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Lebs104 PDF
Lebs104 PDF
Lebs104 PDF
Planning 4
CHAPTER
L E A R N I N G
GAIL India, which has had a monopoly in the gas transmission
sector is set to see some tough competition in the coming days. OBJECTIVES
While Reliance is poised to get into the trunk pipeline segment,
British Gas is trying to get into the city gas distribution sector. After studying this
GAIL’s new chairman, shares his thoughts on how he plans to chapter, you will be
take the company ahead. able to:
What are GAIL’s main priorities?
Going by its business strategy, the focus areas are gas sourcing, n State the meaning
transmission, marketing, processing, petrochemicals, globalisation of planning;
and city gas distribution. We are focussing on sourcing of gas from
indigenous finds and through LNG and crossborder pipelines. We n Describe the
intend to develop the gas market by extending our gas grid from features and
5,600 km to 10,000 km. The city gas project is expected to rise
importance of
from 6 to 45 by the end of the 11th five year Plan.
What are GAIL’s plans for acquiring an exploration and planning;
production (E&P) company abroad?
n Explain the
GAIL has plans to strengthen its exploration and production
activities. To become a formidable company, GAIL is exploring limitations of
options - acquiring an E&P company is one such option. planning;
What are your Capex plans and how do you plan to fund it?
GAIL’s budgeted Capex plan for FY 06-07 is Rs. 2967.28 crore. n Analyse the steps
This includes capital expenditure of Rs. 2579.58 crore on pipeline in the planning
and other projects and Rs. 387.7 crore on petrochemical projects. process; and
This will be funded through internal reserves.
What are your plans on city gas distribution? Will GAIL n Identity the
continue with its plans on fuel management? different types of
We have already established the business successfully in Mumbai,
Delhi, Vadodara, Vijaywada, Agra, Lucknow, Kanpur. Till date GAIL
plans.
has formed eight joint venture companies to implement city gas
projects. The projects have had an impact on the pollution levels.
GAIL is in the process of forming state-wise Joint Ventures with oil
marketing companies to implement city gas projects in Rajasthan.
What are GAIL’s plans to diversify into telecom and what is
the current status?
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Importance of Planning
You must have seen in films and
advertisements how executives
Planning: Keeping the draw up plans and make powerful
objective in view and presentations in boardrooms. Do
being in action those plans actually work? Does
it improve efficiency? After all why
approach for achieving predetermined should we plan? These are numerous
objectives. All members, therefore, questions to which we would like to
need to work towards achieving find solutions. Planning is certainly
organisational goals. These goals important as it tells us where to go,
set the targets which need to be it provides direction and reduces
achieved and against which actual the risk of uncertainty by preparing
performance is measured. Therefore, forecasts. The major benefits of
planning means setting objectives planning are given below:
and targets and formulating an (i) Planning provides directions:
action plan to achieve them. It By stating in advance how work
is concerned with both ends and is to be done planning provides
means i.e., what is to be done and direction for action. Planning ens
how it is to be done. ures that the goals or objectives
The plan that is developed has to are clearly stated so that they
have a given time frame but time act as a guide for deciding what
is a limited resource. It needs to be action should be taken and in
utilised judiciously. If time factor which direction. If goals are well
is not taken into consideration, defined, employees are aware of
conditions in the environment may what the organisation has to do
change and all business plans may and what they must do to achieve
go waste. Planning will be a futile those goals. Departments and
exercise if it is not acted upon or individuals in the organisation
implemented. are able to work in coordination.
Do you think from the above we can If there was no planning, empl
formulate a comprehensive definition oyees would be working in different
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(ii) Planning may not work in a carry out orders. Thus, planning
dynamic environment: The in a way reduces creativity since
business environment is dyn people tend to think along the
amic, nothing is constant. The same lines as others. There is
environment consists of a nothing new or innovative.
number of dimensions, economic, (iv) Planning involves huge costs:
political, physical, legal and social When plans are drawn up huge
dimensions. The organisation costs are involved in their
has to constantly adapt itself to formulation. These may be in
changes. It becomes difficult to terms of time and money for
accurately assess future trends example, checking accuracy of
in the environment if economic facts may involve lot of time.
