PLANNING THE FIRST FUNCTION OF

Management: PRIMARY FUNCTION

PlanningPlanningPlanning is the process used by managers to identify and select appropriate goals and courses of action for an organization.

3 steps to good planning :1. Which goals should be pursued?2. How should the goal be attained?3. How should resources be allocated?

– The planning function determines how effective and efficient the organization is and determines the strategy of the organization.

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In what way does planning In what way does planning control the future?control the future?

In what way does planning In what way does planning control the future?control the future?

Planning controls the future because through Planning controls the future because through planning people identify what they want to planning people identify what they want to

happen in the future and what they must do happen in the future and what they must do to make the events happen.to make the events happen.

A Framework for Planning

1. Define present situation.2. Establish goals and objectives.3. Analyze environment in terms of

aids and barriers to goals and objectives.

4. Develop action plans to reach goals and objectives.

A Framework for Planning, continued

5. Develop budgets (most action plans require money and other resources).

6. Implement the plans.7. Control the plan (and return to Step 1

if the plan has not worked well).8. Make Contingency Plans: he

purpose of contingency plans is to develop an alternative in case the original plans cannot be implemented successfully or at all.

OPERATING PLANS, POLICIES, PROCEDURES,

AND RULES

Operating plans, policies, procedures, and rules are vehicles for converting strategic plans into action.

Operating Plans • Operating plans are the means

through which strategic plans alter the destiny of the firm. A helpful statement is: “Operating plans involve organizational efficiency (doing things right) whereas strategic plans involve effectiveness (doing the right things).” Operating, or operational, plans provide the details of how strategic plans will be accomplished.

Vision & Mission• A vision is an idealized picture of the future of

the organization • The mission identifies the firm's purpose and

where it fits into the world. • Business strategy develops from planning.

Strategic planning encompasses those activities that lead to the statement of goals and objectives and the choice of strategies to achieve them. The final outcome of strategic planning is statements of vision, mission, strategy, and policy.

Policies• Policies are general guidelines to

follow in making decisions and taking action. As such,

• they are plans. Policies are developed to support strategic plans in every area of the organization. An important managerial role is interpreting policies for employees.

Procedures

• Procedures are considered plans because they establish a customary method of handling future activities. They state the specific manner in which a certain activity must be accomplished.

Rules• A rule is a specific course of action

or conduct that must be followed. It is the simplest type of plan. Rules should fit a strategic plan, as rule prohibiting kickbacks, for example, fits the overall plan of creating an ethical environment for employees.

A GENERAL FRAMEWORK FOR

PLANNING • Three types of planning can be

differentiated. Strategic planning is establishing master plans that fit the destiny of the firm. Tactical planning translates strategic plans into specific goals for organizational units. Operational planning identifies the specific procedures and actions required at lower levels in the organization.

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ORGANIZING Is a process of identifying and

grouping activities, fixing duties and responsibilities of persons in an enterprise so that organizational goals are achieved.

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ORGANIZATION Is the structural framework of

duties and responsibilities required of personnel performing various functions with a view to achieve business goal.

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NATURE1. It is an art or science. (art:- bringing about a desired result

through applications of skills. Science:- it is a soft science and behavioral science as it deals with the human beings whose behavior cannot be predicted.)

2. Work of each and every person is defined and authority & responsibility is fixed

3. Co-ordination among various persons

4. Helps in efficient utilization of resources by dividing the duties of various persons

5. Co-operative relationships among persons & work

6. Adjustment of various activities

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IMPORTANCE1. Helps in optimum utilization of technological inventions

2. Promotes growth and diversification

3. Training and development of personnel

4. Effective managerial control

5. Easy co-ordination

6. Encourages initiative

7. Better human relations

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ORGANIZATIONAL STRUCTURE

Is the established pattern of relationships among components or part of the organization. It prescribes the relationships among various positions and activities in business

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FEATURES OF A GOOD ORGANIZATION

1. Clear line of authority

2. Adequate delegation of authority

3. Less managerial levels

4. Proper span of control

5. Simple or flexible

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OBJECTIVES OF ORGANIZING

1. To help management2. To increase production 3. Co-operation of employees.

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STEPS IN ORGANIZINGDIVISION OF WORK

CLASSIFICATION OF ACTIVITIES

APPOINTING SUITABLE PERSONS

DELEGATION OF AUTHORITY

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ORGANIZATION CHARTS

• It is a graphic portrayal of the various positions in the enterprise and the formal relationships among them

