Planning/ Decision-making & Strategy Formulation

Meaning and Characteristics of Management

“Management is the process by which managers create, direct, maintain and operate purposive organisations through systematic, coordinated, cooperative human effort.”
                                                                                                     -Dalton E. McFarland

“Management is defined as the process by which a cooperative group directs action towards common goals. This process involves techniques by which a distinguishable group of people (managers) coordinates activities of other people; managers seldom actually perform the activities themselves. This process consists of certain basic functions.”                                 -J.L. Massie            

“Management is guiding human and physical resources into dynamic organisational units which attain their objectives to the satisfaction of those served and with a high degree of morale and sense of attainment on the part of those rendering service.”               -American Management Association 

Characteristics of Management

The salient feature which highlight the nature of management are as follows:

1. Management is Universal: The basic principles of management are universal in character. They apply more or less in every situation. Henry Fayol pointed out that the fundamentals of management are equally applicable in different organisations, business, government, military and others. The functions of management are required at all levels of organisation and in all areas of business.

2. management is Purposeful: Management exists for the achievement of specific objectives. It is a means towards the accomplishment of predetermined goals. All activities of management are goal-oriented. The success of management is measured by the extent to which the desired objectives are attained. Management has no justification to exist in the absence of objectives. Management is creative- a process of achieving results.

3. Management is an Integrative Force: The essence of management lies in the coordination of individual efforts into a team effort. Management reconciles the individual goals with organisational goals. As a unifying force, management creates a whole that is more then the sum of individual parts. It integrates human and physical resources.

4. Management is a Social Process: Management is done by people, through people and for people. It is a social process because it is concerned with interpersonal relations. Human factor is the most important element in management. According to Appley, “management is the development of people, not the direction of things.” A good manager is a leader, not a boss. It is the pervasiveness of the human element which gives management its special character as a social process.

5. Management is Multidisciplinary: Management has to deal with human behaviour under dynamic conditions. Therefore, it depends upon wide knowledge derived form several disciplines like engineering, sociology, psychology, economics, anthropology, etc. The vast body of knowledge in management draws heavily upon other fields of study.

6. Management is a Continuous Process: management is a dynamic and an on-going process. The cycle of management continues to operate so long as there is organised action for the achievement of group goals.

7. Management is Intangible: Management is an unseen or invisible force. It cannot be seen but its presence can be felt everywhere in the form of results. However, the managers who performs the functions of management are very much tangible and visible.

8. Management is an Art as well as Science: it contains a systematic body of theoretical knowledge and it also involves the practical application of such knowledge. management is also a discipline involving specialised training and an ethical code arising out of its social obligations.

On the basis of these characteristics, management may be defined as a continuous social process involving the coordination of human and material resources in order to accomplish desired objectives.

The Process of Management

The process of management consists of several interrelated elements. These elements are known as managerial functions which are Planning, organising, staffing, directing and controlling.

A brief description of different functions or elements of management is given brief:

1. Planning: Planning is the most basic or primary function of management. It precedes other functions because a manager plans before he acts. Planning involves determining the objectives and selecting a course of action to achieve them. It implies looking ahead and deciding in advance what is to be done, when and where it is to be done. Planning is a mental process requiring the use of intellectual faculties, foresight, imagination and sound judgement. It consists of forecasting, decision-making and problem-solving. A plan is a predetermined future course of action. It is today’s design for tomorrow and an outline of steps to be taken in future.

The process of planning consists of: (a) determination of objectives, (b) forecasting and choice of a course of action, (c) formulation of policies, programmes, budgets, schedules, etc. to achieve the objectives, and (d) laying down of procedures and standards of performance. Planning may be long-term or short-term. Planning is a pervasive function and managers at all levels have to prepare

plans. Planning is also a continuous or on-going process. Planning enables us to do things in an orderly and efficient manner. It is helpful in more effective achievement of goals. Planning enables an organisation top face uncertainly and change.

2. Organising: Once plans are formulated, the next step is that of organising. Organising is the process of establishing harmonious authority-responsibility relationships among the members of the enterprise. It is the function of creating a structure of duties and responsibilities. The network of authority-responsibility relationships is known as organisation structure. Such a structure serves as the framework within which people can work together effectively for the accomplishment of common objectives. Organising is an important element of management because of common it is through organising that a manager brings together the material and human resources required for the achievement of desired goals. According to Fayol, “to organise a business is to provide it with everything useful to its functioning-raw materials, tools, capital and personnel.” A sound organisation helps to avoid duplication of work and overlapping of effort. However, an organisation structure is not an end in itself. It should, therefore, be designed to fit into the needs and objectives of the particular enterprise. It should ensure material and human order.

