UNIT -2

PRINCIPLES AND FUNCTIONS OF MANAGEMENT

Now, we will see the nature of Principles of Management:

Nature of Principles of Management:
1) Universal Application:
2) General Guidelines
3) Formed by Practice and Experimentation
4) Flexible
5) Mainly behavioural
6) Cause and effect relationships
7) Contingent

Its brief explanation is as follows:

1. Universal Application:
Management principles are applicable to all kinds of organisations, whether big or small,
irrespective of the size and nature of the organisation. Although, the extent of application varies
according to the situation and size and nature of the organisation.

2. General Guidelines:
These principles are not ready-to-use solutions. They are just general guidelines which need to be
applied creatively by the manager depending upon the situation, as real business situations and
environment is very complex and dynamic.

3. Formed by Practice and Experimentation:

These principles and techniques are formed by the collective observation and experimentation of
all the managers over a period of time. For example, it is a matter of common experience that
discipline is very important to achieve goals.

4. Flexible:
Principles of management are not rigid, as in the case of principles of science. These principles
can be modified as per the need of the organisation. They are flexible and give managers enough
discretion to modify and apply them as per the situation.

5. Mainly behavioural:
Managers have to deal with human behaviour because work in every organisation is performed by
humans. As human behaviour is very complex and dynamic in nature, these principles aim at
influencing the behaviour of humans to achieve organisational goals.

6. Cause and effect relationships:

Management principles are based on cause and effect relationship so that they can be used in
similar cases in a large number of cases. Outcomes of the managerial actions are predicted using
these principles.

7. Contingent:
These principles are dependent upon the prevailing conditions at a particular point of time. The
application of these principles is changed as per the situation.

Now, we will see the importance of Principles of Management:

Significance of Principles of Management:

1) Management training, education and research

2) Providing Managers with useful insights into reality
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 3) Optimum utilisation of resources and effective administration
4) Scientific decisions
5) Meeting changing environment requirements
6) Fulfilling social responsibility
7) Management training, education and research
Its brief explanation is as follows:

1. Providing Managers with useful insights into reality: Knowledge, ability and
understanding of managers are improved with the help of principles of management, as they
provide guidance. These principles also help to improve the efficiency of managers as they
avoid the hit and trial method. They provide useful insights into the real world situations. It
also enables managers to learn from their past mistakes and take corrective actions in the
future.

2. Optimum utilisation of resources and effective administration: Physical, financial and

human resources are utilised optimally with the help of principles of management. The cause
and effect relationship avoids hit and trial method and reduces inefficiency and wastage of
resources.

3. Scientific decisions: Decisions taken with the help of principles of management are more
realistic, practical and free from personal biases. They are made after repeated
experimentation, therefore they minimize the chances of wastage of resources because the hit
and trial method is not used. Thus, these principles facilitate scientific and balanced decisions.

4. Meeting changing environment requirements: Business environment is dynamic, and in

order to survive in this fast changing environment, business should adapt to the changes.
Management principles guide managers to take corrective actions and help organisations to
implement the changes to survive in the dynamic environment.

5. Fulfilling social responsibility: As businesses use resources of society, it is the duty of the
business to perform social responsibilities. Principles of management not only help in
achieving organisational goals but also help managers in performing social responsibilities. For
example, the Principle of Remuneration focuses on giving just and fair remuneration to the
employees, irrespective of caste, religion, gender, etc.

6. Management training, education and research: As these principles are at the core of the
management theory, they are used for training, education and research. These principles are
also included in graduate and postgraduate courses, like [Link], [Link], BBA, MBA, etc.
These principles help in the refinement of management practices by developing new
techniques.

Now, we will see about Henri Fayol’s 14 Principles of Management

HENRI FAYOL’S 14 PRINCIPLES OF MANAGEMENT:-

1)DIVISION OF WORK
2)AUTHORITY
3)DISCIPLINE
4)UNITY OF COMMAND
5)UNITY OF DIRECTION
6)SUBORDINATION OF INDIVIDUAL INTERESTS TO THE GENERAL INTERESTS
7)REMUNERATION
8)CENTRALIZATION
9)SCALAR CHAIN
10)ORDER
11)EQUITY

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12)STABILITY OF TENURE OF PERSONNEL
13)INITIATIVE
14)ESPIRIT DE CORPS

14 Management Principles developed by Henri Fayol are explained as follows:

1) DIVISION OF WORK: Work should be divided among individuals and groups to ensure that
effort and attention are focused on special portions of the task. Fayol presented work specialization
as the best way to use the human resources of the organization. Its objective is to derive benefits
from the principle of specialisation. Division of work produces more and better work with
the same effort.

2) AUTHORITY: The concepts of Authority and responsibility are closely related. Authority was
defined by Fayol as the right to give orders and the power to exact obedience. Responsibility
involves being accountable, and is therefore naturally associated with authority. Whoever assumes
authority also assumes responsibility. A manager may excercise his official authority, which is
derived by his official status, while personal authority is compounded by his intelligence,
experience, moral worth, ability to lead, etc.

3) DISCIPLINE: A successful organization requires the common and disciplined efforts of

employees. Penalties should be applied judiciously to encourage this common effort. By discipline,
we mean obedience to authority, observance of rules of services and norms of
performances, sincere efforts for job completion, etc.

4) UNITY OF COMMAND: Employees should receive orders from only one superior, for any
action or activity. If two superiors are there, it causes uneasiness, disorder, indicipline, etc.

5) UNITY OF DIRECTION: The entire organization should be moving towards a common

objective in a common direction (i.e.) one head and one plan for the group of activities having
the same objective. For every category of work, there should be one plan of action and it
should be executed under the overall control of one superior.
Note: While unity of command is concerned with the functioning of personnels, “unity
of direction” is concerned with the functioning of the body corporate, the departments and
sub departments of the business concern.

6) SUBORDINATION OF INDIVIDUAL INTERESTS TO THE GENERAL INTERESTS:

The interests of one person should not take priority over the interests of the organization as a whole,
or, should not block the fulfillment of the general goals of the business concern. If there is
any disagreement among the two superiors on any matters, immediately the management
should reconcile those differences for the smooth operations.

7) REMUNERATION: Many variables, such as cost of living, supply of qualified personnel,

general business conditions, and success of the business, should be considered in determining an
employee’s rate of pay. The remuneration shouls be fair which affords satisfaction to both
the employees and the firm.

8) CENTRALIZATION:
Meaning of Centralization: Centralization is an organizational setup wherein the decision-
making authority is concentrated or confined to the top management, and the subordinates need
to follow the instructions of the superiors.
Fayol defined centralization as lowering the importance of the subordinate's role in
the management and organisation of the firm. Decentralization is increasing their importance.
The degree to which centralization or decentralization should be adopted depends on the specific
organization in which the manager is working. The objective should be the optimum utilisation
of the personnels.

9) SCALAR CHAIN: SCALAR CHAIN refers to the line of authority

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 or the chain of superiors ranging from the highest executive to the lowest, for the
purpose of communication.
Managers in hierarchies are part of a chain like authority scale. Each manager, from the first line
supervisor to the president, possess certain amount of authority. The President possesses the most
authority; the first line supervisor the least. Lower level managers should always keep upper level
managers informed of their work activities. The existence of a scalar chain and adherence to it are
necessary if the organization is to be successful.

According to this principle, the order or communications should pass through the proper
channels of authority along the scalar chain. But, in case, if there is a need for swift
action, the principle of scalar chain may be reconciled with due respect for the line
authority, by making direct contact with the concerned authority, instead of through the
proper channel, and this is known as Gang Plank. The diagram for “Scalar Chain and
Gang Plank” is as follows:

Scalar Chain and Gang Plank:

A

B M

C N

D O

By this method, the scalar principle is safeguarded, and at the same time, the
concerned subordinate officers are enabled to take swift action.

10) ORDER: For the sake of efficiency and coordination, all materials and people related to a
specific kind of work should be treated as equally as possible, and management should obtain
order in work through their suitable organisation. The principle of “right place for
everything and for every man” should be considered by the management.

11) EQUALITY: All employees should be treated as equally as possible. Equality means fair
dealings, equality of treatment and accomodative or cooperative attitude among the
personnel in the undertaking, and equality results from a combination of kindness and
justice. The managerial treatment of the subordinates should be free from prejudices.

12) STABILITY OF TENURE OF PERSONNEL: Retaining productive employees should

always be a high priority of management. Inorder to motivate the workers for a better work,
there should be the assurance of job security, so that they will have a sense of attachment
to the firm. Recruitment and Selection Costs, as well as increased product-reject rates are usually
associated with hiring new workers.

13) INITIATIVE: Initiative means freedom to think and execute a plan. Management should
take steps to encourage worker's initiative, which is defined as new or additional work activity
undertaken through self direction. Innovation is possible where the employees are encouraged
to take initiatives.

14) ESPIRIT DE CORPS: Management should create a team spirit among the employees.
Management should always encourage harmony and general good feelings among employees, for
realising the objectives of the concern.

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Now, we will about Planning
PLANNING:

Meaning of Planning:

Planning is the process of setting objectives and determining what should be done
to accomplish them.

It is the basic function of management. It deals with chalking out a future course of action &
deciding in advance the most appropriate course of actions for achievement of pre-determined goals.

It is rightly said “Well plan is half done”. Therefore planning takes into consideration
available & prospective human and physical resources of the organization so as to get effective co-
ordination, contribution & perfect adjustment.

Thus, planning is a systematic thinking about ways & means for accomplishment of pre-
determined goals. Planning is necessary to ensure proper utilization of human & non-human
resources. It is all pervasive, it is an intellectual activity and it also helps in avoiding confusion,
uncertainties, risks, wastages etc.

Definitions:

(1)According to KOONTZ, “Planning is deciding in advance - what to do, when to do &

how to do. It bridges the gap from where we are & where we want to be”.

A plan is a future course of actions. A Plan is a statement of intended means for accomplishing
the objectives. It is an exercise in problem solving & decision making.

Planning is determination of courses of action to achieve desired goals.

(2) According to Urwick, “Planning is a mental predisposition to do things in orderly way,

to think before acting and to act in the light of facts rather than guesses”. Planning is deciding
best alternative among others to perform different managerial functions in order to achieve
predetermined goals.

Nature and Characteristics of planning:

• Focus on objectives

• It is an intellectual process

• Planning is a selective process

• Planning is pervasive

• Planning is an integrated process

• Planning is directed towards efficiency

• Planning is flexible

• Planning is the primary function of management

• It is a decision making process

• It is a continuous process

Its brief explanation is as follows:

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(1) Focus on objectives: A plan starts with the setting of objectives and then makes efforts
to realise them by developing policies, procedures, strategies, etc.

