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Chapter 4 Planning class 12th Commerce

Concept:  Meaning of planning

Planning is one of the basic managerial functions. Rather planning is the first function of management.

Planning refers to deciding in advance what to do and how to do.

Every business have many functional department :such as purchase department , storing department, production department , logistic department , sales department ,logistic department , marketing department, finance department, Accounts department, Human resource department.

Each department does its planning.

Before doing something, the manager must formulate an idea of how to work on a particular task. Thus, planning is closely connected with creativity and innovation. But the manager would first have to set objectives, only then will a manager know where he has to go. Planning seeks to bridge the gap between where we are and where we want to go.


Planning need to work towards achieving organisational goals. These goals set the targets which need to be achieved and against which actual performance is measured. Therefore, planning means setting objectives and targets and formulating an action plan to achieve them.  It is concerned with both ends and means i.e., what is to be done and how it is to be done.

The plan that is developed has to have a given time frame but time   is a limited resource. It needs to be utilised judiciously. If time factor is not taken into consideration, conditions in the environment may change and all business plans may go waste. Planning will be a futile exercise if it is not acted upon or implemented.

Do you think from the above we can formulate a comprehensive definition of planning? One of the ways to do so would be to define planning as setting objectives for a given time period, formulating various courses of action  to  achieve them, and then selecting the best possible alternative from among the various courses of  action available.


Case Studies:

Indian oil :

With the help of planning IOCL made its position in fortune 500 companies.


Back ground

Show head office delhi

 Indian Oil Corporation (IOCL) Head Office Address :
Sadiq Nagar,
New Delhi

Indian Oil is India’s largest commercial organization. It is top ranked Indian company in the latest Fortune ‘Global 500’ listings (2017).


Top management planning

Indian Oil’s vision is driven by a group of dynamic leaders who have made it a name to reckon with. With over 34,000 strong work force, a Maharatna Company,


Product and service planning

Indian Oil has been helping to meet India’s energy demands and reaching petroleum products to every part of India for over five decades.


Planning for international business expansion

It plans to increase its business operations all around it has its  office in Bangladesh .A linkage from IOC pipeline going  up from Damra project and West Bengal border before finally connecting to the Bangladesh network. For Nepal, IOC plans   to build a pipeline between Motihari terminal of IOCL.which is currently coming up, and their own facilities inside Nepal. The company has already signed a memorandum of understanding (MoU) with Bhutan and looking at newly opening markets such as Myanmar.

The company always feels that they have to keep their eyes open for new acquisitions



The company always believed to be ahead of the demand. IOC had invested close to 20,000 crore, including around 16,000 crore in various Indian projects and on acquisition for upstream in Russia.


Area of investment

All investments have been in refinery expansion, upgradation of quality of refineries, building new pipelines, getting more aggressive in petrochemical projects, setting up new natural gas facilities etc.


Financial planning

The company has got good reserves and were able to generate funds through internal accruals.

on a project basis IOC will certainly go into the market — both India and Overseas, depending on which is cheaper — to borrow money, if needed




Concept: Features of Planning

Following are features of Planning :

The planning function of the management has certain special features. These features throw light on its nature and scope.



PDC –FM – Objectives


Primary Management function




Decision Making 






Mental exercise:


Achieving objectives:


Detail Explanation


Planning is a primary function of management:

Planning lays down the base for other functions of management. All other managerial functions are performed within the framework of the plans drawn. Thus, planning precedes other functions.

This is also referred to as the primacy of planning. The various functions of management are interrelated and equally important. However, planning provides the basis of all other functions.


Planning is pervasive:

Planning is required at all levels of management as well as in all departments of the organisation. It is not an exclusive function of top management nor of any particular department.

But the scope of planning differs at different levels and among different departments. For example, the top management undertakes planning for the organisation as a whole. Middle management does the departmental planning. At the lowest level, day-to-day operational planning is done by supervisors.