The process of organising consists of the following steps:

(a) determining and defining the activities required for the achievement of planned goals;
(b) grouping the activities into logical and convenient units;
(c) assigning the duties and activities to specific positions and people;
(d) delegating authority to these positions and people;
(e) defining and fixing responsibility for performance; and
(f) establishing horizontal and vertical authority-responsibility relationships throughout the organisation.

3. Staffing: Staffing is the process of filing all positions in the organisation with adequate and qualified personnel. According to Koontz and O’Donnell, “The managerial function of staffing involves manning the organisational structure through proper and effective selection, appraisal and development of personnel to fill the roles designed into the structure.” Staffing consists of manpower planning recruitment, selection, training, compensation, integration and maintenance of employees. Staffing function has become important with growing size of organisation, technological advancement and recognition of the human factor in industry. Lawrence Appley remarked, “… managers would be more skilled and more competent if they were carefully selected, specifically trained, continually kept up-to-date in their field of activity, guided in their development for the assumption of greater responsibility and adequately rewarded”.

4. Directing: Directing is the managerial function of guiding, supervising, motivating and leading people towards the attainment of planned targets of performance. In this process of directing his subordinates, a manager takes active steps to ensure that the employees accomplish their tasks according to the established plans. Directing is the executive function of management because it is concerned with the execution of plans and policies. Direction initiates organised action and sets the whole organisational machinery into action. It is, therefore, the life spark of an organisation.

Directing function of management embraces the following activities:

(a) issuing orders and instructions,
(b) supervising (overseeing) people at work,
(c) motivation, i.e., creating the willingness to work for certain objectives,
(d) communication, i.e., establishing understanding with employees regarding plans and their implementation, and
(e) leadership or influencing the behaviour of employees.

5. Controlling: Controlling is the process of ensuring that the organisation is moving in the desired direction and that progress is being made towards the achievement of goals. The process for controlling involves the following steps:

(a) establishing standards for measuring work performance;
(b) measurement of actual performance and comparing it with the standard;
(c) finding variances between the two and the reasons therefore: and
(d) taking corrective action for removing deviations so as to ensure attainment of objectives.

Management is a composite process because its different elements are interrelated and interdependent. It is also an ongoing process as the cycle of management gets repeated again and again. Management is a social or human process because it involves people, their efforts and behaviour. It is a universal process as managerial functions are needed in all organisations irrespective of their nature (business or non-business), size (small or big) and purpose (profit making or not).

Meaning of Planning

Planning is the most fundamental function of management. It precedes other functions. Without setting the goals to be reached and the course of action to be followed, organising, staffing, directing and controlling cannot be effective. Planning provides the framework within which coordinating, motivating and controlling can be undertaken. Every individual and organisation plans the line of action to be followed in future. Action follows planning and there is nothing to do unless the objectives and the ways of achieving them are decided. Planning is in fact a prerequisite to effective management.

Planning is the management function of anticipating the future and the conscious determination of a future course of action to achieve the desired results. A plan is a blueprint of the course of action to be followed in future. Planning involves forecasting because in order to plan the future course of action, it is essential to anticipate the future. While planning, a manager prepares a map of the future, sets the goals to be achieved or the desirable results and decides the activities required to accomplish those results. Planning consists of both problem-solving and decision-making. It requires determination of objectives and the ways of reaching them.

A plan is a projected course of action. According to Fayol, “the plan of action is at one and the same time the result envisaged, the line of action to be followed, the stages to go through and the methods to use. It is a kind of future picture wherein proximate events are outlined with some distinctiveness, whilst remote events appear progressively less distinct.”

According to Terry, “planning is a method or technique of looking ahead. It is a deliberate conscious search used to formulate the design and orderly sequence of actions through which it is expected to reach the objective.”

In brief, “planning is deciding in advance what to do, how to do it, when to do it and who is to do it.”

These definitions indicate that planning involves the determination of objectives and results, the selection of the best possible course of action to achieve the desired results, the time sequence of activities and the resources required to perform the activities.