(2) Planning is an intellectual process: Planning is an intellectual process involving the

mental exercise, foreseeing future developments, making forecasts and the determination of
the best course of action.

(3) Planning is a selective process: It involves the selection of the best one after making a
careful analysis of the various alternative courses of action. It is concerned with decision
making relating to

• What is to be done?

• How it is to be done?

• When is to be done?

• By whom it is to be done?

(4) Planning is pervasive: Planning is pervasive activity covering all the levels of the
enterprise. While top management is concerned with strategical planning, the middle
management and lower management are concerned with the administrative planning and
operational planning respectively.

(5) Planning is an integrated process: Planning involves not only the determination of
objectives but also the formulation of sound policies, programmes, procedures and strategies
for the accomplishment of these objectives. It is the first among the managerial functions and
facilitates the other managerial functions like organising, staffing, directing and controlling.

(6) Planning is directed towards efficiency: The main purpose of planning is to increase the
efficiency of the enterprise. The guiding principles of a good plan is the maximum output
and profit at the minimum cost. Terry has aptly said that “planning is the foundation of the
most successful action of an enterprise” .

(7) Planning is flexible: The process of planning should be adoptable according to the changes
taking place in the environment. Koontz and O'Donnell emphasize that “effective

planning requires continual checking on the events and forecasts and the redrawing of
the plans to maintain a course towards a designed goal”.

(8) Planning is the primary function of management: Planning sets all the other functions
into action, and it can be seen as the basic function of management. Without proper planning
the other functions become meaningless. A manager must plan properly before he can possibly
organise, staff, direct or control.

(9) It is a decision making process: Decision making is an integral part of planning. It is

defined as the process of choosing among several alternatives. So, obviously, decision making
will occur at many points in the planning process.

Example: While planning, the top management will first decide which goals to pursue, like,
“Shall we manufacture all the parts internally or buy some parts from outside?”

(10) It is a continuous process: Planning is a continuous and never ending process. Koontz
and O'Donnell have rightly observe that, like a navigator who is constantly cheking like
where his ship is going in the vast ocean, a manger should constantly check the progress of
his plan. He must constantly monitor the internal situation and external situation, so as to
determine whether any changes are required in that plans.

Plan: A Plan is a statement of intended means for accomplishing the objectives.

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Essentials of a good plan:

a. It should be based on a clearly defined objective.

b. It must be simple

c. It must be rationale and appropriate.

d. It must be comprehensive.

e. It should provide for a proper analysis and classification of actions.

f. It must be flexible.

g. It must be balanced.

h. It must use all the available resources and opportunities to the utmost before creating
new authorities and new resources.

i. It must be free from social and psychological biases of the planners and of
subordinates.

j. There should be proper coordination among the short term and long term plans.

Now, we will see the Advantages of Planning:

Advantages of planning:

(1) Facilitates quick achievement of objectives

(2) Brings unity of purpose and direction
(3) Ensures full utilisation of resources(optimum utilisation of resources)
(4) Avoids inconsistency in efforts
(5) Raises competitive capacity/strength
(6) Promotes managerial efficiency
(7) Avoids hasty decisions and actions
(8) Ensures effective control on the Organisation
(9) Acts as an insurance against future uncertainties
(10) Facilitates other managerial functions
(11) Improves motivation:
Its brief explanation is as follows:

1) Facilitates quick achievement of objectives: Planning facilitates quick achievement of business

objectives. In the planning process, the objectives to be achieved are clearly decided / finalised
and plans are prepared and executed for achieving such well defined objectives. Planning ensures
achievement of objectives in an orderly and quick manner.

2) Brings unity of purpose and direction: Planning brings unity of purpose and direction before the
entire organisation as it is for achieving certain well defined goals. Planning diverts all resources
in one direction for achieving well defined objectives.

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3) Ensures full utilisation of resources: Planning ensures effective/maximum utilisation of
available human and material resources. It eliminates wastages of all kinds (of material resources
and human efforts) and this ensures fuller utilisation of available resources.

4) Avoids inconsistency in efforts: Planning avoids inconsistency in efforts and also avoids possible
frictions and duplications. It ensures economy in business operations.

5) Raises competitive capacity/strength: Planning raises competitive potentialities of a business

unit. It enables a business unit to stand with confidence in a competitive market. It keeps ready
solutions for possible problems and enables a business unit to function with confidence.

6) Promotes managerial efficiency: Planning promotes managerial efficiency. It covers all

managerial functions and helps management to execute future programmes in a systematic manner.
It makes managerial direction and control effective.

7) Avoids hasty decisions and actions: Due to planning, hasty decisions and haphazard actions by
managers are avoided. It also encourages systematic thinking by the managers. Planning facilitates
effective delegation of authority, removes communication gaps and thereby raises overall
efficiency. It even encourages innovative thinking among managers.

8) Ensures effective control on the Organisation: Planning ensures effective control on the whole
organisation. It fixes targets in clear terms and draws plans and programmes for achieving them.
This facilitates effective control on the functioning of the business unit.

9) Acts as an insurance against future uncertainties: Planning acts as an insurance against future
uncertainties. It takes care of all business uncertainties. In fact, in planning, future problems and
situations are studied in advance and alternative solutions are kept ready. This enables management
to face any type of critical situation with ease and confidence.

10) Facilitates other managerial functions: Planning facilitates other managerial functions.
It is the basic managerial function and other managerial functions such as organising, etc. move as
per the plans prepared. It acts as a motivating force behind other managerial functions.

11) Improves motivation: Planning facilitates participation of managers and workers in the
normal functioning of an enterprise. It develops team spirit and raises morale and motivation of
employees. Workers know what is expected from them. This ensures high degree of efficiency
from them. Planning also provides training to managers. It serves as a tool for manpower
development in an Organisation.

12) Planning ensures survival, stability and progress of a business unit.

13) Ensures uniform decision-making.

14) Acts as a key to solve problems and challenges faced by a business unit.

15) Sets performance standards for functional departments.

16) Planning enables a business unit to adjust itself with ever changingbusiness environment.

Now, we will see the Limitations of Planning:

Limitations of Planning:

(1) Time-consuming and costly

(2) Ineffective due to environmental changes
(3) Dangers of unreliable data
(4) Encroachment on individual freedom and initiative(as per the directives issued. )
(5) Delays actions
(6) Unsuitable to small firms

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(7) Limited practical value
(8) No guarantee of expected results
(9) Generates frustration
(10) Involves huge paper work
(11) Danger of overdoing

Its brief explanation is as follows:

1) Time-consuming and costly: It is argued that planning is a lengthy process as it involves

collection of data, forecast, research and analysis. Similarly, planning is essentially the job of
highly paid experts. As a result, planning is a time-consuming and costly activity. Only large firms
can undertake planning due to heavy cost and lengthy procedure involved in it.

2) Ineffective due to environmental changes: Business environment changes frequently and plans
are required to be adjusted as per the changes in the situation through suitable modifications.
However, such revision/modification creates a number of problems. Such adjustments in the
operational plan are always costly, time-consuming.

3) Dangers of unreliable data: Planning needs accurate data from internal and external sources. The
quality of planning depends on such accurate feedback. If the information supplied by various
departments is unreliable, the planning process will be adversely affected. Planning based on
incomplete information may prove to be even dangerous. In brief, plans based on unreliable data
are not useful /effective. Securing reliable information is always difficult and this brings
deficiencies in the entire planning process.

4) Encroachment on individual freedom and initiative: Planning is a centralized process. At the

lower levels, plans are to be executed as per the directives issued. This affects individual freedom
and initiative at the lower levels. Employees at the lower levels act as instruments for the execution
of plan prepared by the top level managers. People are asked to become cogs in the machine with
little scope for initiative or independent thinking.

5) Delays actions: Planning is a lengthy process. As a result, the actions to be taken for execution
are delayed. Planning is not useful when quick decisions and actions are required.

6) Unsuitable to small firms: Small firms prefer to function without long term comprehensive
planning as they find planning rather costly and time-consuming. They prefer to face the situations
as they come. Similarly, quick decisions and prompt actions are necessary in the case of certain
business activities. Here, long term planning is not suitable.

7) Limited practical value: It is argued that planning is too theoretical and has limited practical
utility. Planning takes long time for preparation and the situation changes when such plans are
ready for execution. Planning for example, is not suitable in the case of speculative business. It is
also not useful for taking quick benefits of business opportunities. In brief, planning has limited
practical value.

8) No guarantee of expected results: Planning is for achieving certain well defined objectives.
However, there is no guarantee that the objectives will be achieved within the specific time limit
by using planning as a tool. Actual performance may not be as per the expectation due to various
reasons. Thus planning has an element of uncertainty. Planning leads to probable results and not
the expected results. It gives benefits but may not be exactly as per the expectation. Thus, there is
no guarantee that planning will give 100 per cent positive/expected results.

9) Generates frustration: At the lower levels, plans are imposed on the employees. No consideration
is given to their difficulties, views and opinions. The targets may be too ambitious and the
employees may not be able to achieve them in spite of best efforts. This leads to frustration among
employees at lower levels.

10) Involves huge paper work: Planning involves huge paper work in the preparation of master
plan and departmental plans.
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 (11) Danger of overdoing: Sometimes, planners overload the work. Elaborate reports are
prepared without practical utility.

The advantages of planning are more important/significant while its limitations are few and
also not of serious nature. Moreover, these limitations can be minimized. The practical utility of
planning is universally accepted. It is not fair to give up the concept of planning due to certain
limitations. The better alternative is to make it more effective, purposeful and result oriented.

Now, we will see about Steps in Planning:

Steps in Planning :-

(1) Awareness of oppurtunities and problems

(2) Collecting and analysing information

(3) Determination of Objectives

(4) Determining planning premises and constraints

(5) Finding out the alternative courses of action

(6) Evaluation of alternatives and selection

(7) Determining secondary plans

(8) Securing participation of employees

(9) Implementation of plan

(10) Providing for follow up and future evaluation

Its brief explanation is as follows:

(1)Awareness of oppurtunities and problems:

The first step in the planning process is the awareness of business oppurtunities and the
need for taking actions. Present and future oppurtunities must be found out so that the planning
may be undertaken for them. Also, the trend of economic situation must be visualised.

Example: If the thinking of the government is to develop rural areas as industrial centres,
then, a far-sighted businessman will think of setting up of some units, which are suitable to that
particular environment, and also will avail the facilities offered for this purpose.

Also, before venturing into new areas the merits and demerits of such projects should
be evaluated. So, a beginning should be made only after going through a detailed analysis
of the new oppurtunities.

The following type of questions will help in ascertaining clearly the opportunities and
problems:

• What problems are likely to arise in the future?