Planning involves decision making:

Planning essentially involves choice from among various alternatives and activities. If there is only one possible goal or a possible course of action, there is no need for planning because there is no choice.

The need for planning arises only when alternatives are available. In actual practice, planning presupposes the existence of alternatives.

Planning, thus, involves thorough examination and evaluation of each alternative and choosing the most appropriate one.


Planning is continuous:

Plans are prepared for a specific period of time, may be for a month, a quarter, or a year.

At the end of that period there is need for a new plan to be drawn on the basis of new requirements and future conditions. Hence, planning is a continuous process.

Continuity of planning is related with the planning cycle. It means that a plan is framed, it is implemented, and is followed by another plan, and so on.


Planning is futuristic:

Planning essentially involves looking ahead and preparing for the future. The purpose of planning is to meet future events effectively to the best advantage of an organisation. It implies peeping into the future, analysing it and predicting it.

Planning is, therefore, regarded as a forward looking function based on forecasting. Through forecasting, future events and conditions are anticipated and plans are drawn accordingly. Thus, for example, sales forecasting is the basis on which a business firm prepares its annual plan for production and sales.


Planning is a mental exercise:

Planning requires application of the mind involving foresight, intelligent imagination and sound judgement. It is basically an intellectual activity of thinking rather than doing, because planning determines the action to be taken.

However, planning requires logical and systematic thinking rather than guess work or wishful thinking.

In other words, thinking for planning must be orderly and based on the analysis of facts and forecasts.


 Planning focuses on achieving objectives:


Organisations are set up with a general purpose in view. Specific goals are set out in the plans along with the activities to be undertaken to achieve the goals. Thus, planning is purposeful. Planning has no meaning unless it contributes to the achievement of predetermined organisational goals.




Concept: Importance of Planning

Planning is certainly important as it tells us where to go, it provides direction and reduces the risk of uncertainty by preparing forecasts. The major benefits of planning are given below





Reduction in risks of uncertainty:


Decision is facilitated


overlapping and wasteful activities reduced


innovative ideas:


standards for controlling:



Planning provides directions:

By stating in advance how work is to be done planning provides direction for action.

Planning ensures that the goals or objectives are clearly stated so that they act as a guide for deciding what action should be taken and in which direction.

If goals are well defined, employees are aware of what the organisation has to do and what they must do to achieve those goals.

Departments and individuals in the organisation are able to work in coordination.

If there was no planning, employees would be working in different directions and the organisation would not be able to achieve its desired goals.


Planning reduces the risks of uncertainty:

Planning is an activity which enables a manager to look ahead and anticipate changes.

By deciding in advance the tasks to be performed, planning shows the way to deal with changes and uncertain events.

Changes or events cannot be eliminated but they can be anticipated and managerial responses to them can be developed.


Planning reduces overlapping and wasteful activities:

Planning serves as the basis of coordinating the activities and efforts of different divisions, departments and individuals.

It helps in avoiding confusion and misunderstanding.

Since planning ensures clarity in thought and action, work is carried on smoothly without interruptions.

It is easier to detect inefficiencies and take corrective measures to deal with them.


Planning promotes innovative ideas:

Since planning is the first function of management, new ideas can take the shape of concrete plans.

It is the most challenging activity for the management as it guides all future actions leading to growth and prosperity of the business.


Planning facilitates decision making:

Planning helps the manager to look into the future and make a choice from amongst various alternative courses of action.

The manager has to evaluate each alternative and select the most viable proposition.

Planning involves setting targets and predicting future conditions, thus helping in taking rational decisions.


Planning establishes standards for controlling:

Planning involves setting of goals. The entire managerial process is concerned with accomplishing predetermined goals through planning, organising, staffing, directing and controlling.

Planning provides the goals or standards against which actual performance is measured.

By comparing actual performance with some standard, managers can know whether they have actually been able to attain the goals.

If there is any deviation it can be corrected.

Therefore, we can say that planning is a prerequisite for controlling.