• It is a diagrammatical form presentation• It represents the formal organization structure• It shows the main lines of authority in the organization• It indicates inter – play of various functions and

relationships• It reveals who supervises whom and how the various

units are related to each other• It indicates the channels of communication• It reflects the intentions of management

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Types• Vertical charts – it shows the organization structure in the form of a pyramid, the lines of

command proceeding from top to bottom

• Horizontal charts – in this the pyramid lies horizontally and highest position is shown at the extreme left and the lowest position at the extreme right

• Circular charts - the highest position is shown in the centre and the lowest position at the outer most circle

• Master chart – shows the whole structure of the organization and provides a clear of the entire structure

• Supplementary chart – are prepared to show details about each division or department

• Skeleton chart – graphic presentation of the hierarchical framework

• Functional chart – it describes the duties and functions of the particular division or section

• Personnel chart – it contain personnel information e.g.. Production manager 1-1,plant superintendent 1-1.1, foreman 1-1.2

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Advantages• It shows clearly the various positions• It shows lines of authority and

responsibility• It provide guidance to outsiders to whom

they should contact• It serves as a guide to the new

personnel• It is a framework for classification

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Limitations• It fails to reveal the informal relations• It does not represent flexibility• May show what is supposed to exist rather

than what actually exist• It fails to show how much authority an

individual can exercise and how far he is responsible

• Poorly designed charts may cause confusion and misunderstanding

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Organizational Structure

• It is the formal arrangement of jobs within an organization

• Organizational Design developing or changing an organization’s structure. It involves:– Specialization– Departmentalization– Chain of command– Span of control– Centralization– Decentralization– formalization

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Work Specialization• Divides work to be done into

specific jobs and departments• Assigns tasks and responsibilities• Division of labor• Allocates organizational resources• Establishes relationships

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Features of a good organizational structure

• Clear line of authority• Simplicity• Ultimate responsibility of seniors• Flexibility• Minimum possible levels of management• Provision for specialization• Proper link with top management

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Formal and Informal Organizations

• Formal: refers to the structure of well-defined jobs, each bearing a definite authority, responsibility and accounting

• It is based upon division of labor, scalar and functional process, structure, span of control– It is designed by the top management– It is based on the principles of division of labor &

efficiency– It concentrates on performance.– People are placed in hierarchy– Control through processes, rules etc

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• Informal: the informal org refers to people in group associations at work & these are not specified and are natural groupings of people in work situations.– Natural outcome at the work place– Created on the basis of some similarity

among its members– Membership is voluntary– Control by group norms not by formal

organizations

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Formal vs. Informalcriterion formal informal

origin planned spontaneous

Purpose Well defined goals Social interaction

structure Well structured unstructured

nature official unofficial

focus positions persons

leadership superior Anyone

Sources of power delegated Given by group

control reward sanctions

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TYPES OF AUTHORITY• Legal / formal authority – based upon the rank

or position of the person • Traditional authority – in a family system (no

structural discipline or formal law)• Acceptance authority – a subordinate accept

order if:– he understood it well – He believes it to be consistent with the

organizational goals– He believes it to be compatible with his personal

goals/interests– He is able mentally and physically to comply with it

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RESPONSIBILITY Is defined as the obligation of

a subordinate to whom a duty has been assigned to perform a duty

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Authority vs. Responsibility

Meaning

Basis

Delegation

Duration

superior to command the subordinate

formally or legally

delegated from a superior to a subordinate

It may continue for a long period

Obligation of a subordinate to perform an assigned task

Superior – subordinate relationship

Cannot be delegated

Over when task is completed

AUTHORITY RESPONSIBILITYCRITERION

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ACCOUNTABILITY Is the obligation of an

individual to formally report to his superior about the work he has done to discharge his responsibility

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NATURE• Always upward

• Subordinate

• Unity of command

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Obstacles of delegation

TO:• Superior

• Subordinate

• Organization

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Making Delegation Effective

• Establishment of definite goals• Clear definition of authority• Proper motivation• Appropriate environment• Proper training• Proper communication• Effective control

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Factors of Decentralization

• Size and complexity of organization• Dispersal of operations• Degree of diversification• Outlook of top management• History and experience• Communication• Nature of functions• Planning and control• Complexities of situations• availability of personnel