• What is the plan to be formed in order to exploit such problems?

• Whether it is necessary to devise a new plan or will it be sufficient to modify the

existing plan?

• By effectuating the plan, what benefits the organisation will get?

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(2) Collecting and analysing information:

The next step is to gather adequate information relating to the planning which is to
be made, and to analyse it inorder to find out the cause-effect relationship between the
various factors. While collecting and analysing the information. care should be taken in case
of reliability, accuracy, adequacy, completeness, validity, relevancy, etc. about the information.
All relevant facts and data are collected from the internal and external environment.

Example: Physical and human resources of the organization, finances at disposal, availability
of suppliers, relevant government policy, general economic conditions, etc.

(3) Determination of Objectives:

Planning requires a systematic approach. Planning starts with the setting of goals and
objectives to be achieved.

Objectives: Objective is an end that can be reasonably achieved within an expected timeframe and
with available resources. Objectives are a basic tools that underlying all planning and strategic
activities. They serve as the basis for policy and performance appraisals.

(a) Objectives provide a rationale for undertaking various activities as well as indicate
direction of efforts.

(b) Moreover objectives focus the attention of managers on the end results to be achieved.

(c) As a matter of fact, objectives provide nucleus to the planning process. Therefore,
objectives should be stated in a clear, precise and unambiguous language. Otherwise
the activities undertaken are bound to be ineffective.

(4) Determining planning premises and constraints:

Planning premises are the assumptions about the lively shape of events in future. They
serve as a basis of planning. Establishment of planning premises is concerned with determining
where one tends to deviate from the actual plans and causes of such deviations. It is to find out what
obstacles are there in the way of business during the course of operations. Establishment of planning
premises is concerned to take such steps that avoids these obstacles to a great extent.

Planning premises may be

• internal and external premises,

• tangible and intangible premises,

• controllable and non controllable premises.

(5) Finding out the alternative courses of action:

When forecast are available and premises are established, a number of alternative course of
actions have to be considered. For this purpose, each and every alternative will be evaluated by
weighing its pros and cons in the light of resources available and requirements of the organization.

The merits, demerits as well as the consequences of each alternative must be examined before
the choice is being made. After objective and scientific evaluation, the best alternative is chosen. The
planners should take help of various quantitative techniques to judge the stability of an alternative.

(6) Evaluation of alternatives and selection:

The next step is to evaluate all possible alternatives with reference to

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 1. cost,
2. speed,
3. quality, etc.

and also we have to select the best course of actions. Suppose, if there is any
change in the planning premises, then the course of action chosen may not be the best one.
So, planner must be ready with alternative, which is normally known as contingency plan,
and this contingency plan can be implemented in the changed situations. The merits, demerits
as well as the consequences of each alternative must be examined before the choice is being made.
After objective and scientific evaluation, the best alternative is chosen.

(7) Determining secondary plans:

Derivative plans are the sub plans or secondary plans which help in the achievement of main
plan. Secondary plans will flow from the basic plan. These are meant to support and expediate the
achievement of basic plans.

These detailed plans include policies, procedures, rules, programmes, budgets, schedules, etc.
For example, if profit maximization is the main aim of the enterprise, derivative plans will include
sales maximization, production maximization, and cost minimization. Derivative plans indicate time
schedule and sequence of accomplishing various tasks.

In an organisation there can be various derivative plans like planning for

a) buying the equipments,

b) buying the raw materials,

c) recruiting and training the personnel,

d) developing new product, etc.

(8) Securing participation of employees:

After the plans have been determined, it is necessary rather advisable to take subordinates or
those who have to implement these plans into confidence.

The purposes behind taking them into confidence are as follows :-

• Subordinates may feel motivated since they are involved in decision making process.

• The organization may be able to get valuable suggestions and improvement in formulation as
well as implementation of plans.

• Also the employees will be more interested in the execution of these plans.

(9) Implementation of plans:

The planning should be put into action so that the business objectives may be achieved. The
implementation will require establishments of

• Policies,

• procedures,

• standards, and

• budgets.

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These tools will enable a better implementation of plans.

(10) Providing for follow up and future evaluation:

After the selected plan is implemented, it is important to appraise its effectiveness. This is
done on the basis of feedback or information received from departments or persons concerned. This
enables the management to correct deviations or modify the plan.

This step establishes a link between planning and controlling function. The follow up must go
side by side the implementation of plans so that in the light of observations made, future plans can be
made more realistic.

Now, we will see about Importance of Planning :

Importance of Planning

Its brief explanation is as follows:

(1) Increases efficiency: Planning makes optimum utilization of all available resources. It helps
to reduce the wastage of valuable resources and avoids their duplication. It aims to give the highest
returns at the lowest possible cost. It thus increases the overall efficiency.
(2) Reduces business-related risks: There are many risks involved in any modern business.
Planning helps to forecast these business-related risks. It also helps to take the necessary
precautions to avoid these risks and prepare for future uncertainties in advance. Thus, it reduces
business risks.
(3) Facilitates proper coordination: Often, the plans of all departments of an organization are
well coordinated with each other. Similarly, the short-term, medium-term and long-term plans of an
organization are also coordinated with each other. Such proper coordination is possible only
because of efficient planning.
(4) Aids in Organizing: Organizing means to bring together all available resources, i.e. 6 Ms.
Organizing is not possible without planning. It is so, since, planning tells us the number of
resources required and when are they needed. It means that planning aids in organizing in an
efficient way.
(5) Gives right direction: Direction means to give proper information, accurate instructions and
useful guidance to the subordinates. It is impossible without planning. It is because planning tells us
what to do, how to do it and when to do it. Therefore, planning helps to give the right direction.
(6) Keeps good control: With control, the actual performance of an employee is compared with
the plans, and deviations (if any) are found out and corrected. It is impossible to achieve such
control without the right planning. Therefore, planning becomes necessary to keep good control.
(7) Helps to achieve objectives: Every organization has certain objectives or targets. It keeps
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working hard to fulfill these goals. Planning helps an organization to achieve these aims, but with
some ease and promptness. Planning also helps an organization to avoid doing some random ( done
by chance) activities.
(8) Motivates personnel: A good plan provides various financial and non-financial incentives to
both managers and employees. These incentives motivate them to work hard and achieve the
objectives of the organization. Thus, planning through various incentives helps to motivate the
personnel of an organization.
(9) Encourages creativity and innovation: Planning helps managers to express their creativity
and innovation. It brings satisfaction to the managers and eventually a success to the organization.
(10) Helps in decision-making: A manager makes many different plans. Then the manager
selects or chooses the best of all available strategies. Making a selection or choosing something
means to take a decision. So, decision-making is facilitated by planning.
Therefore, planning is necessary for effective and efficient functioning of every organization
irrespective of its size, type and objectives.

Now, we will see about Purpose of Planning:

Purpose of Planning:

i. To provide direction
ii. To reduce / offset uncertainty and change
iii. To minimize waste and redundancy
iv. To set the standards to make control effective
v. To manage by objectives
vi. To help in co-ordination
vii. To secure economy in operation
viii. To increase organizational effectiveness

Its brief explanation is as follows:

i. Planning provides direction:

Planning provides direction to managers and non- managers alike. When employees know what
their organization or work unit is trying to accomplish and what they must contribute in order to
reach goals, they can coordinate their activities, cooperate with each other and do what it takes to
accomplish those goals. Without planning, department and individuals might work at cross-purpose
and prevent the organization from efficiently achieving goals.

ii. Planning reduces / Offset uncertainty and change:

Planning reduces uncertainty by forcing managers to look ahead, anticipate change, consider the
impact of change, and develop appropriate response. Although planning won’t eliminate
uncertainty, managers plan so they can respond efficiently. Future is always full of uncertainties and
changes. Planning foresees the future and makes the necessary provisions for it.

iii. Planning Minimizes waste and redundancy:

Planning Minimizes waste and redundancy. When work activity is coordinated around plans,
inefficiency becomes obvious and can be
corrected and eliminated.

iv. Planning establishes the goals or standard to make control effective:

When managers plan, they develop goals and plan. When they control they see whether the plans
have been carried out and the goals met. Without planning there would be no goals against which to
measure or evaluate work effort. The controlling function of management relates to the comparison
14
of the planned performance with the actual performance. In the absence of plans, a management
will have no standards for controlling other’s performance.

v. To manage by objectives:

All the activities of an organization are designed to achieve certain specified objectives. However,
planning makes the objectives more concrete by focusing attention on them.

vi. To help in co-ordination:

Co-ordination is, indeed, the essence of management, the planning is the base of it. Without
planning it is not possible to co-ordinate the different activities of an organization.

vii. To secure economy in operation:

Planning involves, the selection of most profitable course of action that would lead to the best result
at the minimum costs.

viii. To increase organizational effectiveness:

Mere efficiency in the organization is not important; it should also lead to productivity and
effectiveness. Planning enables the manager to measure the organizational effectiveness in the
context of the stated objectives and take further actions in this direction.

Now, we will see about Planning Premises:

Planning Premises:

Meaning of Planning Premises:

Planning premises are the basic assumptions about the environment.

These assumptions are essential inorder to make plans more realistic and operational.
Planning premises provide a framework. All the plans are made within this framework. There
are many environmental factors, which influence the plan. Assumptions are made about these
environmental factors which influence the plan. These assumptions are called premises.

Types of Planning Premises:

Different types of planning premises are depicted in the picture (figure) below:

Types of Planning Premises are briefly explained as follows:-

15
1. Internal and External Premises:

• Internal Premises come from the business itself. It includes skills of the workers, capital
investment policies, philosophy of management, sales forecasts, other resources and
abilities of the organisation in the form of machines, money, methods, machines, beliefs,
behaviour, and values of the employees and employers of the organisation, etc.

• External Premises come from the external environment. That is, economic, social,
demographic, political, cultural and technological environment. External premises cannot be
controlled by the business.

2. Controllable, Semi-controllable and Uncontrollable Premises:

• Controllable Premises are those which are fully controlled by the management. They include
factors like materials, machines and money, procedures, programmes, etc.

• Semi-controllable Premises are partly controllable. They include marketing strategy,

company's advertisement policies, etc.

• Uncontrollable Premises are those over which the management has absolutely no control.
They include weather conditions, consumers' behaviour, government policy, natural
calamities, wars, etc.

3. Tangible and Intangible Premises:

• Tangible Premises can be measured in quantitative terms. They include units of

production and sale, money, time, hours of work, etc.

• Intangible Premises cannot be measured in quantitative terms. They include goodwill of

the business, employee's morale, employee's attitude and public relations.

4. Constant and Variable Premises:

• Constant Premises do not change. They remain the same, even if there is a change in the
course of action. They include men, money and machines(unless and untill some
strategies are necessary lie expansion etc.).