Nature of Planning

The nature of planning can be visualised from the following features of planning:

1. Planning is Goal-oriented: Planning is not an end in itself. Rather, it is a means towards the accomplishment of objectives. Planning has no meaning unless it contributes in some positive way to the achievement of desired goals. All plans emanate from objectives. The goals may be implicit or explicit but well-defined goals are essential for efficient planning. Thus, planning is goal-oriented.

2.Planning is a Primary Function: Planning is the basis or foundation of the management process. All other functions of management are designed to attain the goals set under planning. Planning provides the basis for efficient organising, staffing, directing and controlling. It precedes the execution of all other functions. Without planning, there is nothing to organise, no one to actuate and no need to control.

3. Planning is All-pervasive: Planning is the function of each and every manager irrespective of the level and area of his/her operation. It is the job of all managers in all types of organisations. Planning is an essential ingredient in management at all executive levels. However, the scope, extent and the nature of planning tend to decrease as we descend towards the lower levels of management. Managers at the top level prepares long-term plans for the company as a whole, middle-level managers formulate departmental and functional plans for medium-term. At the lowest level, managers prepare operating and short-term plans.

4. Planning is an Intellectual Process: Planning is a mental exercise involving imagination, foresight and sound judgement. It is not guesswork or wishful thinking. It requires a mental disposition of thinking before doing and acting in the light of facts, rather than guesses.

5. Planning is a Continuous Process: Planning is an on-going and dynamic exercise. As the assumptions and events on which plans are based change, old plans have to be revised or new ones have to be prepared. As a manager carries out his functions, he continues to plan, revising his old plans and choosing alternative plans as the need arises.

6. Planning is Forward-looking: All planning is done with an eye on the future. Planning involves looking ahead and preparing for the future. Therefore, forecasting is the essence of planning. Forecasting involves assessing the uncertain future and making provisions for it. A plan is really a synthesis of various forecasts. No plan can be prepared without knowledge of future events. Planning is an attempt to see through the uncertain future.

7. Planning Involves Choice: Planning is basically a problem of decision-making or choosing among alternatives courses of action. Planning presupposes existence of alternatives. There is no need for planning if there is only one way of doing something. Plans are decisions made after evaluation of alternatives courses of action.

8. Planning is an Integrated Process: Planning does not just happen, it has to be initiated. Planning is a structured process and different plans constitute a hierarchy. Different plans are independent and interrelated. Every lower-level plan serves as a means towards the end of higher plans. This is known as the ‘ends-means chain’. Planning is a time-bound concept and every plan has a definite time horizon.

9. Planning is Directed Towards Efficiency: Planning has no relevance if it does not facilitate the achievement of objectives economically and efficiently.

Need and Importance of Planning

Planning is of paramount importance both for an organisation and an economy. Sound plans are essential to effective management, because they serve as guides to all management functions. Lack of well-defined objectives and priorities is the common cause of failure. ‘Failure to plan is planning to fail’. Planning is useful to an organisation in the following steps:

(i) Focuses Attention on Objectives and Results: Every organisation exists to achieve certain objectives. Planning concentrates attention on the dominant goals of the organisation. It forces the members of the organisation not to get lost in the maze of routines activities and lose sight of the broad objectives for which the organisation was established.

(ii) Reduces Uncertainly and Risk: Uncertainly and change are inevitable and planning cannot eliminate them. But planning enables an organisation to cope with uncertainly and change. With the help of planning, an enterprise can predict future events and make due provision for them. Instead of leaving future events to chance, they can be made to occur in a desired manner. Planning seeks to minimise risk while taking advantage of opportunities. It also keeps management alert to the changing environment of business.

(iii) Provides Sense of Direction: Planning saves an organisation from drifting and avoids aimless activities. It directs human efforts into endeavours that contribute to the accomplishment of goals. “If you don’t know where you are going, no road will get you there.” Planning makes work more meaningful and activities more orderly. It bridges the gap between where we are and where we want to go. Without planning action is likely to become random activity, producing nothing but chaos.

(iv) Encourages Innovation and Creativity: Innovation and creativity are prerequisites to continuous growth and steady prosperity of business. Planning is forward looking and it enables an enterprise to cope with technological and other developments. Planning requires continuous monitoring of environment for new ideas and developments. As a result the enterprise becomes dynamic. Being anticipatory in nature, planning improves the adaptability of an organisation to the changing environment.