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SPAN OF CONTROL

Characteristics

1. Levels of management

2. Chain of command

3. Span of management

4. Management positions

5. Degree of delegation

6. Communication

7. Nature of supervision

8. Cost of management

9. Satisfaction of higher needs

10.Personal contact

Tall structure

Many

Long

Narrow

Many

Centralized

Delayed and distorted

Close

High

Limited opportunities

More personal contact

Flat structure

Few

Short

Wide

Few

Decentralized

Fast and accurate

Loosely controlled

Low

Greater opportunities

Less personal contact

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Tendency towards wide span of management due to following reasons

a) Trends towards decentralizationb) Increasing size of organizationc) Need for quick decision makingd) Improved communication techniquese) Growing acceptance of group &

leadership

Departmentation Every enterprise has to carry out certain activities

in order to accomplish its goals. Departmentation is the process through which these activities are grouped logically and assigned to managers.

Types: Departmentation by

• Functions• Products• Territory• Customer• Processes

Departmentation by Functions

Chairman

Managing Director

Marketing Production Finance

Quality control Processing materials Repairs & maintenance

AnalysisAdvantages

– It is logical, time proven

– Optimum utilization of manpower

– Delegation of authority

– Facilitates tight control at top

– Simplifies training

Disadvantages– Over-specialized

and narrow outlook– Limits

development of general managers

– Reduces coordination between functions

By Product

chairman

MD

Plastic division Chemicals division Metals division

Finance Production Sales Personnel

AnalysisAdvantages

– More flexible & adaptable to changes

– Focuses attention and effort on product line

– Improves coordination between functional activities

– Permits growth & diversification of the company

Disadvantages– Leads to

duplication of facilities

• Require more persons

– More control is required

– Function between regional managers

By Territory

Chairman

MD

Northern region Western region Central region Eastern region Southern region

Branch 1 Branch 2 Branch 3

AnalysisAdvantages

– Focuses on local markets and problems

– Improve coordination in a region

– Places responsibility at lower levels

– Take advantage of economies of local operations

– Face to face communication better with local people

Disadvantages– Leads to duplication

of facilities– Requires more

persons• More control is

required

– Function between regional managers

By Customers

Chairman

MD

Finance Marketing Production Personnel

Wholesale Exports Retail

AnalysisAdvantages

– Customer knowledge

– Customer satisfaction

– Customer tastes and preferences

Disadvantages– Under-utilization

of resources– Heavy overheads

By Process

Chairman

MD

Spinning Weaving Dyeing

AnalysisAdvantages

– Clear cut division of work

– Training of junior executives

– Persons with special education & experience for each process

– Economies in cost of repairs & maintenance

Disadvantages– It is not used

everywhere– Conflicts may

arise– Coordinating each

process department is very difficult

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DECISION MAKINGIs the selection of course of action

from two or more alternatives, the decision making process is a sequence of steps leading to that selection

ControllingControllingControllingControlling

It is the measurement and It is the measurement and correction of performance in order correction of performance in order to make sure that organisation’s to make sure that organisation’s objectives and the plans devised objectives and the plans devised

to attain them are being to attain them are being accomplishedaccomplished

Essentials of an Effective Control System

• Focus on objecvtives and needs• Forward looking• Prompt• Flexibility• Objectivity• Motivating• Prompt• Economical• Suggestive• Simple• Must be appropriate & adequate

Controlling and the Human Element

• Employees sometimes dislike control because they take them as restraints. The best control system enlightens employees about the positive side of control. Control helps employees in improving their performance– Considering employees needs– Developing mutual interest– Providing information about control measures– Controls be adjusted automatically

Areas of Control • Control over personnel

– attitude surveys – satisfaction & morals

• Control over performance– Production– finance– Morale – importance

Limitations Of Control• Influence of external factors• Expensive• Opposition from subordinates• Lack of satisfactory standards

Management By Exception

Also known as control by exception• Feedback control• Concurrent control• Feed forward control

Budgetary control Is a system of controlling costs

which includes preparations of budgets, coordinating the departments & establishing responsibility, comparing actual performance with budgeted and acting upon results to achieve maximum profitability.

Benefits of Budgetary control

• It establishes a plan or target of performance

• It measure the outcomes of activities in quantified terms & focus attention of mgt on deviations

Budgetary control as a tool for Planning

• It forces managers to plan their activities • It is concerned with numerical goals• It focuses on rational use of org resources• Tool for control:-

– It is exact, accurate & precise– Pinpoints deviations– Points reasons for deviations

• Aid to Coordination:-– Promotes cooperation– Encourages exchange of information– Promotes balanced activities

Problems • Planning problems:-

– Uncertainty– Considers important functions– Over emphasized

• Operational Problems:– Guess work– Affect org morale– Lot of paperwork

Control Through Return on Investment

• The efficiency of an organization is judged by the amount of the profit it earns in relation to the size of its investment, popularly known as ROI.