• Variable Premises are subject to change. They change according to the course of action.
They include union-management relations.

Now, we will see about Types of Plans:

Types of Plans:

Planning may be classified in different forms. Basically it is classified on the basis of

(a) Time

(b) Managerial levels

(c) Repetitiveness of the operations in the firm

(d) Scope.

16
(a) Based upon managerial levels, the plan is classified as

➢ Strategic plans,

➢ Administrative plans, and

➢ Operational plans

They are explained as follows:

(1) Strategic plans:

Strategic plans are the plans that apply to the entire organization, establish the
organization's overall goals and seek to position the organization in terms of its environment.

Example: Diversification of business into new lines, types of products to be offered, planned
growth rate in profit, etc.

(2) Administrative plans:

It is a plan devised by the middle management and it concentrates on medium or tactical

plans. It is concerned with divisional or departmental objectives. The important questions
answered through these plans are;

• How to deal with a sudden increase or decrease in demand for the organization's
products?
• How to deal with changes in the competitor's policies?
• How to increase the organization's share of products in the existing market?
(3) Operational plans:

Operational plans are the plans that specify the details of how the overall goals are
to be achieved, and it is concerned with the implementation part.

Example: Adjustment of production within the given capacity, increasing the efficiency of
the operating activities through analysing the past performance, budgeting the future costs,
etc.

(b) Based upon time, the plan is classified as

1. Long range plan

2. Medium range plan, and

3. Short range plan

They are explained as follows:

(1) Long term plans:

Long term plans are the plans with a time frame of beyond three years. Since, future
being uncertain, these plans should foresee the environment charges and prepare the
organizations to accept these changes as and when they occur. These plans aim at achieving
17
the strategic objectives or goals of an organization.

(2) Short term plans:

Short term plans are the plans covering one year or less. Some examples are
adjustment of production within a given capacity, competition in the market, retain or
promote its sales, keeping the workers satisfied, budgeting future costs, employees
training, inventory plans, etc.

(3) Medium term plans:

Medium term plans are generally prepared for a period of more than one year. These
plans are the supportive plans in that they help in the achievement of long term plans and
they tends to define the organization's activities.

Directional plans:

Directional plans are the plans that are flexible and that set out the general guidelines.

(c) Based upon scope, the plan is classified as

(1) Company wise plans or Master plans,

(2) Functional plans or Departmental plans

They are explained as follows:

(1) Company wise plans or Master plans:

Company wise plans or Master plans are those plans which encompasses planning of
all the activities of the enterprise.

(2) Functional plans or Departmental plans:

Functional plans or Departmental plans are those plans which enters the planning in
the functional department or functional activities only.

(d) Based upon the repetitiveness of the operations in the firm or on the basis of the
stated objectives, the plan is classified as

1. Standing plans, and

2. Single use plans.

As different types of planning activities are taken up at different levels, Standing Plans
and Single-use Plans are seen normally and their brief explanation along with the diagram
is as follows:

18
Now, we will see about Standing Plans and Single use Plans:

Standing Plans and Single use Plans:

Its brief explanation is as follows:

(i) Single-Use Plans:

A single-use plan in a business environment refers to plans developed for a one-time project
or event that has one specific goal or an objective. They are the set of activities aimed at achieving
a specific goal within a particular budget and time period that is unlikely to be repeated in future.

The length of a single-use plan differs greatly depending on the project in question, as a single
event plan may only last one day while a single project may last weeks or months. Single-use plans
consist of budgets, programs and a description of the employees who will be contributing to the
single-use plan in question.

Single use plans are meant to solve a particular plan and so they are called “specific
plans”. Single use plans are formulated so as to handle non repetitive and unique
problem. Single use plans cannot be used again and again, and these become obsolete
after achieving their purpose.

Examples of a single use plan that could be employed by a business might be,

• an advertising campaign for a new product launch, or

• an integration plan for a recent acquisition.

19
Single use plan includes

*projects,

*budgets, and

*programmes.

Its brief explanation is as follows:

(1) Projects:

A project is an one-time activity that have clear beginning and end points.

A project is prepared in the context of the objectives incorporating policies, procedures,

rules and the other elements which are for the project preparation and execution.

(2) Budget:

Budget is a plan that commits the resources to the projects or activities.

Budget is a kind of single use plan of expected results expressed in numerical

terms. The important budgets prepared in a business enterprise are cash budget,
production budget, sales budget, capital budget, etc.

(3) Programmes:

A “programme” is a series or a sequence of activities in a precise plan which

lays down the operations to be carried out to accomplish a given task. Programmes
are result oriented and provide practical guidelines to the managerial acitvities. Some
examples are as follows:

Example: Introducing a new product, deputing its employees for training, production of
1,000 tonnes of cement this year, Developing a new product, training programme, advertising
programme, expansion programme, etc.

(ii) Standing plans:

Standing plans are ongoing plans that provide guidance for the activities performed
repeatedly.

Standing plans are used over a long period of time, sometimes indefinitely, and can be
altered to adapt to changing circumstances. Standing plans are also called “Repeated use
plans” because these provide ongoing guidelines for repeated actions to be taken in the
future.

These plans provide uniformity and conformity of efforts while meeting the repetitive
situations, which are arising at the various levels of an enterprise. These plans not only help
in coordination, but also in effective management also. Business plans are an ideal example
of a standing plan. Standing plans include

20
 • Objectives,
• Policies,
• Methods and Strategies
• Procedures
• Rules
They are explained as follows:

(1) Objectives:

Objective is an end that can be reasonably achieved within an expected timeframe and
with available resources.

As far as possible, objectives should be stated in quantitative terms. For example, Number of
men working, wages given, units produced, etc.

But some objectives cannot be stated in quantitative terms like performance of quality
control manager, effectiveness of personnel manager, etc.

Such goals should be specified in qualitative terms. Hence objectives should be practical,
acceptable, workable and achievable.

Objectives are a prerequisite for planning. “Objectives of the entire enterprise” are the basic
plans of the firm, and they influence the management philosophy and practice. “Departmental
objectives” will contribute to the attainment of the enterprise objectives.

(2) Policy:

A policy is the statement or general understanding which provides guidelines in

decision making, to the members of the organisation in respect to any course of action.
Policies are standing plans providing guidance to the management in the conduct of
various managerial operations. Policies also lay down the limits within which decisions
have to be made for accomplishing the enterprise objectives.

Examples:

An enterprise may follow a policy of selling its products, only on a cash basis or
may adopt a policy of employing only local people or else they may have a policy not to
employ not to employ any person over 60 years of age.

If policies are not done properly, then the managers have to make decisions again
and again. So, it should be sound.

(3) Procedures:

Procedures are clear cut administrative specifications prescribing the time sequence
for the work to be done. Thus, procedures tell how a particular activity is to be carried
out.

Procedures are plans in that, they establish a method so as to handle the future activities.
These are the specific manner in which a particular activity is to be performed. They prescribe
21
basically the chronological sequences of the action which are required to achieve an objective.

Procedures, provide the guidelines of performing an action . Time factor is important not only
to expedite the controlling efforts applied to a procedure but also help to co ordinate the operation
of various procedures within the organisation. Once the procedure is established, this can be used
over and over for accomplishing a particular work.

Examples:

Procedures may be set about,

• how Board of Directors will take a particular decision?

• how an order will be executed?

(4) Rule:

Rule is an explicit statement that tells the managers what they can or cannot do. Rules
do not leave any scope for decision making or judgement. They are to be enforced
rigidly and also a penalty may be imposed for ignoring the rules.

Example: “No Smoking” is an example for a rule.

(5) Methods and strategies:

Methods:

Methods specifies the way in which a particular step is to be performed. While

procedure tells about how a particular activity is to be carried out, method tells us how
a particular step in the procedure is to be performed. Thus, method explains about the
steps in a procedure and so it is more detailed than the procedure.

Strategies:

Strategy is a course of action. Strategies are the decisions and actions that determine
the long run performance of an organization. Strategies are the complex plans for
bringing the organisation from a given posture to a desired position in the future period. These
include broad concepts of an organisation's operation.

According to Steiner and Miner, strategies can be classified as follows:

(a) Master strategies

(b) Programme strategies

They are explained as follows:

(a) Master Strategies: Master Strategies refer to the entire pattern of a company's objectives
and involve the unified direction to the entire organisation. They may be formulated for the
areas of marketing(i.e.)market strategy for the field of marketing, finance, production, etc.

22
Example: A master strategy for the field of marketing may be to enter a new market with
the objective of capturing 15% of the market demand within a year.

(b) Programme strategies:

Programme strategies refer to the specific deployment of resources to achieve the

organisational purposes and are more specific.

Example: If a master strategy for the field of marketing so as to enter a new market with
the objective of capturing 15% of the market demand within a year, has been formulated,
then a programme strategy for the extensive advertising and intensive personal selling
campaign may be decided to enable the organisation to achieve its master strategy.

Sub – strategies:

Minor strategies are oriented towards the deployment of resources for achieving the
specific objectives, but they are not of overall importance to an organisation. However, they
provide guidance to decision making and action.

Example: For the purpose of capturing 15% of the market demand within a period of one
year, an organization may formulate a sub strategy to make use of the services of a particular
advertising company so as to take care of its advertising campaign.

Advantages of standing plans:

1. Managerial efforts and time can be minimised.

2. It facilitates the delegation of authority.
3. Effective control can be enforced.
4. Standing operating procedures and methods evolve the considerable use of the “one
best way” under scientific management.
5. It helps in coordinating the different activities of an enterprise.
6. Standing plans enable the performance of work by the persons with less experience and
ability.
7. It is easy to train the people under recognised policies and procedures. Job rotation is
also feasible.

Disadvantages of Standing Plans:

The only disadvantage is that the managers discretion(judgement or cautiousness) is

reduced. The following figure shows about this.

23
 So, because of these limits on the management discretion prevents innovation and
increases resistance to change as the way of doing things are firmly established.

Correlation:

Single-use plans and standing plans are not always used independently.(i.e.) we can often find
single-use plans are used within, the standing plans, so as to aid in accomplishing the grand
goals of the standing plans.

Example: Consider a 20-year plan to maintain market dominance through frequent new product
introductions. This plan is likely to require a large number of smaller product development and
marketing plans, as well as plans for developing and retaining the top talent in the industry.

Similarities:

Although single-use plans and standing plans differ in length and scope, the two plans do have
commonalities. Both plans include a list of steps or procedures that explain the plan in question and
a budget that shows how much the company needs to spend to implement the plans in question. In
addition, both of these plans also include risk analysis and must be monitored by a company
manager.