policies are modified or political Detailed plans require scientific
conditions in the country are calculations to ascertain facts
not stable or there is a natural and figures. The costs incurred
calamity. Competition in the sometimes may not justify the
market can also upset financial benefits derived from the plans.
plans, sales targets may have to There are a number of incidental
be revised and, accordingly, cash costs as well, like expenses on
budgets also need to be modified boardroom meetings, discussions
since they are based on sales with professional experts and
figures. Planning cannot foresee preliminary investigations to find
everything and thus, there may be out the viability of the plan.
obstacles to effective planning. (v) Planning is a time-consuming
(iii) Planning reduces creativity: process: Sometimes plans to be
Planning is an activity which is drawn up take so much of time
done by the top management. that there is not much time left
Usually the rest of the members for their implementation.
just implements these plans. As (vi) Planning does not guarantee
a consequence, middle manage success: The success of an
ment and other decision makers enterprise is possible only when
are neither allowed to deviate plans are properly drawn up and
from plans nor are they permitted implemented. Any plan needs
to act on their own. Thus, much to be translated into action or
of the initiative or creativity it becomes meaningless. Mana
inherent in them also gets lost gers have a tendency to rely
or reduced. Most of the time, on previously tried and tested
employees do not even attempt successful plans. It is not always
to formulate plans. They only true that just because a plan
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has worked before it will work (i) Setting Objectives: The first
again. Besides, there are so and foremost step is setting
many other unknown factors objectives. Every organisation
to be considered. This kind of must have certain objectives.
complacency and false sense Objectives may be set for the
of security may act ually lead entire organisation and each
to failure instead of success. department or unit within the
However, despite its limitations, organisation. Objectives or goals
planning is not a useless specify what the organisation
wants to achieve. It could mean
exercise. It is a tool to be used
an increase in sales by 20%
with caution. It provides a base
which could be objective of the
for analysing future courses of entire organisation. How all dep
action. But, it is not a solution artments would contribute to
to all problems. the organisational goals is the
plan that is to be drawn up.
Planning Process Objectives should be stated clearly
for all departments, units and
Planning, as we all know is deciding employees. They give direction to
in advance what to do and how to do. all departments. Departments/
It is a process of decision making. units then need to set their
How do we go about making a plan? own objectives within the broad
Since planning is an activity there framework of the organisation’s
are certain logical steps for every philosophy. Objectives have to
manager to follow. percolate down to each unit
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Strategy Policy
A strategy provides the broad contours Policies are general statements that
of an organisation’s business. It will guide thinking or channelise energies
also refer to future decisions defining towards a particular direction. Policies
the organisations direction and scope provide a basis for interpreting strategy
in the long run. Thus, we can say a which is usually stated in general terms.
strategy is a comprehensive plan They are guides to managerial action
for accomplishing an organisation and decisions in the implementation
objectives. This comprehensive plan of strategy. For example, the company
will include three dimensions, may have a recruitment policy, pricing
(i) determining long term objectives, policy within which objectives are set
(ii) adopting a particular course of and decisions are made. If there is an
action, and (iii) allocating resources established policy, it becomes easier
necessary to achieve the objective. to resolve problems or issues. As such,
Whenever a strategy is formulated, a policy is the general response to a
the business environment needs to particular problem or situation.
be taken into consideration. The There are policies for all levels
changes in the economic, political, and departments in the organisation
social, legal and technological envi ranging from major company policies
ronment will affect an organisation’s to minor policies. Major company
strategy. Strategies usually take the policies are for all to know i.e.,
course of forming the organisation’s customers, clients, competitors
identity in the business enviro etc., whereas minor polices are
nment. Major strategic decisions applicable to insiders and contain
will include decisions like whether minute details of information vital
the organisation will continue to to the employees of an organisation.
be in the same line of business, or But there has to be some basis for
combine new lines of activity with the divulging information to others.
existing business or seek to acquire Policies define the broad param
a dominant position in the same eters within which a manager may
market. For example, a company’s function. The manager may use
marketing strategy has to address his/her discretion to interpret and
certain questions i.e., who are the apply a policy. For example, the
customers? what is the demand decisions taken under a Purchase
for the product? which channel of Policy would be in the nature of
distribution to use? what is the pricing manufacturing or buying decisions.