Concept: Limitations of Planning


Expelling I Hindi :



Time-consuming process:


Involves huge costs:


May not work in a dynamic environment:


Ensure not guarantee  for success




Reduces creativity:




Time consuming



Planning involves huge costs:

When plans are drawn up huge costs are involved in their formulation.

These may be in terms of time and money for example, checking accuracy of facts may involve lot of time.

Detailed plans require scientific calculations to ascertain facts and figures.

The costs incurred sometimes may not justify the benefits derived from the plans.

There are a number of incidental costs as well, like expenses on boardroom meetings, discussions with professional experts and preliminary investigations to find out the viability of the plan.



Planning may not work in a dynamic environment:

The business environment is dynamic, nothing is constant.

The environment consists of a number of dimensions, economic, political, physical, legal and social dimensions.

The organisation has to constantly adapt itself to changes.

It becomes difficult to accurately assess future trends in the environment if economic policies are modified or political conditions in the country are not stable or there is a natural calamity.

Competition in the market can also upset financial plans, sales targets may have to be revised and, accordingly, cash budgets also need to be modified since they are based on sales figures.



Ensure  no  guarantee success:

The success of an enterprise is possible only when plans are properly drawn up and implemented.

Any plan needs to be translated into action or it becomes meaningless.

Managers have a tendency to rely on previously tried and tested successful plans.

It is not always true that just because a plan has worked before it will work again.

However, despite its limitations, planning is not a useless exercise.

It provides a base for analysing future courses of action.



Planning leads to rigidity:

In an organisation, a well-defined plan is drawn up with specific goals to be achieved within a specific time frame.

These plans then decide the future course of action and managers may not be in a position to change it.

This kind of rigidity in plans may create difficulty.

Managers need to be given some flexibility to be able to cope with the changed circumstances.


Planning reduces creativity:

Planning is an activity which is done by the top management. Usually the rest of the members just implements these plans.

As a consequence, middle management and other decision makers are neither allowed to deviate from plans nor are they permitted to act on their own.

Thus, much of the initiative or creativity inherent in them also gets lost or reduced.

Most of the time, employees do not even attempt to formulate plans.

They only carry out orders. Thus, planning in a way reduces creativity since people tend to think along the same lines as others.





Concept: Planning Process

Following are Process of Planning



Setting Objectives:


Premises Development


Alternative courses of action Identification


Alternative courses Evaluating


Selecting an alternative:


Implement the plan


Continuous Follow-up action




Setting Objectives:

The first and foremost step is setting objectives.

Every organization must have certain objectives.

Objectives may be set for the entire organisation and each department or unit within the organisation.

Objectives or goals specify what the organisation wants to achieve.

Objectives should be stated clearly for all departments, units and employees. They give direction to all departments. Departments/ units then need to set their own objectives within the broad framework of the organisation’s philosophy.

At the same time, managers must contribute ideas and participate in the objective setting process.



Premises Development

Planning is concerned with the future which is uncertain and every planner is using conjecture about what might happen in future.

Therefore, the manager is required to make certain assumptions about the future.

These assumptions are called premises. Assumptions are the base material upon which plans are to be drawn.

The premises or assumptions must be the same for all and there should be total agreement on them. All managers involved in planning should be familiar with and use the same assumptions.



Alternative courses of action Identification

Once objectives are set, assumptions are made. Then the next step would be to act upon them.

All the alternative courses of action should be identified.

The course of action which may be taken could be either routine or innovative.

An innovative course may be adopted by involving more people and sharing their ideas.

If the project is important, then more alternatives should be generated and thoroughly discussed amongst the members of the organisation.


Alternative courses Evaluating

The next step is to weigh the pros and cons of each alternative

Each course will have many variables which have to be weighed against each other.

The positive and negative aspects of each proposal need to be evaluated in the light of the objective to be achieved.

In financial plans, for example, the risk-return trade-off is very common.