The differences between single use plans and standing plans are as follows:

Differences between standing plans and single use plans:

Single use plans Standing plans

(1) They are specific in nature and are These plans are repetitive in nature and are
used only for a particular purpose. used again and again.

(2) Single-use plans are: Standing plans are:

programmes, projects, and budgets. Objectives, Policies, Procedures, Methods,

Rules, and, Strategies.

(3) They are meant to solve a specific They are meant to achieve unity and
24
 purpose. After that purpose is achieved, uniformity in action throughout the
it stops to exist. enterprise.

(4) They are meant to tackle a They are meant to meet a recurring
particular situation. situation.

Business Plans:

Business plans are detailed plans written before the business launches. A detailed business plan
includes the followings:

1. a detailed profile of the business,

2. its purpose,
3. list of services and products, and
4. a chart displaying management.

In addition, the business plan also includes a risk management section, where the risks
associated with running the business are discussed and solutions are proposed. The business plan
not only offers information about the business, but also serves as a guidance document for business
owners.

The followings are the brief explanation about the “Characteristics of objectives”.

Characteristics of Objectives:

• Multiple in nature
• Objectives have hierarchy
• Objectives may be long range or short range
• Objectives are independent
• Objectives are either tangible or intangible
• Objectives have a priority
• Objectives sometimes may clash with each other

Its brief explanation is as follows:

(1) Multiple in nature:

Objectives are necessary in all areas of business on which its survival depends and hence
there must be multiple objectives rather than a single objective. According to Peter
[Link], the objectives of the business may relate to the market standing, innovation,
productivity, physical and financial resources, profitability, employees' performance, social
responsibilities, etc.

25
 • Objectives have hierarchy:

The objectives which are based on the mission of the company form a hierarchy from the
top level to the lowest level in the organization. The process of creating objectives from
the top level to the lowest position creates a hierarchy.

Example:

The organizational objectives may be to earn 15% of profit on the investment. This inturn
may create objectives departmental wise, sectional wise, group wise, etc.

The following diagram shows about the hierarchy of objectives.

Hierarchy of objectives:

(3)

Objectives may be long range or short range:

Objectives may be both short range objectives and long range objectives and their
examples are as follows:

Examples for long range objectives: Survival of the company, growth and development
of the company, etc.

Examples for short range objectives: Market standing, maximisation of sales, product
development, productivity, effective utilisation of resources, etc.

26
(4) Objectives are independent:

Objectives are independent and must support one another so that they may be realised
simultaneously.

(5) Objectives are either tangible or intangible:

Objectives are both tangible and intangible. Tangible objectives can be measured in
quantitative terms. Some examples are physical and financial standing, productivity,
profitability, etc. Intangible objectives cannot be measured in quantitative terms. Some
examples are Employees performance, morale, etc.

(6) Objectives have a priority:

This implies that at a given point of time, the accomplishment of one objective is
relatively more important than that of the others.

Example:

In case of a firm which is facing some difficulties in meeting the pay rolls and also
due dates on the accounts, the goal of maintaining a minimum cash balance may be critically
or highly important.

(7) Objectives sometimes may clash with each other:

In an enterprise, each department is given the responsibility for attaining a specified

objective. So, this creates the problem of potential goal conflict and sub-optimisation, because,
the achievement of one department's goal may jeopardize(to endanger) the achievement of the
goal of another department.

Example:

Suppose if the production department has the goal of achieving mass production of
low quality products and their achievement has also been done. This achievement of this
goal may conflict the sales goal, which is of selling high quality products.

The following diagram shows about “Open management system and Organisational Objectives
to Design a plan”:

27
 Open management system and Organisational Objectives to Design a plan:

Its brief explanation is as follows:

Organisational objectives are the ones which provide a strong base to design and to
develop a workable plan. In an open management system, organizational objectives act
as the basis to develop the operational procedures which is called “plan”. The objectives
give a specific direction to formulate an operational system which reflects the purpose of
the organization. Organisational purpose or mission is what the organization wants to do
and for which it exists to serve the target group of customers and their needs.

Mission or Purpose:

Purpose or mission is a standing plan in the sense that it defines the basic intention
of an organisation in the light of which other actions are defined.

An organisation's mission consists of a long term vision of what it seeks to do and

the reason why it exists.

As each and every organization exists for different purposes, the objectives also differ.
Organizational objectives focus on 3 common aspects:

• Earning profit for the organization,

• Servicing the customers effectively to survive in the society,

• Undertaking social responsibility task as per the ethical and moral codes of the society.

As a matter of fact, objectives provide nucleus to the planning process. Therefore, objectives
should be stated in a clear, precise and unambiguous language. Otherwise the activities undertaken
are bound to be ineffective. While formulating the objectives, the following aspects are to be
considered:

• Productivity,

• Physical and financial resources,

28
 • Profitability,

• Marketing,

• Managerial performance and development,

• Innovation

• Workers performance and attitude,

• Public responsibility (i.e.)Accountability to the society, ethical and moral aspects.

The followings are about the characteristics of a good policy:

Characteristics of a good policy:

(1) Relationship to the organisational objectives: A policy is formulated in the context of

organisational objectives. So, during policy formulation, those activities or functions, which
do not contribute towards the achievement of objectives should be eliminated.

Example: If a policy of filling higher positions from within the organisations, produces some
hindrances in attracting talents at higher levels, which the organisation really needs them,
that policy can be changed because, in the absence of suitable manpower, that organisation
may not be able to achieve its Objectives.

(2) Planned formulation: A policy must be the result of careful and planned formulation
process, rather than the result of opportunistic decisions, which are made on the spur of the
moment. Adhocism should be avoided, because it is likely to create more confusion.

(3) Fair amount of clarity: Policy should be clear and must not leave any scope for ambiguity.
If there is a problem for misinterpretation, the organisation should provide the methods for
overcoming the ambiguity.

(4) Consistency: The policy should provide consistency in the operation of various
organisational functions. If there is inefficiency, there may be conflict resulting into, inefficiency.
This happens very frequently in those functions having some close relationship, like production
and marketing, etc. The formulation of policies should be taken is an integrated way, so that
the policies in each department should contribute to the other department.

(5) Balanced: A sound policy maintains balance between the stability and flexibility.

Stability--->On the one hand, a policy is a long term proposition and so it must provide
stability, so that the members are well aware about what they are required to do in certain
matters.

Flexibility---> On the other hand, the policy should not be so inflexible, that it cannot be
changed, whenever the need arises. Accordingly, in a changed situation, the old policy becomes
obsolete.

29
 So, there should be a periodic review of policies.

Kinds of policies:

The following diagram shows the kinds of policies.

Kinds of policies:

On the basis of source On the basis On the basis of level

of functions

Its brief explanation is as follows:

(a) Policies on the basis of source:

(1) Originated Policies:

Originated Policies are the basic policies which are formulated by the managers and
tell the subordinates how to act in a given situation and the subordinates are expected to
follow them strictly. Since, they are formulated by the managers, they have the support of
the organisational authorities.

(2) Appealed Policies:

Appealed Policies are like a guide for the future action of the subordinates, because
it is generated by his superior's verdict. Here, suppose, if the subordinate is having doubts
about any matter which is not already covered by the existing policies, he may refer the
matter for his superior's verdict.

(3) External or Imposed Policies:

Sometimes, outside agencies like government, trade associations, trade unions, etc. may
also be instrumental in the formulation of a policy by the enterprise, and this is known as
imposed policy or external policy.

Example:If the government imposes certain conditions on the enterprises, in order to reserve
a certain percentage of jobs for the backward sections of the society or for the persons within
the state, then it becomes an external or imposed policy.

(b) Policies on the basis of functions:

Functional Policies are those policies which are formulated for the various functional
areas of management.

30
Examples:

• Financial policy,
• Marketing policy,
• Production policy,
• Personnel policy.

(c) Policies on the basis of levels:

(1) Basic policies:

Basic policies are those policies which are meant to be used by the top managers.

(2) General policies:

General policies are those policies which are meant to be used normally by the middle
managers.

(3) Departmental policies:

Departmental policies are those policies which are meant to be used normally by the
departmental managers.

Guidelines for effective policy making:

• Policies as far as possible should be in writing.

• They should be clearly understood by those who are supposed to implement them.

• They should reflect the objectives of the organisation.

• To ensure the successful implementation of policies, top managers and the subordinates
who are supposed to implement them must participate in their formulation.

• A policy must strike reasonable balance between flexibility and stability. According to
the changed conditions, policies must also be changed.

• Different policies in the organisation should not pull in different directions and should
support one another.

• Policies should not be detrimental to the interests of the society.

• Policies should be periodically reviewed inorder to see whether they are to be modified,
changed or completely abandoned.

31
The followings are the characteristics of procedures:

Features of procedures:

They are generally meant for repetitive work so that some steps are followed every
time that activity is accomplished. So, procedures are also called “repetitive use plans”.

• They are a guide to our action.

• Procedures are established in keeping with the objectives, policies and resources in
position.

• They are concerned with establishing the time sequence for the work to be done.

Distinction between policies and procedures:

Policies Procedures

(1) Policies are guide to decision making Procedures are guide to action only.

(2) In case of policies there are some room In case of procedures, they are more rigid
for interpretation and discretion. and specific and so there is no scope for
discretion.

(3) Policies are a part of strategies of a Procedures are only operational tools and a
business concern. guide to the action only.

(4) Policies are basic things and are Procedures are generally based on the policies
formulated by the top management. and are generally decided at somewhat lower
level of management.

The followings are the characteristics of a strategy:

Characteristics of a strategy:

• It provides guidelines to the enterprise for thinking and action.

• It involves in finding out a judicious combination of all the resources so as to achieve

the objectives of the organization.

• Its formulation involves taking into consideration of both the external and internal
environment.

• Since strategy is dependent on both the external and internal factors, strategy is dynamic.

• Because of the importance of the strategy to the business concern, strategy is formulated
32
 by the top management and not delegated downwards in the organisation.

Now, we will see about Decision making

DECISION-MAKING:
Decision:
Decision is a choice among the possible alternative courses of action.
(or) (or)
Decision is a choice from two or more alternatives.
The English word 'Decision' originated from the Latin word 'decisio' which means "to cut from."

'To decide' means "to come to a conclusion" or "to pass a resolution."

It is done to achieve a specific objective or to solve a specific problem. Decision-making lies

embedded in the process of management. Means and ends are linked together through decision-
making

Decision-making is an essential aspect of modern management. It is a primary function of

management. A manager's major job is sound/rational decision-making. It is rightly said that
the first important function of management is to take decisions on problems and situations.
Decision-making pervades all managerial actions. It is a continuous process. Decision-making is an
indispensable component of the management process itself.