(v) Helps in Coordination: Planning is the best stage for the integration of diverse forces at work. Sound planning interrelates all the activities and resources of an organisation. It also helps to relate internal conditions and processes to external events and forces. The activities and efforts of various departments and divisions can be harmonised with the help of an overall plan. Planning seeks to achieve a coordinated structure of operations.

(vi) Guides Decision-making: Planned targets serve as the criteria for the evaluation of different alternatives so that the best course of action may be chosen. By predicting future, planning helps in taking future-oriented decisions. Sound plans prevent hasty judgement and haphazard action. “Without planning, business decisions would become random as hoc choices, as though a pilot set out without knowing whether he wished to fly to London, Hong Kong or Johannesburg”. When plans covering future exist, decisions consistent with the future plans are made. therefore, decisions automatically get a future orientation. In the absence of plans, there is no sound basis for making future-oriented decisions.

(vii) Provides a Basis for Decentralisation: Planning helps in the delegation of authority to lower levels of management. Well-established plans serve as guides to subordinates and reduce the risk involved in delegation of authority. Planning also helps to improve the motivation and morale of employees by providing targets of performance.

(viii) Provides Efficiency in Operations: Planning facilitates optimum utilisation of available resources. It makes it possible for things to occur which would not otherwise happen. it improves the competitive strength of an organisation by helping it to discover and exploit opportunities. As a rational solution to problems, planning results in the use of most efficient methods to work. A good plan not only optimises productivity but provides satisfaction to those implementing it. Planned effort is always more efficient than unplanned action. Thus, planning improves organisational effectiveness.

(ix) Facilitates Control: Planning provides the basis for control. Plans serve as standards for the evaluation of performance. Sound planning enables management to control the events rather than be controlled by them. It permits control by exception. Control cannot be exercised plans because the function of control is to ensure that the activities conform to the plans. Any attempt to control without plans is meaningless as there are no gauges for performance.

Limitations of Planning

Planning is not a substitute for executive judgement but merely an aid to it. It suffers from the following limitations:

1. Unreliable Data: Planning is based on forecasts which are never cent per cent accurate. The accuracy and reliability of forecasts diminishes as the forecasting period increases. If reliable forecasts and data are not available, planning becomes unrealistic.

2. Time and Cost: Planning is a time-consuming and expensive process. Time, effort and money are required in the collection and analysis of data and in the formulation and revision of plans. Planning is useful only when the expected gains from the exceed its costs. By the time plans are prepared, conditions might change rendering the entire efforts irrelevant.

3. Rigidity: Planning may result in internal inflexibilities and procedural rigidities which curb initiative and individual freedom. Sometimes, planning may cause delay in decision-making. A manager may be bogged down by rules and procedures when there is need for quick decision.

4. Resistance to Change: Planning often requires some change in the existing setup. Unless the required change is forthcoming planning may be ineffective.. Resistance to change is an important obstacle in planning. Planning also requires a forward looking attitude. But very often, people have a greater regard for present as future is uncertain.

5. False Sense of Security: Planning may create a false sense of security in the organisation. A manager may feel that all problems will be solved once the plans are put into operation. In reality, management has to continuously revise the plans and regularly check on their execution.

6. Psychological Barriers: Powerful people and other vested interests may exert pressure to ensure that the plans serve their own interests. Moreover, the planners may be unduly influenced by the ‘pet projects’ of the ‘big boss’ and may not make an objective analysis of the available alternatives. It is very difficult to measure accurately the effectiveness of planning.

7. External Limitations: The effectiveness of planning may be affected by external forces which are beyond the control of those responsible for preparing plans. Government control, natural calamities, and other unforeseen events may create hurdles in the implementation of plans. It is very difficult to predict and provide for such external constraints.

That is why it is said “planning is a mere ritual in a fast changing environment.”

Principles of Planning
(Overcoming Limitations of Planning)

Over the years, a number of fundamental principles have been developed to guide the efforts of managers in preparing effective plans. These principles relate to the nature, purpose, process and structure of planning. A brief description of planning principles is given below:

1. Principle of Contribution to Objectives: Every major and derivative plan should contribute positively towards the accomplishment of enterprise objectives. This principle is derived from the raison d’etre of the enterprise.

2. Principle of Efficiency of Plans: The efficiency of a plan is measured by the amount it contributes to objectives minus the costs and other undesirable consequences involves in the formulation and operation of the plans. This principle stresses upon economical use of individual effort to achieve group goals.