The more risky the investment, the higher the returns it is likely to give.

To evaluate such proposals detailed calculations of earnings, earnings per share, interest, taxes, dividends are made and decisions taken.

Alternatives are evaluated in the light of their feasibility and consequences.



Selecting an alternative:

This is the real point of decision making.

The best plan has to be adopted and implemented.

The ideal plan, of course, would be the most feasible, profitable and with least negative consequences.

In such cases, subjectivity and the manager’s experience, judgement and at times, intuition play an important part in selecting the most viable alternative.

The manager will have to apply permutations and combinations and select the best possible course of action.



Implementing the plan:

This is the step where other managerial functions also come into the picture.

The step is concerned with putting the plan into action, i.e., doing what is required.

For example, if there is a plan to increase production then more labour, more machinery will be required.

This step would also involve organising for labour and purchase of machinery.



Contineous Follow-up action:

To see whether plans are being implemented and activities are performed according to schedule is also part of the planning process.

Monitoring the plans is equally important to ensure that objectives are achieved.


Case Studies


About Mnashukh bhai

During the devastating earthquake of January 2001, Mansukhbhai incurred heavy loss and most of his goods were damaged. He distributed the leftover stock that was undamaged, to the quake affected masses of Kutch.


Features in Sandesh in Gujrati Daily

This led to a photograph that was taken just after the earthquake and featured on the Sandesh Gujarati Daily in February 2001. It showed a broken water filter that was made by Mansukhbhai with a caption that said “The poor man’s broken fridge”.



At that time, he met the Gujarat Grass-roots Innovation Augmentation Network (GIAN), Ahmedabad, which supported Mansukhbhai further in his endeavours. Finally after an arduous quest and several tests of soil and fridge designs, he emerged with the innovative Mitticool fridge in 2005. After that he has innovated various products using clay


Policy to keep lower cost

The company has stuck to its policy of keeping all its products at a lower rate which will be affordable for the poor people.


Factory at IIM A

Their future plans include starting a factory with the aid of the National Innovation Foundation at IIM Ahmedabad and making a MittiCool house. It will be a green (eco-friendly) house with clay that will have no electricity but only renewable energy to maintain a comfortable temperature inside.”



Concept: Types of Plans

An organisation has to prepare a plan before making any decision related to business operation, or undertaking any project. Plans can be classified into several types depending on the use and the length of the planning period. Certain plans have a short‑ term horizon and help to achieve. operational goals. These plans can be classified into single‑use plans and standing plans.


Plans cab be of two Types:


Single-use plan


Standing plans


Other types of Plans which are neither single use paln nor standing plans




















Single-use plan

A single use plan is developed for a one time event or project. Such a course of action is not likely to be repeated in future, i.e., they are for non recurring situations. The duration of this plan may depend upon the type of the project. It may span a week or a month. A project may sometimes be of only one day, such as, rganizati an event or  a seminar or conference. These plans include budgets, programmes and projects. They consist of details,  including the names of employees who are responsible for doing the work and contributing to the single use plan.


For example

a programme may consist of identifying steps, procedures required for opening a new department to deal with other minor work. Projects are similar to programmes but differ in scope and complexity. A budget is a statement of expenses, revenue and income for a specified period.


Standing Plan:

A standing plan is used for activities that occur regularly over a period of time. It is designed to ensure that internal operations of an rganization run smoothly. Such  a plan greatly enhances efficiency in routine decision‑making. It is usually developed once but is modified from time to time to meet business needs as required. Standing plans include

Policies, procedures, methods and rules.


Other types of Plans which are neither single use paln nor standing plans

There are other types of plans which usually are not classified as single‑ use or standing plans.

keeping in view the overall organisational goals.

Based on what the plans seek to

achieve, plans can be classified as, Strategy, Objectives Policy, Procedure, Method, Rule, Programme, Budge




Policies are general forms of standing plans that specifies the organisations

response to a certain situation like the admission policy of an educational institution.