Meaning of Decision Making

Decision making is the process of identifying and selecting a right course of action from two or
more alternatives for the purpose of achieving a desired result and to solve a specific problem.

Definitions of Decision Making

(1) According to James Stoner, "Decision making is the process of identifying and selecting a
course of action to solve a specific problem."

(2) The Oxford Dictionary defines the term decision-making as "the action of carrying out or
carrying into effect".

(3) According to Trewartha and Newport, "Decision making involves the selection of a course of
action from among two or more possible alternatives in order to arrive at a solution for a given
problem."

(4) According to Peter Drucker, "Whatever a manager does, he does through decision-making". A
manager has to take a decision before acting or before preparing a plan for execution.

This clearly suggests that decision-making is necessary in planning, organising, directing,

controlling and staffing. For example, in planning alternative plans are prepared to meet different
33
possible situations. Out of such alternative plans, the best one (i.e., plan which most appropriate
under the available business environment) is to be selected. Here, the planner has to take correct
decision. This suggests that decision-making is the core of planning function. In the same way,
decisions are required to be taken while performing other functions of management such as
organising, directing, staffing, etc. This suggests the importance of decision-making in the whole
process of management.

Characteristics of Decision Making:

1. Decision making implies choice: Decision making is choosing from among two or more
alternative courses of action. Thus, it is the process of selection of one solution out of many
available. For any business problem, alternative solutions are available. Managers have to
consider these alternatives and select the best one for actual execution. Here, planners/
decision-makers have to consider the business environment available and select the
promising alternative plan to deal with the business problem effectively. It is rightly said that
"Decision-making is fundamentally choosing between the alternatives".

2. The alternatives may be two or more: Out of such alternatives, the most suitable is to be
selected for actual use. The manager needs capacity to select the best alternative. The
benefits of correct decision-making will be available only when the best alternative is
selected for actual use.

3. Continuous activity/process: Decision-making is a continuous and dynamic process. It

pervades all organizational activity. Managers have to take decisions on various policy and
administrative matters. It is a never ending activity in business management.

4. Mental/intellectual activity: Decision-making is a mental as well as intellectual

activity/process and requires knowledge, skills, experience and maturity on the part of
decision-maker. It is essentially a human activity.

5. Based on reliable information/feedback: Good decisions are always based on reliable

information. The quality of decision-making at all levels of the Organisation can be
improved with the support of an effective and efficient management information system
(MIS).

6. Goal oriented process: Decision-making aims at providing a solution to a given problem/

difficulty before a business enterprise. It is a goal-oriented process and provides solutions to
problems faced by a business unit.

7. Means and not the end: Decision-making is a means for solving a problem or for achieving
a target/objective and not the end in itself.

8. Relates to specific problem: Decision-making is not identical with problem solving but it
has its roots in a problem itself.

9. Time-consuming activity: Decision-making is a time-consuming activity as various aspects

need careful consideration before taking final decision. For decision makers, various steps

34
 are required to be completed. This makes decision-making a time consuming activity.

10. Needs effective communication: Decision-taken needs to be communicated to all

concerned parties for suitable follow-up actions. Decisions taken will remain on paper if
they are not communicated to concerned persons. Following actions will not be possible in
the absence of effective communication.

11. Pervasive process: Decision-making process is all pervasive. This means managers
working at all levels have to take decisions on matters within their jurisdiction.

12. Responsible job: Decision-making is a responsible job as wrong decisions prove to be too
costly to the Organisation. Decision-makers should be matured, experienced, knowledgeable
and rational in their approach. Decision-making need not be treated as routing and casual
activity. It is a delicate and responsible job.

Now, we will see about Steps Involved In Decision Making Process:

Steps Involved In Decision Making Process:

Drucker recommended the scientific method of decision-making which, according to him, involves
the following six steps:

(a) Making the diagnosis,

(b) Analyzing the problem,
(c) Developing alternative solutions,
(d) Selecting the best solution out of the available alternatives,
(e) Converting the decision into action, and
(f) Ensuring feedback for follow-up.

The figure given below suggests the steps in the decision-making process:-

The Decision-making process:

Its brief explanation is as follows:

(1) Making the diagnosis(Identifying the Problem): Identification of the real problem before
a business enterprise is the first step in the process of decision-making. It is rightly said that
35
 a problem well-defined is a problem half-solved. Information relevant to the problem should
be gathered so that critical analysis of the problem is possible. This is how the problem can
be diagnosed. Clear distinction should be made between the problem and the symptoms
which may cloud the real issue. In brief, the manager should search the 'critical factor' at
work. It is the point at which the choice applies. Similarly, while diagnosing the real
problem the manager should consider causes and find out whether they are controllable or
uncontrollable.

(2) Analyzing the Problem: After defining the problem, the next step in the decision-making
process is to analyze the problem in depth. This is necessary to classify the problem in order
to know who must take the decision and who must be informed about the decision taken.
Here, the following four factors should be kept in mind:

(1) Futurity of the decision,

(2) The scope of its impact,
(3) Number of qualitative considerations involved, and
(4) Uniqueness of the decision.
Collecting Relevant Data: After defining the problem and analyzing its nature, the next step is to
obtain the relevant information/ data about it. There is information flood in the business world due
to new developments in the field of information technology. All available information should be
utilised fully for analysis of the problem. This brings clarity to all aspects of the problem.

(3) Developing Alternative Solutions: After the problem has been defined, diagnosed on the
basis of relevant information, the manager has to determine available alternative courses of
action that could be used to solve the problem at hand. Only realistic alternatives should be
considered. It is equally important to take into account time and cost constraints and
psychological barriers that will restrict that number of alternatives. If necessary, group
participation techniques may be used while developing alternative solutions as depending on
one solution is undesirable.

(4) Selecting the Best Solution: For this step, first, we need to do the process of
“Evaluation of Alternatives”. Inorder to do the evaluation, we need to analyze the
merits and demerits of each and every alternative. Then, we need to compare and
select one best alternative, which is having more number of merits and less number of
demerits, when compared to the other alternatives.

After preparing alternative solutions, the next step in the decision-making process is to
select an alternative that seems to be most rational for solving the problem. The alternative
thus selected must be communicated to those who are likely to be affected by it.
Acceptance of the decision by group members is always desirable and useful for its
effective implementation.

(5) Converting Decision into Action: After the selection of the best decision, the next step is to
convert the selected decision into an effective action. Without such action, the decision will
remain merely a declaration of good intentions. Here, the manager has to convert 'his
decision into 'their decision' through his leadership. For this, the subordinates should be
taken in confidence and they should be convinced about the correctness of the decision.
36
 Thereafter, the manager has to take follow-up steps for the execution of decision taken.

(6) Ensuring Feedback: Feedback is the last step in the decision-making process. Here, the
manager has to make built-in arrangements to ensure feedback for continuously testing
actual developments against the expectations. It is like checking the effectiveness of follow-
up measures. Feedback is possible in the form of organised information, reports and
personal observations. Feed back is necessary to decide whether the decision already taken
should be continued or be modified in the light of changed conditions.

For accurate/rational decision-making attention should be given to the following points:

• Identification of a wide range of alternative courses of action i.e., decisions. This provides
wide choice for the selection of suitable decision for follow-up actions.
• A careful consideration of the costs and risks of both positive and negative consequences
that could follow from each alternation.
• Efforts should be made to search for new information relevant to further evaluation of the
alternatives. This is necessary as the quality of decision depends on the quality of
information used in the decision-making process.
• Re-examination of the positive and negative effects of all known alternatives before making
a final selection.
• Arrangements should be made for implementing the chosen course of action including
contingency plans in the event that various known risks were actually to occur.
• Efforts should be made to introduce creativity and rationality in the final decision taken.

Now, we will see about goals and Objectives.

GOAL:
Meaning of a goal: Goal is the desired outcome or the final result to be achieved, and they
focuses on the desired intention.

A goal describes what you want to achieve. In other words, they are the desired outcome or
the final result of an endeavor. Goals are broad since they reflect the general intention.
A goal is a short statement of a desired outcome to be accomplished over a long time frame,
usually three to five years. It is a broad statement that focuses on the desired results and does
not describe the methods used to get the intended outcome.

Let’s look at some simple examples:

Goals:
• I will have my own website by the end of this year.
• Our brand will be among the top five brands in the cosmetics market within the next five
years.
• I will get the highest marks for math.
• I will retire by the age of 50.
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Some common examples of business goals include the following:
• Maximizing profits
• Growing revenues
• Increasing efficiency
• Providing excellent customer service
• Becoming an industry leader
• Creating a brand
• Becoming carbon-neutral

All above goals tell you what people want to achieve, but they don’t reveal how that outcome will
be achieved. They simply mention the desired outcome. Thus, goals are broader than
objectives. Most of these goals also take a long time to achieve. When compared to objectives,
goals are long term outcomes.

Objectives:
Meaning of Objectives: Objective is an end that can be reasonably achieved within
an expected timeframe and with available resources.

Objectives are specific, actionable targets that need to be achieved within a smaller time
frame, such as a year or less, to reach a certain goal. Objectives describe the actions or
activities involved in achieving a goal. For example, to achieve the goal of increasing revenues,
a company can have an objective like “Add three new products by the end of October this
year.”

Objectives are specific and concrete plans. Goals can be broken down into several objectives.
They define how the goal is going to be achieved. Objectives can also be described as a series of
steps or tasks that need to be completed in order to achieve the final goal. Let’s take the first
goal mentioned above (to set up your own website) and see how it can be broken down into
several steps.
• Learn how to set up a website.
• Select a suitable website building platform and buy.
• Choose a domain name and register it.
In this way, you can break down your goal into several objectives. You can also note that the above
objectives are very specific and measurable. They also do not take a long period of time, unlike goals.
When a goal is turned into a series of objectives, a task becomes more realistic and attainable. Even
if the final goal seems too hard to achieve, focusing on each objective may help you to reach that final
destination.
When you break down a project into objectives, you should always make sure that your objectives
are SMART. (Specific, Measurable, Achievable, Realistic and Time-bound)

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Given below is another example of a simple goal and its objective.
Goal:

• To lose weight

Objectives:

• Eat more fruits and

vegetables
• Avoid fruit juice and
sugary drinks
• Drink 8 glasses of
water every day.
• Write down what you
eat
• Maintain a weight chart

Comparison Chart

Basis for
Objectives Goals
Comparison
Objectives are the achievements which can be A goal is a long term purpose
Meaning attained only if the attempts are made in a which a person strives to
particular direction. achieve.
What is it? Ways and Means to an end End result
Basis Facts Ideas
Time frame Medium term to Short term Long term
Measurement Easy Comparatively difficult
Materiality Concrete Abstract
Action Specific Generic

Now, we will see the Approaches to objective setting:

Approaches to objective setting:

• Traditional approach,

• Management by Objectives(MBO)

They are explained as follows:

(1) Traditional approach (or) Traditional goal setting:

Traditional goal setting is an approach for setting the goals in which the goals are
39
set at the top level of the organization, and then broken into sub goals for each level of
the organization.