3. Principle of Primary of Planning: This principle emphasises that a manager can hardly perform other managerial functions without a road map of plans to guide him. Planning is the primary requisite of other management functions because these functions are designed to support the accomplishment of enterprise objectives.

4. Principle of Planning Premises: Perhaps the main deficiency of planning arises from poorly structured plans. A coordinated structure of plans can be developed only when managers throughout the organisation understand and agree to utilise consistent planning premises.

5. Principle of Policy Framework: A consistent and effective framework of enterprise plans can be developed if the basic policies that guide thinking in decisions are expressed clearly and are understood by managers who prepare the plans. The decisions which lead to plans cannot be accurately focused on enterprise objectives without a framework of policies.

6. Principle of Timing: When the plans are structured to provide an appropriately timed, intermeshed network of derivative and supporting programmes, the plans can contribute effectively and efficiently towards the attainment of enterprise objectives. Both premises and policies are useless without proper timing.

7. Principle of Alternative: In choosing from among alternatives, the best alternative will be that which contributes most efficiently and effectively to the accomplishment of a desired goal.

8. Principle of Limiting Power. While choosing from among alternatives, the planner should focus on those factors which are critical to the attainment of the desired goal. This will help in selecting the most favourable alternatives.

9. Principle of commitment: Logical planning should cover a time period necessary to forecasts the fulfilment of commitment involved in a decision. This is necessary to make reasonably sure of meeting commitments.

10. Principle of Flexibility: This principle deals with the ability to change which is built into plans. The risk of loss due to unexpected events can be reduced by building flexibility into the plans. However, the cost of flexibility should be weighed against the dangers of future commitments made.

11. Principle of Navigational Change: The manager should periodically check on events and expectations and redraw plans to maintain a course toward the desired goal. Unless plans have inbuilt flexibility, navigational change is difficult or costly. But inbuilt flexibility should not be an excuse for periodic revision of plans, if circumstances so warrant.

12. Principle of Competitive Strategies: While formulating plans, a manager should take into account the plans of rivals or competitors. The plans should be chosen in the light of what competitor will do in the same situation.

Essential Requirements of a Sound Plan

A sound plan is one which helps the organisation in achieving its desired objectives. Such a plan must satisfy the following requirements:

(i) Clear and Specific: The plan must clearly specify the objectives and the means of achieving these objectives.

(ii) Complete and Integrated: The plan must be comprehensive enough to cover all actions expected from different sections of the enterprise. Different components of the plan must be properly integrated to maximise the efficiency and effectiveness of the enterprise.

(iii) Logical: The plan should be based on available facts and reasonable assumptions about the likely future, rather than an guesses. It should be realistic.

(iv) Flexible: the plan must be capable of being modified to suit changes in the environment and other contigencies.

(v) Controllable: The plan must be capable of being controlled. It should facilitate effective administrative control by differentiating between controllable and uncontrollable events in the external environment of business.

Steps in Planning Process

Organisations differ in terms of their size and complexity. Therefore, there is no single planning procedure applicable to all organisations. However, the main steps in planning process are as follows:

1. Identify Goals: Plans are formulated to achieve certain objectives. Therefore, the first step in the planning process is to identify the goals of the organisation. The organisation fixed must clearly indicate what is to achieved, where action should take place and who is to perform it and when it is to be accomplished. Objectives set must be stated clearly and in measurable terms. For example, quantity standards, cost targets and quality specifications are measurable objectives. Objectives should be established in all key areas where performance affects the health of organisation. Objectives should be laid down after an analysis of the external and internal environment of the organisation.

2. Develop Planning Premises: Planning is done for the future which is uncertain. Therefore, certain assumptions are made about the future environment. These assumption are known as planning premises. Planning premises lay down the boundary or limitations within which plans are to be implemented. In order to develop good planning premises, it is necessary to collect data on the current status of the organisation and to forecast future changes.

3. Determine Alternative Courses of Action: Generally, there are alternatives ways of achieving the same goal. For example, in order to increase sales, an enterprise may launch advertising campaign or reduce prices or improve the quality of products. Therefore, alternative course of action should be determined. This requires imagination, foresight and ingenuity. In determining alternatives, the critical or limiting factors must be kept in view.

4. Evaluate the Alternatives: Once alternative courses of action have been determined, they must be evaluated. Alternative courses of action can be evaluated against the criteria of cost, risks, benefit and organisational facilities. The strong and weak points of every alternative should be analysed carefully. Computer oriented mathematical techniques may Be used wherever necessary.

