire organisation and each philosophy. Objectives have department or unit within the to percolate down to each unit organisation. Objectives or goals and employees at all levels. At specify what the organisation the same time, managers must wants to achieve. It could mean contribute ideas and participate an increase in sales by 20% in the objective setting process. which could be objective of the They must also understand entire organisation. How all how their actions contribute to dep­artments would contribute achieving objectives. If the end to the organisational goals is result is clear it becomes easier the plan that is to be drawn up. to work towards the goal. Objectives should be stated clearly (ii) Developing Premises: Planning for all departments, units and is concerned with the future employees. They give direction to which is uncertain and every all departments. Departments/ planner is using conjecture about units then need to set their what might happen in future. Kinds of plans: Objective, Strategy and Policy of Mitticool During the devastating earthquake of January 2001, Mansukhbhai incurred heavy loss and most of his goods were damaged. He distributed the leftover stock that was undamaged, to the quake affected masses of Kutch. This led to a photograph that was taken just after the earthquake and featured on the Sandesh Gujarati Daily in February 2001. It showed a broken water filter that was made by Mansukhbhai with a caption that said “The poor man’s broken fridge”. At that time, he met the Gujarat Grass-roots Innovation Augmentation Network (GIAN), Ahmedabad, which supported Mansukhbhai further in his endeavours. Finally after an arduous quest and several tests of soil and fridge designs, he emerged with the innovative Mitticool fridge in 2005. After that he has innovated various products using clay. yy The company has stuck to its policy of keeping all its products at a lower rate which will be affordable for the poor people. yy Their future plans include starting a factory with the aid of the National Innovation Foundation at IIM Ahmedabad and making a MittiCool house. It will be a green (eco-friendly) house with clay that will have no electricity but only renewable energy to maintain a comfortable temperature inside.” Reprint 2024-25 Ch_04.indd 99 08-08-2022 09:43:24  100 Business Studies Therefore, the manager is be generated and thoroughly required to make certain discussed amongst the members assumptions about the future. of the organisation. These assumptions are called (iv) Evaluating alternative courses: premises. Assumptions are The next step is to weigh the pros the base material upon which and cons of each alternative. Each plans are to be drawn. The base course will have many variables material may be in the form of which have to be weighed forecasts, existing plans or any against each other. The positive past information about policies. and negative aspects of each The premises or assumptions proposal need to be evaluated must be the same for all and in the light of the objective to there should be total agreement on them. All managers involved in be achieved. In financial plans, planning should be familiar with for example, the risk-return and use the same assumptions. trade-off is very common. The For example, forecasting is more risky the investment, important in developing premises the higher the returns it is as it is a technique of gathering likely to give. To evaluate such information. Forecasts can be proposals detailed calculations made about the demand for a of earnings, earnings per share, particular product, policy change, interest, taxes, dividends are interest rates, prices of capital made and decisions taken. goods, tax rates etc. Accurate Accurate forecasts in conditions forecasts, therefore become of certainty/uncertainty then essential for successful plans. become vital assumptions for (iii) Identifying alternative courses these proposals. Alternatives are of action: Once objectives are set, evaluated in the light of their assumptions are made. Then the feasibility and consequences. next step would be to act upon (v) Selecting an alternative: This is them. There may be many ways the real point of decision making. to act and achieve objectives. The best plan has to be adopted All the alternative courses of and implemented. The ideal action should be identified. The plan, of course, would be the course of action which may be most feasible, profitable and with taken could be either routine or least negative conseq­ uences. innovative. An innovative course Most plans may not always be may be adopted by involving subjected to a mathematical more people and sharing their analysis. In such cases, ideas. If the project is important, subjectivity and the manager’s then more alternatives should exp­erience, judgement and Reprint 2024-25 Ch_04.indd 100 08-08-2022 09:43:24  Planning 101 at times, intuition play an operational goals. These plans can be important part in selecting classified into single-use plans and the most viable alternative. standing plans. Sometimes, a combination of Single-use Plan: A single-use plan plans may be selected instead is developed for a one-time event or of one best course. The manager project. Such a course of action is not will have to apply permutations likely to be repeated in future, i.e., and combinations and select the they are for non-recurring situations. best possible course of action. The duration of this plan may depend (vi) Implementing the plan: This is upon the type of the project. It may the step where other managerial span a week or a month. A project may functions also come into the sometimes be of only one day, such picture. The step is concerned as, organising an event or a seminar with putting the plan into action, or conference. These plans include i.e., doing what is required. For budgets, programmes and projects. example, if there is a plan to They consist of details, including increase production then more the names of employees who are labour, more machinery will be responsible for doing the work and required. This step would also contributing to the single-use plan. For involve organising for labour example, a programme may consist of and purchase of machinery. identifying steps, procedures required (vii) Follow-up action: To see whether for opening a new department to deal plans are being implemented and with other minor work. Projects are activities are performed according similar to programmes but differ in to schedule is also part of the scope and complexity. A budget is a planning process. Monitoring statement of expenses, revenue