In Traditional approach the objectives are set by the top level people of the
organisation for those at the lower level people. This is an one way approach and an
authoritarian approach. This approach is likely to reduce their motivation, sense of
commitment, and responsibility.

(2) Management by objectives(MBO):

Meaning of MBO:
Management by objectives (MBO) is a strategic management model that aims to improve the
performance of an organization by clearly defining objectives that are agreed to by both
management and employees.

According to the theory, having a say in goal setting and action plans encourages participation and
commitment among employees, as well as aligning objectives across the organization.

Definition: MBO is a management practice which aims to increase organizational performance by

aligning goals and subordinate objectives throughout the organization.
It allows management to focus on achievable goals and to attain the best possible results
from available resources. One of the concepts of MBO is that all managers should participate in the
strategic planning process for better implementation of plans. It includes ongoing tracking and
feedback in the process to reach objectives

Description: MBO requires all levels of management to agree on clearly defined quantitative
and/or qualitative objectives. These targets then need to be periodically reviewed by higher levels of
management.

Comparison of MBO and MBE:

Management by objectives (MBO) is a systematic and organized approach that aims to increase
organizational performance.
On the other hand.
Management by Exception (MBE) is a "policy by which management devotes its time to
investigating only those situations in which actual results differ significantly from planned results.’’

MBO is a process of setting the mutually agreed upon goals and using those goals
to evaluate the employee performance.(or)

MBO is the process of joint objective setting between a superior and a

[Link] is a technique and philosophy of management, based on converting an
organisational objective into a personal objective, on the presumption that establishing the
personal objective makes an employee committed, which inturn leads to a better
performance.

The objective setting in MBO creates an integrated hierarchy of objectives throughout

the entire organization, because it is the process of joint objective setting between a superior
and a subordinate.
40
 Thus, in MBO, the process of objective setting involves participation and collaboration
among the various levels of the organisation with the intention of achieving the organizational
objectives.

Examples of MBOs
Here is an example of MBOs that you might experience in the workplace:
Human resources
Human resources would set one to three goals, such as maintaining an employee satisfaction index
of 85%. They would discuss how to make this happen. Once HR has created a plan, they will speak
with their employees. Through feedback, they will figure out new ideas to help in achieving this
goal. HR will ensure employees are doing their part as well. HR will then monitor employee
performance to ensure the goal is benefiting the business.
Another example is, if we work in customer service, your goals could be to increase customer
satisfaction by 13% and reduce customer call times by two minutes. Once you have created your
goals, you need to develop objectives or steps to achieve them.

The MBO method is supposed to enhance organizational effectiveness by getting the organization
to become more result focused. It is also supposed to encourage independence and entrepreneurism
amongst line managers. This philosophy originated sometime in the early 1970s.

Now, we will see the Process of MBO

PROCESS OF MBO
6 Stages of MBO (Management by Objectives) Process

The practical importance of objectives in management can best be seen by summarizing how
successful managing by objectives works in practice.

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The 6 steps of the MBO process are;

1. Define organizational goals

2. Define employees objectives
3. Continuous monitoring performance and progress
4. Performance evaluation
5. Providing feedback
6. Performance appraisal

Let’s briefly look at each of these;

1. Define Organizational Goals

Goals are critical issues to organizational effectiveness, and they serve a number of
purposes. Organizations can also have several different kinds of goals, all of which must be
appropriately managed.

And a number of different kinds of managers must be involved in setting goals. The goals set by the
superiors are preliminary, based on an analysis and judgment as to what can and what should be
accomplished by the organization within a certain period.

2. Define Employees Objectives

After making sure that employees’ managers have informed of pertinent general objectives,
strategies and planning premises, the manager can then proceed to work with employees in
setting their objectives.

The manager asks what goals the employees believe they can accomplish in what time period, and
with what resources. They will then discuss some preliminary thoughts about what goals seem
feasible for the company or department.

3. Continuous Monitoring Performance and Progress

MBO process is not only essential for making line managers in business organizations more
effective but also equally important for monitoring the performance and progress of employees.

For monitoring performance and progress the followings are required;

▪ Identifying ineffective programs by comparing performance with pre-established

objectives,
▪ Using zero-based budgeting,
▪ Applying MBO concepts for measuring individual and plans,
▪ Preparing long and short-range objectives and plans,
▪ Installing effective controls, and
▪ Designing a sound organizational structure with clear, responsibilities and decision-making
authority at the appropriate level.

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4. Performance Evaluation

Under this MBO process performance review is made by the participation of the concerned
managers.

5. Providing Feedback

The final ingredients in an MBO program are continuous feedback on performance and goals that
allow individuals to monitor and correct their own actions.

This continuous feedback is supplemented by periodic formal appraisal meetings in which superiors
and subordinates can review progress toward goals, which lead to further feedback.

6. Performance Appraisal

Performance appraisals are a regular review of employee performance within organizations. It is

done at the last stage of the MBO process.

Now, we will see the Advantages of MBO

Advantages of MBO:

The concept of MBO is very important in terms of its managerial implications. Besides being a

philosophy of management, it is a system which helps in synchronizing the objectives of the

individuals with the objectives of the organization.

When implemented properly, systematically and consciously, the MBO has the following

advantages:
1) Improved Performance
2) Greater Sense of Identification
3) Maximum Utilization of Human Resources
4) No Role Ambiguity
5) Improved Communication
6) Improved Organizational Structure

7) Device for Organizational Control

8) Career Development of the Employees
9) Result Based Performance Evaluation
10) Stimulating the Motivation of the Employees

Its brief explanation is as follows:

43
1. Improved Performance:

MBO is basically a result oriented process. Its main focus is on setting and controlling goals.

Managers are encouraged to do detailed planning. They concentrate on the important task of

improving performance by reducing the costs and harnessing the opportunities. Improved planning

will lead to improved productivity arid more profits.

2. Greater Sense of Identification:

The individual members of the organization have a greater sense of identification with the company

goals. With MBO, the subordinates feel proud of being involved in the organizational goals. This

improves their morale and commitment to the organizational objectives.

3. Maximum Utilization of Human Resources:

Since the goals are set in consultation with the subordinates, these are more difficult to achieve and

more challenging than if the superiors had imposed them. In addition, since these goals are fixed

according to the particular abilities of the subordinates, it obtains maximum contribution from them

and thus it leads to maximum utilization of human resources.

4. No Role Ambiguity:

There is no role ambiguity or confusion in the organization, because specific and clear goals are

set for the organization, for the division for the departments and for the individual members. Both

the managers and the subordinates know what they have to do and what is expected of them.

5. Improved Communication:

In MBO, there is improved communication between the management and the subordinates. This
continuous two way communication helps in clarifying any ambiguities, refining and modifying any

processes or any aspects of objectives.

6. Improved Organizational Structure:

In MBO, the whole of organizational structure is redesigned because of the revision of job

descriptions of various positions as a result of resetting of the individual goals. All this helps in

improving the organizational structure as a result of location of the problem and weak areas of the

44
organization.

7. Device for Organizational Control:

MBO serves as a device for organizational control and integration. If there are any deviations

discovered between the actual performance and the goals, these can be regularly and systematically

identified, evaluated and corrected.

8. Career Development of the Employees:

MBO provides a realistic means of analyzing training needs and opportunities for growth for the

employees. The management takes keen interest in the development of skills and abilities of

subordinates and provides an opportunity for strengthening those areas which need further

refinement, thus, leading to career development of employees.

9. Result Based Performance Evaluation:

The system of periodic performance evaluation lets the subordinates know how well they are doing.

In MBO, strong emphasis is put on measurable and quantifiable objectives. As a result, the appraisal

tends to be more objective specific and equitable. As these appraisal methods are based on result

and not on some intangible characteristics, there are considered to be superior to the trait evaluation

methods of appraisal.

10. Stimulating the Motivation of the Employees:

The system of MBO stimulates the employees motivation. First of all, they feel motivated because

of their participation in goal setting. They take keen interest in the implementation of the goals
which they themselves have set. Secondly the appraisal system, being very objective and specific

can be highly morale boosting.

Now, we will see the Disadvantages of MBO

Limitations of MBO:

A system of MBO has certain weaknesses and limitations. Some of these are inherent in the system

while some arise when introducing and implementing it.

45
 1) Lack of Support of Top Management
2) Resentful Attitude of Subordinates
3) Difficulties in Quantifying the Goals and Objectives
4) Costly and Time Consuming Process
5) Emphasis on Short Term Goals
6) Lack of Adequate Skills and Training
7) Poor Integration
8) Lack of Follow Up

9) Difficulty in Achievement of Group Goals

10) Inflexibility
11) Limited Application
12) Long Gestation Period

Its brief explanation is as follows:

Some of the problems and limitations associated with MBO are as explained below:

1. Lack of Support of Top Management:

In traditional organizations, the authority is vested in the top management and it flow from top to

bottom. In MBO, subordinates are given an equal opportunity of participation, which is resented by

the top management. This system cannot succeed without the full support of top management.

2. Resentful Attitude of Subordinates:

The subordinates can also be resentful towards the system of MBO. Sometimes, while setting the

goals, they may be under pressure to get along with the management and the objectives which are

set may be unrealistically high or far too rigid. The subordinates, generally, feel suspicious of the

management and believe that MBO is another play of the management to make them work harder
and become more dedicated and involved.

3. Difficulties in Quantifying the Goals and Objectives:

The MBO will be successful only if the goals can be set in quantifiable terms. But if the areas are

difficult to quantify and difficult to evaluate, it will not be possible to judge the performance of the

employees. Moreover MBO does not have any subjectivity in performance appraisal. It rewards
only productivity without giving any consideration to the creativity of the employees.
46
4. Costly and Time Consuming Process:

MBO is quite costly and a time consuming process. There is a lot of paper work involved.

Moreover, there are a lot of meetings and too many reports to be prepared, which add to the

responsibilities and burden of the managers. Because of these reasons managers generally resist the

MBO.

5. Emphasis on Short Term Goals:

Under MBO, goals are set only for a short period, say for six months or one year. This is because of

the reason that goals being quantitative in nature, it is difficult to do long range planning. Since the

performance of the subordinate is to be reviewed after every six months or one year, they tend to

concentrate on their immediate objectives without caring for the long range objectives of the

enterprise. This emphasis on short term goals goes against the organizational efficiency and

effectiveness and is not a healthy sign.