5. Select a Course of Action: The most appropriate alternative is selected as the plan. This is the point of decision where a plan is adopted for accomplishing identified goals.

6. Formulate Derivative Plans: The final step in planning process is to develop sub-plans. In order to give effect to and support the basic plan, several sub-plans are required. Once a choice is made and the master plan is adopted, functional and tactical plans and action programmers are decided. The break-down of the master plan into departmental and sectional plan provides a realistic picture of the actions to be taken in future. A time sequence of activities should also be decided.

Types of Planning

`1. Strategic Planning: Strategic planning refers to comprehensive and integrated planning. It is based on long-term forecasts and is usually done at higher levels of management. It involves appraising the external environment and results of the organisation. According to Anthony, “Strategic planning is the process of deciding on objectives of the organisation, on changes in these objectives, on the resources used to attain these objectives and on the policies that are to govern the acquisition, use and disposition of these resources.”
Strategic planning encompasses all the functional areas of business. It defines the manner in which the resources of the enterprise are to be developed. It also determines the direction in which the company is to grow and diversify. Strategic planning serves as the framework for the formulation of detailed operational plans. Types of products to be offered, diversification of business into new lines, planned growth rate in sales are examples of strategic planning. Strategic plans are formulated mainly at the top level of management after taking into account the firm’s strengths and weaknesses as well as the opportunities and threats in the environment.

2. Operational Planning: Operational planning involves the conversion of strategic plans into detailed and specific action plans. It provides content and form to strategic planning. Operational plans are designed to sustain the organisation in its current products and existing markets. An operational plan is the blue print for current action and it supports the strategic plan. Operational planning is concerned with the efficient use of the resources already allocated and with the development of a control mechanism to ensure efficient implementation of the action so that organisational objectives are achieved.

3. Tactical Planning: Tactical planning refer to short term moves and manoeuvres which are decided to support the firm’s operational plans. These help to face challenges arising out of sudden changes in the external environment. For example, a firm has to decide some tactics in order to minimise the adverse impact of an unexpected move by a competitor or a sudden fall in demand. Tactical plans are largely made at the operating level of management which is in direct and continuous touch with environmental forces. The nature and scope of tactical plans depend on the threats and opportunities created by environmental changes.

Components of Planning

Components of planning are also known as the types of plans. Depending on their use, management plans may be classified into two broad categories as shown in following Figure.

Standing Plans: Standing plans are used again and again. These are therefore called multi-use plans. These are used for an indefinite period. They are meant to remain relatively stable or enduring. They are formulated in advance to serve as criteria, constraints or guidelines for the orderly functioning of the organisation. Standing plans serve as ready frames of reference for executive and organisational actions. Objectives, strategies, policies, procedures, and rules are important standing plans.

Single use or ad hoc Plans: A single use plan is used once and then it is discarded. It is designed to meet the demands of a specific situation and is scrapped when the situation is over. Programme, budget, schedule project, etc. are examples of single use plans.

The various types of plans are explained in detail in the following steps:

1. Objectives: Objectives are the ends towards which the activities of an organisation are directed. Objectives are known by different names, e.g.., goals, aims, purposes, missions, targets, etc. They are the endpoints of planning as planning is done to achieve objectives. Objectives are established to guide the efforts of an organisation and each of its constituents. Setting up of objectives is the first step in planning:

The nature of objectives is reflected in the following features of objectives:

1. Objectives are the most basic type of plans and all other plans are based upon objectives.
2. Objectives are plural as every organisation exists to achieve several rather than a single goal.
3. Objectives form a hierarchy, i.e., they can be arranged in order of importance. Lower level objectives serve as ‘means’, towards the higher level objectives.
4. Objectives differ in time span, i.e., some are long-term in nature while others are of short duration.
5. Objectives may be general or specific.

2. Policies: A policy is a general guide to thinking and action rather than a specific course of action. It defines the area or limits within which decisions can be made to achieve organisational objectives. Policies are flexible and broad plans providing scope for judgement and interpretation on the part of subordinate managers. “Policies are general statements or understandings which guide or channel thinking in decision-making of subordinates.”

Policies are routes to the realisation of objectives. They prescribe the broad ways in which objectives can be attained. Policies decide the line of action along which subordinate executives are expected to work in order to accomplish the goals of the organisation. A policy is a continuing decision as it provides answer to problems of a recurring or repetitive nature. For example, if management has adopted the policy of seniority based promotion, the departmental managers need not seek guidance from top management again and again with respect to promotional decisions.