and the plans is equally important income for a specified period. to ensure that objectives are Standing Plan: A standing plan is achieved. used for activities that occur regularly over a period of time. It is designed Types of Plans to ensure that internal operations of an organisation run smoothly. Such Single-use and standing plans a plan greatly enhances efficiency in An organisation has to prepare a plan routine decision-making. It is usually before making any decision related to developed once but is modified from business operation, or undertaking time to time to meet business needs any project. Plans can be classified as required. Standing plans include into several types depending on the policies, procedures, methods and use and the length of the planning rules. period. Certain plans have a short- Policies are general forms of standing term horizon and help to achieve plans that specifies the organisations Reprint 2024-25 Ch_04.indd 101 08-08-2022 09:43:24  102 Business Studies response to a certain situation like the very basic to the organisation and admission policy of an educational they are defined as ends which institution. Procedures describe the management seeks to achieve steps to be followed in particular by its operations. Therefore, an circumstances like the procedure objective simply stated is what you for reporting progress in production. would like to achieve, i.e., the end Methods provide the manner in which result of activities. For example, an a task has to be performed. Rules are organisation may have an objective very clearly stated as to exactly what of increasing sales by 10% or has to be done like reporting for work earning a reasonable rate of return at a particular time. on investment, earn a 20% profit Single-use and standing plans are part of the operational planning from business. They represent the process. end point of planning. All other There are other types of plans which managerial activities are also usually are not classified as single- directed towards achieving these use or standing plans. A strategy, for objectives. They are usually set by example, is part of strategic planning top management of the organisation or management. It is a general and focus on broad, general issues. plan prepared by top management They define the future state of outlining resource allocation, affairs which the organisation priorities and takes into consideration strives to realise. They serve as a the business environment and guide for overall business planning. competition. Objectives are usually Different departments or units in set by the top management and the organisation may have their own serve as a guide for overall planning. objectives. Each unit then formulates their own Objectives need to be expressed objectives keeping in view the overall in specific terms i.e., they should be organisational goals. measurable in quantitative terms, Based on what the plans seek to achieve, plans can be classified as in the form of a written statement of Objectives, Strategy, Policy, Procedure, desired results to be achieved within Method, Rule, Programme, Budget. a given time period. Strategy Objectives A strategy provides the broad contours The first step in planning is setting of an organisation’s business. It will objectives. Objectives, therefore, also refer to future decisions defining can be said to be the desired future the organisations direction and scope position that the management in the long run. Thus, we can say would like to reach. Objectives are a strategy is a comprehensive plan Reprint 2024-25 Ch_04.indd 102 08-08-2022 09:43:24  Planning 103 for accomplishing an organisation They are guides to managerial action objectives. This comprehensive plan and decisions in the implementation will include three dimensions, of strategy. For example, the company (i) determining long term objectives, may have a recruitment policy, pricing (ii) adopting a particular course of policy within which objectives are set action, and (iii) allocating resources and decisions are made. If there is an necessary to achieve the objective. established policy, it becomes easier Whenever a strategy is formulated, to resolve problems or issues. As such, the business environment needs to be a policy is the general response to a taken into consideration. The changes particular problem or situation. in the economic, political, social, There are policies for all levels legal and technological environment and departments in the organisation will affect an organisation’s strategy. ranging from major company Strategies usually take the course policies to minor policies. Major of forming the organisation’s company policies are for all to know identity in the business enviro­ i.e., customers, clients, competitors nment. Major strategic decisions etc., whereas minor polices are will include decisions like whether the organisation will continue to applicable to insiders and contain be in the same line of business, minute details of information vital or combine new lines of activity to the employees of an organisation. with the existing business or seek But there has to be some basis for to acquire a dominant position in divulging information to others. the same market. For example, a Policies define the broad company’s marketing strategy has parameters within which a manager to address certain questions i.e., may function. The manager may who are the customers? what is use his/her discretion to interpret the demand for the product? which and apply a policy. For example, the channel of distribution to use? what decisions taken under a Purchase is the pricing policy? and how do we Policy would be in the nature of advertise the product. These and manufacturing or buying decisions. many more issues need to be resolved Should a company make or buy its while formulating a marketing requirements of packages, transport strategy for any organisation. services, printing of stationery, water Policy and power supply and other items? Policies are general statements that How should vendors be selected guide thinking or channelise energies for procuring supplies? How many towards a particular direction. Policies suppliers should a company make provide a basis for interpreting strategy purchases from? What is the criteria which is usually stated in general terms. for choosing suppliers. All these Reprint 2024-25 Ch_04.indd 103 08-08-2022 09:43:24  104 Business Studies queries would be addressed by the programmes, lectures and seminars Purchase Policy. can be organised whereas at the supervisory level, on the job training Procedure methods and