CBSE Class XII Business Studies Fundamental Concepts

Chapter 4
(Planning)

What is meant by planning?

Define planning. 2 marks

Planning is the process of thinking before doing. It involves determination of objectives and steps to be taken to achieve those objectives. It is a continuous intellectual process of anticipating the future and deciding the activities. It is the process of deciding what is to be done, how where, when, and by whom is it to be done.

Explain the nature of planning

Explain the characteristics of planning

Explain the features of planning - 7 marks

1. Intellectual Process

Planning is an intellectual process. A good plain is based upon collection, study and analysis of facts, evaluating the alternatives, combination of factors and deciding the most appropriate line of action. The efficiency of plans depends on the ability of the management.

2. Planning is goal oriented

Planning is made to achieve the desired objectives of the business. The objectives of the business should become the focus of management team. It should be guided towards the selected objective of the business.

3. Planning is the primary function

Planning is the first function of management. Every other managerial function is based on the plans. It is the framework on which the other management functions are built. All managerial functions are interrelated and equally important. However planning is the basic function.

4. Planning is Pervasive

Planning is required at all levels of management as well as in all departments of the organization. It is not an exclusive function of top management alone. It is not reserved to one department alone. However the scope of planning differs at different levels of management. It differs from department to department.

5. Planning is flexible and continuous

Plans are prepared for a specific period of time. It is not a permanent structure in the process of management. The plan has to be modified within the period for which it is made according to actual situations. At the end of the period there may be a drastic revision of plan. At every stage there is continuous monitoring, evaluation and modifications in plans.

6. Planning is forward looking

Planning essentially involves looking ahead. It is preparing for the future. The purpose of planning is to meet the future situations effectively. It requires the management to foresee the future events on the basis of past. It must consider all other factors having influence on business environment. Planning is the activity making use of favourable factors in future to achieve goals. It also involves finding solutions to possible negative factors such as increased competition, fall in demand shortage of materials etc.

7. Planning is selection of best alternative

Planning is the identification of alternatives and selection of the best. If there is only one objective and only one course of action, there is no scope of planning. The planning process evaluations all the options and the strengths and weakness on the basis of resource availability and decides what exactly the best course of action is. Thus the planning process is the selection of the right course of action from the wide range of options.

Explain the importance of planning for a large business enterprise. – 6 marks

“Planning is of vital importance in the managerial process” Explain

Why is planning necessary for effective management? Give six reasons

Explain briefly the benefits of planning to an organization.

Is planning necessary for effective management? Give reasons in support of your answer

Planning is the primary function in the process of management. Planning involves forecasting the future, imagining various scenarios, selecting the most likely scenario and then organizing resources to put the plan into action Planning is concerned with the future impact of today's decisions. It is the process of thinking before doing. It is involves determination of goals and deciding the course of action. Planning is important due to the following benefits derived from planning:

1. Planning helps in achieving the objectives

The objectives of the business are the guide posts to decide the course of action. Management process involves continuously monitoring what the management is achieving on daily basis in the wider canvas of the objectives of the organization

2. Reduces uncertainties

Many of the problems that can arise in future are beyond the control of management. It however can prepare the organization to face problems to reduce the impact. Planning anticipates advantages and disadvantages in future events and suggests suitable course of action. Strength, Weakness, Opportunities and Threats (SWOT) are to be analyzed to determine the most suitable course of action.

3. Enables the best possible use of resources

The resources of business are to be put to the best use to achieve maximum result. Underutilization of resources is a symptom and cause of inefficiency. Planning determines the nature and volume of each resource at various stages in future. Thus the management can make provision to put them to the best use. Management can regulate and organize the supply of various resources to ensure that there is no over supply or scarcity. It reduces misuse and wastage.