Policies provide the following benefits: (a) they facilitate quick and correct decisions by serving as guides to thinking and action, (b) they save time and effort by predeciding problems, (c) they permit delegation of authority to managers at lower levels, (d) they delimit the area within which decisions are to be made, (e) they facilitate uniformity of action and coordination of efforts, and (f) policies assist in administrative control by providing a rational basis for evaluating actions.

Types of Policies: Policies may be classified into the following categories:

1. Organisational and Functional Policies: In terms of scope, policies may be classified as organisational policies and departmental policies. Organisational policies are the overall policies of an organisation and they are formulated by top[ management. Departmental or functional policies are meant for specific functions or departments of business, e.g., sales policy, production policy, financial policy, personal policy, etc. They are derived from organisational policies to guide the efforts of people in particular departments. Organisational or basic policies are used uniformly throughout the organisation whereas departmental policies are applied in particular departments.

2. Originated, Appealed and Imposed Policies: On the basis of origin, policies may be classified as originated, appealed and imposed policies. Originated policies are deliberately formulated by top managers on their own initiative in order to guide the actions of their subordinates. They are generally put in writing and embodied in a policy manual. Appealed policies are formulated on the appeal or request of subordinates. Subordinates make an appeal to deal with a particular case which is not covered by earlier policies. Imposed policies arise from the influence of outside forces like government, trade unions, trade associations, etc. These forces either impose a policy or create conditions for the adoption of a particular policy.

3. General and Specific Policies: As to the area of freedom,. policies may be classified as general and specific. General policies are stated in broad terms to give freedom to units of the organisation. On the other hand, specific policies are intensively defined to restrict freedom of action.

4. Written and Implied Policies: Written policies may explicit declarations in writing. Implied policies are those inferred from the behaviour or conduct of organisational members, particularly of top executives. Where no written policy exists on a particular topic or the expressed policy is not enforced, subordinates interpret the actions of their superiors and make decisions accordingly. For instance, if promotions are made on the basis of seniority, there is an implied promotional policy, even though nothing is expressed in writing. Written policies are always better guides than implied policies. But written policies tend to be rigid and flexible.

Characteristics of a Sound Policy (Principles of Policy Making)

A policy can be called sound when it contains the following characteristics:

(i) Policies should be based on objectives and they should contribute towards the attainment of objectives.

(ii) A sound policy should be clear, unambiguous and explicit. It should not leave scope for misinterpretation.

(iii) As far as possible a policy should be expressed in writing. Written policies tend to be more clear and precise. They can be communicated and understood better. Their compliance can easily be checked.

(iv) Policies should be based on careful consideration of the resources and environment of the organisation.

(v) Policies should be reviewed and revised regularly to keep them up-to-date and relevant. But policies must be reasonably stable and before revising them serious thought and consideration should be given.

(vi) Policies should be in the form of general guidelines allowing scope for decisionmaking at lower levels. Policies should be general and flexible guides rather than detailed procedures.

(vii) All policies should be communicated to the concerned persons so that the policies and the objective of their formulation are properly understood by those who are supposed to implement them.

(viii) A sound policy should make for consistency in the operations of the organisation.

(ix) policies must conform to the norms of ethical behaviour which prevail in society and tot he ethical standards of business.

Policy Formulation: The process of policy formulation involves the following steps:

(a) Definition of Policy Area: The area of policy-making should be decided keeping in view the objectives and needs of the organisation.

(b) Identification of Policy Alternatives: various alternative policies are developed in the light of the data concerning the internal and external environment of the enterprise.

(c) Evaluation of Alternatives: Each of the available policy alternative is examined in the light of its possible contribution to objectives. Policy alternatives are tested on the basis of their costs and implications.

(d) Choice of Policy: After evaluation, the most appropriate policy is chosen. The choice of policy alternative is the most important step in policy-making.

(e) Communication of Policy: The chosen policy is communicated and explained to all those who are to implement it. A periodic review of the policy should be made to keep it up-to-date.