• Here the amount of profit is related with the amount of facilities or capital invested in the organization or the division

ROI Advantages & Disadvantages

• Advantages:- – Inter-organization comparison– Resource allocation has more rational basis– Authority decentralization– Reflects objectives

• Limitations:-– Comparisons difficult– Valuation of investment– Hampers diversification– Excess emphasis on financial factor

• Financial ratio analysis:-– Liquidity ratios– Activity ratios– Leverage– Profitability ratios

Management Audit• A periodically done critical analysis of

various components of org as a whole, its end results, deviations & degree of impact of various factors resulting in deviations in the principles and practices of managerial functions at different levels in the organization may be called as management audit.

Social Audit• Is concerned with the social performance of an

organization in contrast to its economic performance in the financial audit

• Measuring total expenditures for social activities• Measure the value of productive capability• Measuring activities in which a particular org is involved

largely for social reasons.• Describing what the organization is doing in each area

it recognizes that society expects to do something• There is a cost benefit approach• Assessment and definable concept of company’s

activities that have social impact

Problems in Social Audit

• It is very impractical to carry on social audit and information may be too massive to be useful

• Scope of social audit may be too limited• Though costs can be measured easily , these are not the true

reflection of social responsibility• The measurement of benefits is much more difficult because

of lack of objective quantification of the outcome of any social activity

Social Audit Report:-– Social expectations– Social objectives– Corporations goals– Resources committed– A statement of accomplishments

Responsibility Accounting

• MBO, each person is responsible for his area of operation, he must know what his costs should be and what were the costs

• Clear distinction between costs controlled and which are not controlled

• Emphasis on “ who is responsible for costs”Internal Audit:-

– Policies, procedures, use of authority, quality of management, effectiveness of methods, phases of operations

Quality Control:-– TQM means meting the requirement of internal and external

customers consistently by continuous improvement in the quality of work of all the employees

• Quality process, continuous improvement, (POCA) people process

Statistical Quality Control & Inspection Control

Quality Control Through Quality Circle:-– QC is a group of employees that meets regularly to solve

problems affecting its work area– Contributions to improvement and development of the

organization– Respect humanity and build a happy work place– Display human capabilities fully

Developing A Quality Circle:-– Start up phase – Constitution of QC (steering, facilitator, & coordinator)– Initial problem solving (data collection, analysis & problem

solving)– Presentation & approval of suggestions– implementation

Human Resources Accounting

• HRA is the process of identifying and measuring data about human resources & communicating this information to interested parties.

• Specific objectives:-– To provide cost value data– Provide info to monitor effectiveness– Development of effective HRM practices

Methods of Valuation of Human Assets

• Historical cost:– Based on actual cost incurred on human

resources . Acquisition cost & learning cost

• Replacement cost:– To acquire new employee to replace present one

• Standard cost:– Fixed for each category

• Present value future earnings• Expected reliable value

Merits• Info for effective

planning• Standard cost of

recruiting etc• Effective utilization• Suitable data

Demerits• Not comparable• Increased human

resource mobility• Results of

valuation not utilized

• MIS:-– An organized method of providing past, present &

projected info relating to internal & external operations

• Designing:-– Information needs

• Blue print

• Computer & MIS

• Role of MIS:-– Reducing costs– Coordination– More rapid access by managers

Control Through Costing

• This means control of costs in the light of certain predetermined costs known as standard costs (material, labor & overheads)

• First step involves fixation of standards• Secondly, determining the actual cost• Comparison done to find out the deviation• If the variation is beyond the specified limit, it is

taken for further analysis• Revision of standards

Benefits & LimitationsBenefits • Basis for measuring

operating performance

• Provides comparability

• Economic tool• Budgets are prepared

on the basis of standard costs

Limitations• Difficult to

operate• Frequent

revisions• resistance

Break-Even Analysis• It is an analysis of interrelationships

between cost of production. It helps in determining the minimum volume of sales at which cost are fully recovered and beyond which profit can be earned.

• It can be applied to estimate profits and depicts cost behavior in relation to changing volume of sales & its impact on profits

COST & REVENUE

UNITS OF PRODUCTION

FIXED COSTS

SALES

TOTAL COSTS

LOSS

PROFIT

BEP