policy? and how do we advertise Should a company make or buy its
the product. These and many more requirements of packages, transport
issues need to be resolved while services, printing of stationery, water
formulating a marketing strategy for and power supply and other items?
any organisation. How should vendors be selected
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of different products in each area for plan and control the use of cash. It is
a particular month. A budget may a statement showing the estimated
also be prepared to show the number cash inflows and cash outflows
of workers required in the factory at over a given period. Cash inflows
peak production times. would generally come from cash
Since budget represents all items sales and the cash outflows would
in numbers, it becomes easier to generally be the costs and expenses
compare actual figures with expected associated with the operations of the
figures and take corrective action business. The net cash position is
subsequently. Thus, a budget is also determined by the cash budget i.e.,
a control device from which deviations inflows minus (–) outflows = surplus
can be taken care of. But making a or deficiency.
budget involves forecasting, therefore, The management has to hold
it clearly comes under planning. It is adequate cash balances for various
a fundamental planning instrument purposes. But at the same time, it
in many organisations. should avoid excess balance of cash
Let us take an example of Cash since it gives little or no return.
Budget. The cash budget is a basic The business has to assess and
tool in the management of cash. It is plan its need for cash with a degree
a device to help the management to of caution.
Key Terms
Planning Objectives Goals Decisions
Standards Controlling Premises Assumptions
Alternatives Strategy Policy Procedure
Rule Programme Budget
Summary
Planning
Planning is deciding in advance what to do and how to do. It is one
of the basic managerial functions.
Planning therefore involves setting objectives and developing an
appropriate course of action to achieve these objectives.
Importance of Planning
Planning provides directions, reduces risks of uncertainty, reduces
overlapping and wasteful activities, promotes innovative ideas,
facilitates decision making, establishes standards for controlling.
Features of Planning
Planning focuses on achieving objectives; It is a primary function
of management; Planning is pervasive, continuous, futuristic and
involves decision making; It is a mental exercise.
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Limitations of Planning
Planning leads to rigidity; reduces creativity; involves huge costs; It
is a time consuming process; Planning does not work in a dynamic
environment; and does not guarantee success.
Planning Process
Setting objectives: Objectives may be set for the entire organisation
and each department or unit within the organisation.
Developing premises: Planning is concerned with the future which is
uncertain and every planner is using conjucture about what might
happen in future.
Identifying alternative courses of action: Once objectives are set,
assumptions are made. Then the next step would be to act upon them.
Evaluating alternative courses: The next step is to weigh the pros
and cons of each alternative.
Selecting an alternative: This is the real point of decision making.
The best plan has to be adopted and implemented.
Implement the plan: This is concerned with putting the plan into action.
Follow-up action: Monitoring the plans are equally important to
ensure that objectives are achieved.
Types of Plans
Objectives: Objectives therefore can be said to be the desired future
position that the management would like to reach.
Strategy: A strategy provides the broad contours of an organisation’s
business. It will also refer to future decisions defining the
organisations direction and scope in the long run.
Policy: Policies are general statements that guide thinking or
channelise energies towards a particular direction.
Procedure: Procedures are routine steps on how to carry out activities.
Rule: Rules are specific statements that tell what is to be done.
Programme: Programmes are detailed statements about a project which
outlines the objectives, policies, procedures, rules, tasks, human and
physical resources required and the budget to implement any course
of action.
Budget: A budget is a statement of expected results expressed in
numerical terms. It is a plan which quantifies future facts and figures.
Exercises
Short Answer Type
1. What are the main points in the definition of planning.
2. How does planning provide direction?
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Activities
Interview a local small-business manager about how their objectives
are set and the time taken to achieve them. How do their answers
compare with what you have learnt in the chapter.
Case Problem
An auto company C Ltd. is facing a problem of declining market
share due to increased competition from other new and existing
players in the market. Its competitors are introducing lower priced
models for mass consumers who are price sensitive. For quality
conscious consumers, the company is introducing new models with
added features and new technological advancements.
Questions
1. Prepare a model business plan for C Ltd. to meet the existing
challenge. You need not be very specific about quantitative
parameters. You may specify which type of plan you are
preparing.
2. Identify the limitations of such plans.
3. How will you seek to remove these limitations?
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