6. Lack of Adequate Skills and Training:

Most of managers lack adequate skills, knowledge and training required in interpersonal interaction

which is required in the MBO. Many managers tend to sit down with the subordinate, dictate the

goals and targets with no input permitted from the subordinates and then demand that the goals be

achieved in a specified time. Whether the goals are realistic or not does not enter the picture. In this

type of environment, two way communication is not there and objectives are imposed on the

subordinates. This destroys their morale, initiative and performance.

7. Poor Integration:

Generally, the integration of the MBO with the other systems such as forecasting and budgeting is
very poor. This lack of integration makes the overall functioning of the system very poor.

8. Lack of Follow Up:

Under the system of MBO, the superior must get in touch with the subordinate at the appropriate

time and at that time, the subordinate will inform the boss exactly what has been accomplished and

how. If the superior delays the meeting, it will create hurdles in the successful implementation of

47
MBO as the subordinate will also start taking the programme casually.

9. Difficulty in Achievement of Group Goals:

When goals of one department depend upon the goals of another department, cohesion is difficult to

maintain. In such cases, the achievement of goals will also become very difficult.

10. Inflexibility:

MBO may make the organization rigid. As the goals are set after every six months or one year, the
manager may not like to revise the goals in between, even if the need arises, due to fear of

resistance from the subordinates. The managers must learn to handle this situation, because

sometimes revision of short term goals is necessary for the achievement of long range objectives.

11. Limited Application:

MBO is useful largely for the managerial and professional employees. It is not appropriate for all

levels and for everyone because of the heavy demands made by it. It can be made applicable only

when both the subordinates and manages feel comfortable with it and are willing to participate in it.

12. Long Gestation Period:

It takes a lot of time, sometimes 3-5 years to implement the MBO programme properly and fully

and some research studies have shown that these programmes can lose their impact and potency as a

motivating force over a long period of time.

Now, we will see about MBE

Management By Exception (MBE)

Meaning: Management by Exception, shortly called as MBE is a management style or philosophy
that empowers the manager to concentrate on the exceptionally important or critical matters and
taking important decisions while facilitating the front line workers to complete the day to day
activities.
It aims at keeping the focus of the management on extremely important tasks and problems or areas
in need of action.

48
 Management by objectives (MBO) Management by Exception (MBE)
Management by objectives (MBO) is a Management by Exception (MBE) is a "policy
systematic and organized approach that aims to by which management devotes its time to
increase organizational performance investigating only those situations in which
actual results differ significantly from planned
results.”

Importance of Management By Exception

The points given below will discuss the importance of management by exception:
• Effective utilization of manager’s time, by driving their attention to those areas that need
managerial experience and action.
• Timely identification of discrepancies and its causes
• Prompt decision making and a suitable flow of action.
• Assists the firm in growing and improving its output.
• Optimum utilization of the organization’s resources.
• Better delegation of authority
• Identification of crises
• Enhances degree of communication
In a nutshell, in management by exception, the manager steps in, only when the employees fail to
meet out their performance standards.

Now, we will see the Advantages of MBE

Advantages of Management by Exception
1) Easy Determination of Responsibility
2) Saves Time
3) Optimum Utilization of Abilities
4) Increases Productivity
5) Enhances Research & Developments
6) Develops Subordinates
7) Efficient Business practices
8) Sets clear priorities
9) Quickly addresses problems with improved communication
Its brief explanation is as follows:
(1) Easy Determination of Responsibility:
The predetermined objectives, standard of job performances, duties and rights are defined and
specified in details for all the different Levels of Management, it is easy to ascertain and justify the
responsibilities any time in the process of whole operation.

(2) Saves Time:

The Top Levels of Management saves a lot of time after delegating the Authority to perform daily
routine jobs and other decisions as per the requirement of the situation or needs. Hereafter, are able
49
to concentrate upon the key issues & policy matter of the organization.

(3) Optimum Utilization of Abilities:

The techniques involved in the Management by Exceptions highlights the total decision making
pattern at the different Levels of Management, whereby each respective individual in his capacity
according to his managerial level is independent to take decision and is totally responsible for its
outcome or action. Hence, the manpower available in the business or industrial unit is expected to
utilize all his abilities to the optimum level. In other words the organization is prepared to utilize the
abilities of its man power to the maximum extent.

(4) Increases Productivity:

The application of Management by Exceptions techniques, provide Middle & Lower Levels of
Management with Authority and Responsibility. This helps them in job performances and makes them
feel to be part of the business or industrial unit. The above factor raises their esteem and respective
managers or supervisor in turn give their whole hearted efforts for the success of organizations
objectives. Ultimately the Productivity & Efficiency of the whole team increases many fold.

(5) Enhances Research & Developments:

Management by Exceptions gives emphasis to timely consistent supervision and assessment of
activities as well as analyzing the total job performances. Constant supervision facilitates in taking
decisions and drawing logical conclusion. This systematic approach supports Research &
Developments, thereby helping in reaching to required conclusion and enhancing the overall
performances and results.

(6) Develops Subordinates:

This technique of Management by Exceptions supports the development of subordinates, as the
authority given and also the freedom to take independent decisions or take initiatives to proceed to
solve upcoming issues or problems. This unique opportunity of taking independent decisions helps
in developing dedicated and efficient individuals or subordinates, capable of giving desired results.

(7) Efficient Business practices

As this business practice encourages professionals to focus on productivity, it can also help
employees increase their work potential. If a professional is especially interested in problem-
solving, management by exception can also motivate employees to seek management positions.
Because management by exception allows employees to work independently, it can motivate
employees to take more responsibility at work.
(8) Sets clear priorities
By establishing a company standard for productivity, managers can set clear priorities.
Example: If an employee knows when they should notify a manager if they sign a high-profile
client, then the employee also understands how important that activity is.
Similarly, if employees can change certain business practices without manager intervention, they
can guess that it is a low-level priority.
(9) Quickly addresses problems with improved communication
When practicing management by exception, professionals quickly react to any issue that arises. This
can help companies address problems in a timely manner. Management by exception also
encourages efficient communication, which allows managers to find fast solutions for issues.

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Now, we will see the Disadvantages of MBE
Limitations of Management by Exception

(1) Considers only Major Deviations

(2) Less preventive
(3) Requires close monitoring
(4) Lack of Advanced problem-solving
(5) Extra layer of expenses
(6) Chances of late remedial action
Its brief explanation is as follows:
(1) Considers only Major Deviations
The biggest drawback of management by exception is that it considers only major deviations and
ignores minor deviation which in future can haunt the company. In simple words in a way this
system by ignoring minor deviations allows them to become big deviations and hence trouble the
company in the future.

(2) Less preventive

Because management by exception relies on reacting to a problem, it can neglect to put preventative
measures in place. This means that a company may be more prepared to handle a problem instead of
keeping it from happening in the first place. However, many companies keep this in mind while
using management by exception practices and take extra care to both react to and prevent problems.
(3) Requires close monitoring
In order to work efficiently, companies who implement management by exception need to establish
close monitoring practices ensuring professionals alert the managers when a problem arises.
Because these managers do not focus on daily operations, they rely on other professionals to keep
them informed about any issues.
However, most companies that use management by exception train their employees to use strong
observation skills and hire responsible professionals to keep the management system efficient and
accurate.
(4) Lack of Advanced problem-solving
Management by exception also requires all leaders within a company to have exceptional problem-
solving skills. This helps them quickly address issues and find creative solutions for them. While
this is an advanced skill, most management professionals train to possess this skill regardless of the
company's management method. So, some more time is wasted with this. So, exceptional problem-
solving skills are very much required for them, which they are not prevelant throughout.
(5) Extra layer of expenses
It causes an extra layer of expenses for the organization as, the financial analysts, auditors etc. are
required to be hired to compare and prepare variance summaries.
(6) Chances of late remedial action:
It may degenerate into a system of management by crisis. But if a crisis is not handled at the source,
it may ultimately by too late for remedial action. This is particularly true of labour problems. The
whole process is ineffective if the analyst is incompetent and fail to determine the serious issue.
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Now, we will see the Components of MBE

Components of Management By Exception

The six fundamental components of Management By Exception are:

➢ Measurement: Assignment of values to the past and present performances, so as to easily

recognize an exception.
➢ Projection: Forecasts that measurement which is relevant to the organizational objectives
and extends the same, to future expectations.
➢ Selection: Determines the parameters used by the management to pursue organizational
objectives.
➢ Observation: Measurement of existing performance so that the managers are having the
knowledge of the existing state of affairs of the organization.
➢ Comparison: Compare the actual and planned performance and indicating the exception
which needs managerial action and reports the variances.
➢ Decision Making: Prescription of the course of action which needs to be taken so as to
ensure that the performance is back in control or to adjust expectations, which represents the
changing conditions.
This principle requires the compliance of the principle of delegation of authority, i.e. a substantial
degree of delegation must be present in the organization. According to this principle, any issue of
unusual or non-recurring nature needs to be referred upwards, so as to be decided by the top tier
executives and managers.

Apart from this, Kindly go through the following Additional matters also

How to create your own MBO?

You can follow these steps to create an effective MBO:
• Define organizational goals: Setting organizational goals is very important. You should
create one to three goals that you can achieve in the long-term. For example, if you work in
customer service, your goals could be to increase customer satisfaction by 13% and reduce
customer call times by two minutes.
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• Create employee objectives: Once you have created your goals, you need to develop
objectives or steps to achieve them. Try separating your goals into smaller objectives to
create a timeline that you can follow. If you’re working with a team, make sure to
communicate the steps to them to ensure you can all work toward the same objectives.
• Continuously monitor performance and progress: An MBO can create more effective
management, but it can also be important for monitoring the progress and performance of
employees. You should monitor your progress to make sure you achieve your objectives in
the designated timeline. Consider creating tracking sheets for progress and performance, and
try holding regular meetings for your team to discuss obstacles and celebrate achievements.
• Evaluate performance: Managers can monitor employees’ performance and review their
efficiency. If you need to offer more guidance to one of your team members, you can
monitor their progress, create a report and discuss their work with them. Try to provide
actionable advice they can apply to their work.
• Provide feedback: One of the most important parts of MBO is continuous feedback on
performance and goals. Once you complete an objective or step, meet with your team to
discuss how you were able to make that goal and how to continue making progress. Offer
additional feedback or praise for your team to maintain motivation and productivity.
• Performance appraisal: Performance Appraisal refers to the evaluation or review of the
performance of each member. At the last stage of the MBO process are performance
appraisals. Once you complete your goals, you should appraise each team member’s overall
work. Review their performance throughout the project to determine where they excelled
and where they can improve. Offering an appraisal can help them grow as employees and
progress on their career paths.

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