Policies are general statements that guide thinking or channelise energies towards a particular direction.

Policies provide a basis for interpreting strategy which is usually stated in general terms.

They are guides to managerial action and decisions in the implementation of strategy.

For example, the company may have a recruitment policy, pricing policy within which objectives are set and decisions are made.

If there is an established policy, it becomes easier to resolve problems or issues.

There are policies for all levels and departments in the organisation ranging from major company policies to minor policies.

Major company policies are for all to know i.e., customers, clients, competitors etc., whereas minor polices are applicable to insiders and contain minute details of information vital to the employees of an organisation.

For example, the decisions taken under a Purchase Policy would be in the nature of manufacturing or buying decisions.



Procedures describe steps to be followed in particular circumstances like the procedure for reporting progress in production.

Procedures are routine steps on how to carry out activities.

They detail the exact manner in which any work is to be performed.

They are specified in a chronological order.

For example, there may be a procedure for requisitioning supplies before production.

Procedures are specified steps to be followed in particular circumstances.

They are generally meant for insiders to follow.

The sequence of steps or actions to be taken are generally to enforce a policy and to attain pre-determined objectives.

Policies and procedures are interlinked with each other. Procedures are steps to be carried out within a broad policy framework.




Methods provide the manner in which a task has to be performed.

Methods provide the prescribed ways or manner in which a task has to be performed considering the objective.

It deals with a task comprising one step of a procedure and specifies how this step is to be performed.

The method may vary from task to task.

Selection of proper method saves time, money and effort and increases efficiency.

For imparting training to employees at various level from top management to supervisory, different methods can be adopted. For example for higher level management orientation programmes, lectures and seminars can be organised whereas at the supervisory level, on the job training methods and work-oriented methods are appropriate





Rules are very clearly stated as to exactly what has to be done like reporting for work at a particular time

Rules are specific statements that inform what is to be done.

They do not allow for any flexibility or discretion.

It reflects a managerial decision that a certain action must or must not be taken.

They are usually the simplest type of plans because there is no compromise or change unless a policy decision is taken



A strategy, for example, is part of strategic planning or management.

It is a general plan prepared by top management outlining resource allocation, priorities and takes into consideration the business environment and competition. Objectives are usually set by the top management and serve as a guide for overall planning. Each unit then formulates their own objectives.




The first step in planning is setting objectives. Objectives, therefore, can be said to be the desired future position that the management would like to reach. Objectives are

very basic to the organisation and they are defined as  ends  which the management seeks to achieve by its operations. Therefore, an objective simply stated is what you would like to achieve, i.e., the end result of activities. For example, an organisation may have an objective of increasing sales by 10% or earning a reasonable rate of return on investment, earn a 20% profit from business. They represent the end point of planning. All other managerial activities are also directed towards achieving these objectives. They are usually set by top management of the organisation and focus on broad, general issues. They define the future state of affairs which the organisation strives to realise. They serve as a guide for overall business planning. Different departments or units in the organisation may have their own objectives.

Objectives need to be expressed in specific terms i.e., they should be measurable in

quantitative terms,  in the form of a written statement of desired results to be achieved within a given time period.






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.

Programmes will include the entire gamut of activities as well as the organisation’s policy and how it will contribute to the overall business plan.

The minutest details are worked out i.e., procedures, rules, budgets, within the broad policy framework.




A budget is a statement of expected results expressed in numerical terms.

It is a plan which quantifies future facts and figures.

For example, a sales budget may forecast the sales of different products in each area for a particular month.

A budget may also be prepared to show the number of workers required in the factory at peak production times.

Since budget represents all items in numbers, it becomes easier to compare actual figures with expected figures and take corrective action subsequently.

But making a budget involves forecasting, therefore, it clearly comes under planning.

It is a fundamental planning instrument in many organisations.

For example, of Cash Budget. The cash budget is a basic tool in the management of cash.


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