4. Effective coordination

To coordinate is to fine tune the activities in the scale and rhythm of objectives. Planning leads to regulation of all activities in the business. It ensures smoothness in the functioning of business. In the absence of proper planning, interrelated activities fail to meet each others’ requirement and lead to inefficiency. For example production department should be coordinated with sales plan to make sure that there is no over production or scarcity.

5. Planning facilitates decision-making

Planning estimates future situations. The management is more or less aware of the prospective opportunities. It also gets a realistic picture of the problems that can crop up in future. Plans are made on the basis this analysis. Decision making process becomes simple implementation of plans in action. It is relatively easier, because the available options are considered in advance at the planning stage.

6. Planning helps in expansion of business

No business can survive by being stagnant. Business world is always mobile. This mobility is either upward or downward. Thus progress is not just a question of well being; it is the fundamental question of survival. In a competitive environment, when the rivals make their strategies to expand their market share, a stagnant company is a losing company. It may not be losing the absolute numbers in sales figure. But will be evident when their market share over a period of time is compared. Lost opportunity is a permanent loss. Planning involves allocation of resources and implementation of programs for expansion of the business.

7. Effective control

Planning establishes rules of action. It establishes procedures. Management knows the situations that are likely to emerge. When there is a well thought out plan, it is easier to compare results. When problems are detected at implementation stage, it can be sorted out, before it leads to more problems and inefficiency and ultimately a crisis. Thus planning is an effective tool of control.

6 What are the limitations of planning? 6 marks

Why does planning fail in spite of the best efforts of the management? 3 marks

“Sometimes planning fail in spite of the best efforts of management” Do you agree? Give five reasons in support of your answer.     6 marks

Planning suffers from internal and external limitations. Internal limitations are inherent limitations and to some extent the management can take precautions and reduce their effect. However external limitations are mostly beyond the control of management.

The following are the limitations of planning:

a. Internal Limitations

1. Rigidity

Plan is the rigid framework for future activities. Planning reduces operational freedom to management. Business environment keeps on changing. The planned activities sometimes do not fit in the renewed circumstances. Problems once anticipated may not become realities. At the same time new problems may emerge. The requirements of strict planning sometimes cause opportunities slip through while the management strictly follow the order of preset priorities.

2. Misdirected Planning

Planning is anticipating a certain set of future situations which create physical and economic and physical environment of the business. It is a powerful force when the situations are accurately assessed and planned. But many of the future situations can change drastically which will make the entire plan meaningless. If the priorities are wrong in light of the new situations and the administrative procedures prevent a quick patch up, the strength and energies of the organization will be directed to some targets that are less meaningful.

3. Time Consuming

Planning is an activity covering the entire range of functions in the business. Gathering information from a wide range or sources analyzing them to arrive at meaningful conclusion is a time consuming matter. Management often fail to gather information at the right time to make effective plans.  In many cases the situations change by the time management gather the required information, which compels them to do the work all over again.

4. False sense of security

Plans often give a false sense of security to the management. The activities are planned.  All the business decisions simple logical extension of the plans.  Management often fail to recognize the change in situations. They expect the natural progress of events according to plans. This false sense of security makes the management complacent which ultimately result in inefficiency.

5 Dependence on forecasting

Forecasting is the foundation of planning process. The future can be predicted only to a vey limited extent. Uncertainties can topple the best estimate of management. In fact most the variables that are taken into account while planning change continuously. Many things can go wrong within the planning period. Lack of monitoring will drain the prospects of business while the management sits back and relax to reap the profits as a reward for effective planning.

6. Expensive process

Planning process is an expensive affair. Big organizations have planning department staffed by professionals, supported by subordinate staff. The company has the bear the burden of salary and service requirements of this additional department.

7. Bias – promoting self interest

Planning sometimes reflect the personal interest of the planners, rather that the interest of the business. If the planners have vested interest they may influence the planning process and tilt the direction of the business to serve those interests. In addition to vested interest there are personal opinions which influence the plans. Plans can reflect individual tastes and preferences rather than the best interest of the business.