3. Procedures: A procedure is a chronological sequence of steps to be undertaken to enforce a policy and to attain an objective. It lays down the specific manner in which a particular activity is to be performed. It is a planned sequence of operations for performing repetitive activities uniformly and consistently. According to George R. Terry, a procedure is a series of related tasks that make up the chronological sequence and the established way of performing the work to be accomplished. In business, procedures are generally established for purchase of raw materials, processing of orders, selection of employees, redressal of grievances, holding and conducting of meetings, etc. Procedures are generally laid down for repetitive work so that same steps are taken each time the activity is performed.

     Procedures are different from policies and methods. A policy is a broad and general guide to decision-making while a procedure is an operational guide to action. The former provides scope for judgement while the latter leaves hardly any room for interpretation and judgement. A policy delineates an area of operation, a procedure lays down the path through that area. For instance, a company may have the policy of promoting employees on the basis of merit. In order to implement this promotion policy, the procedure may consist of definition of merit, records of performance, tests and interviews to identify the most meritorious employee. A policy helps in achieving an objective while a procedure shows the way to implement the policy. Thus, a policy is wider in scope and more flexible in nature than a procedure.

A method outlines the specific way in which a particular step in the procedure is to be performed. For example, it may be laid down that promotion interview will be taken by a committee of our executives. This may called the method of interviewing. A method is more limited in scope but more detailed because it specifies the standardised way by which an operation is to be performed. Methods helps in increasing the usefulness and effectiveness of a procedure.

       A procedure plays an important role in the daily operations of an organisation: (a) it simplifies work by eliminating unnecessary steps; (b) it avoids chaos or random activity by ensuring consistency in operations; (c) it indicates a standard way of performing a work and therefore, ensures uniformity of action; (d) it eliminates the need for further decision-making by laying down a standard path to follow; (e) it facilitates coordination between various units in the organisation; (f) it provides a standard for the appraisal of employees.

       Procedures, however, suffer from several limitations: (i) they create rigidity in work performance and discourage initiative and innovation, (ii) they tend to become obsolete with changes in business operations, (iii) they may cause delay in the completion of tasks.

4. Rules: Rules are rigid and definite plans that specify what is to be done or not done in given situations. A rule provides no scope for discretion and judgement. It is a prescribed guide to conduct or action. No deviation is expected from the rule. A rule may or may not be a part of a procedure. The rule ‘no smoking in the factory’ is not a part of any procedure. But the rule that ‘all orders must be acknowledged within 48 hours of their receipt’ is a part of the procedure for processing orders. A rule generally lays down penalty for its violations. Rules help to regulate behaviour and to facilitate communication. They facilitate uniformity of action and avoid the need for repeated approval from higher levels for routine matters.  

5. Programmes: A programme is a concrete scheme of action designed to accomplish a given task. It specifies the steps to be taken, resources to be used, time limits for each step and assignments of task. It is a sequence of action steps arranged in the priority necessary to implement a policy and achieve an objective. A programme is thus a combination of objectives, policies, budgets, task assignments and procedures. It defines the contents and scope of activities. Programmes are prepared for various activities, e.g., development of a new product, training of employees, purchase of machinery, issue of securities, etc. Programmes help to ensure economy and uniformity in day-to-day operations. Programmes may be major or minor.

6. Budgets: A budget is a statement of expected results expressed in numerical terms for a definite period of time in the future. It expresses a plan in precise terms. Budgets serve as means of coordination and control. They provide clarity, direction and purpose in the activities of an organisation by laying down verifiable and measurable goals for a specified period of time. Budgeting coordinates the activities of different departments by adjusting departmental budgets into the master budget. Budgets serve as standards of measuring actual performance. Budgets may be prepared for various groups of activities, e.g., production, sales, personnel, capital outlay, advertising, finance, cash, etc. Budgets may be prepared in terms of time, money or physical terms like tons.

7. Schedules: A schedule specifies time limits within which activities are to be completed. Scheduling is the process of establishing a time sequence for the work to be done. Schedules are essential for avoiding delays and for ensuring continuity of operations. A schedule lays down a time-table fixing starting and finishing dates for different activities.

8. Projects: A project is a distinct cluster of functions and facilities for a definite purpose. It is designed and executed as a distinct plan. It is integrated into a unity and is designed to achieve a stated objective. A project is defined in terms of capital investment, specific objective, interdependence of tasks. For instance, installation of a computer may be designated as a project. It is marked separate from the normal operations because of special significance. Projects help to facilitate coordination and control by identifying an integrated work package within a heterogeneous mass of activities and resources. A project has a definite purpose and specific starting and finishing d