work-oriented methods Procedures are routine steps on how are appropriate. to carry out activities. They detail the exact manner in which any Rule work is to be performed. They are Rules are specific statements that specified in a chronological order. For inform what is to be done. They do not example, there may be a procedure for allow for any flexibility or discretion. requisi­ tioning supplies before It reflects a managerial decision that production. Procedures are specified a certain action must or must not be steps to be followed in particular taken. They are usually the simplest circumstances. They are generally type of plans because there is no meant for insiders to follow. The compromise or change unless a sequence of steps or actions to be policy decision is taken. taken are generally to enforce a policy and to attain pre-determined Programme objectives. Policies and procedures Programmes are detailed statements are interlinked with each other. about a project which outlines the Procedures are steps to be carried objectives, policies, procedures, rules, out within a broad policy framework. tasks, human and physical resources required and the budget Method to implement any course of action. Methods provide the prescribed Programmes will include the entire ways or manner in which a task gamut of activities as well as the has to be performed considering organisation’s policy and how it will the objective. It deals with a task contribute to the overall business comprising one step of a procedure plan. The minutest details are and specifies how this step is to be worked out i.e., procedures, rules, performed. The method may vary budgets, within the broad policy from task to task. Selection of proper framework. method saves time, money and effort and increases efficiency. For Budget imparting training to employees at A budget is a statement of expected various level from top management results expressed in numerical to supervisory, different methods terms. It is a plan which quantifies can be adopted. For example for future facts and figures. For example, higher level management orientation a sales budget may forecast the sales Reprint 2024-25 Ch_04.indd 104 08-08-2022 09:43:24  Planning 105 of different products in each area for a device to help the management to a particular month. A budget may plan and control the use of cash. It also be prepared to show the number is a statement showing the estimated of workers required in the factory at cash inflows and cash outflows over peak production times. a given period. Cash inflows would Since budget represents all items generally come from cash sales and in numbers, it becomes easier to the cash outflows would gener­ally be compare actual figures with expected the costs and expenses associated figures and take corrective action with the operations of the business. The net cash position is determined subsequently. Thus, a budget is also by the cash budget i.e., inflows minus a control device from which deviations (–) outflows = surplus or deficiency. can be taken care of. But making a The management has to hold budget involves forecasting, therefore, adequate cash balances for various it clearly comes under planning. It is purposes. But at the same time, it a fundamental planning instrument should avoid excess balance of cash in many organisations. since it gives little or no return. Let us take an example of Cash The business has to assess and Budget. The cash budget is a basic plan its need for cash with a degree tool in the management of cash. It is 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. Reprint 2024-25 Ch_04.indd 105 08-08-2022 09:43:24  106 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 Very Short Answer Type 1. How does planning provide direction? 2. A company wants to increase its market share from the present 10% to 25% to have a dominant position in the Reprint 2024-25 Ch_04.indd 106 08-08-2022 09:43:24  Planning 107 market by the end of the next financial year. Ms Rajni, the sales manager has been asked to prepare a proposal that will outline the options available for achieving this objective. Her report included the following options - entering new markets, expanding the product range offered to customers, using sales promotion techniques such as giving rebates, discounts or increasing the budget for advertising activities. Which step of the planning process has been performed by Ms Rajni? 3. Why are rules considered to be plans? 4. Rama Stationery Mart has made a decision to make all the payments by e-transfers only. Identify the type of plan adopted by Rama Stationery Mart. 5. Can planning work in a changing environment? Give a reason to justify your answer. Short Answer Type 1. What are the main aspects in the definition of planning? 2. If planning involves working out details for the future, why does it not ensure success? 3. What kind of strategic decisions are taken by business organisations? 4. Planning reduces creativity. Critically comment.(Hint: both the points - Planning promotes innovative ideas and planning reduces creativity – will be given). 5. In an attempt to cope with Reliance Jio’s onslaught in 2018, market leader Bharti Airtel has refreshed its ` 149 prepaid plan to offer 2 GB of 3G/4G data per day, twice the amount it offered earlier. Name the type of plan is highlighted in the given example. ? State its three dimensions also. 6. State the type of plan and state whether they are Single use or Standing plan: a. A type of plan which serves as a controlling device as well.(budget) b. A plan based on research and analysis and is concerned with physical and technical tasks. (Method) Long Answer Type 1. Why is it that organisations are not always able to accomplish all their objectives? Reprint 2024-25 Ch_04.indd 107 08-08-2022 09:43:24  108 Business Studies 2. What are the steps taken by management in the planning process? 3. 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. C Ltd. realized that it needs to take steps immediately to improve its market standing in the future. For quality conscious consumers, C Limited plans to introduce new models with added features and new technological advancements. The company has formed a team with representatives from all the levels of management. This team will brainstorm and will determine the steps that will be adopted by the organisation for implementing the above strategy. Explain the features of Planning highlighted in the situation given below.(Hint: Planning is pervasive, Planning is futuristic and Planning is a mental exercise). Reprint 2024-25 Ch_04.indd 108 08-08-2022 09:43:24