Class 12 Business Studies Chapter 4 Notes (Planning)

Before performing any activity in business or personal life, you need robust planning. Perhaps, it is one of the most important concepts in CBSE Class 12 Business Studies.

With our CBSE Class 12 Business Studies Chapter 4 (Planning), you can understand how organisations set goals, make decisions, and achieve success through effective management.

Our BST notes provide complete exam-oriented learning material covering the meaning of planning, features of planning, importance and significance of planning, limitations of planning, planning process, and types of plans.

As a Class 12 Business Studies student, you can prepare for CBSE Class 12 Board Exams, Business Studies revision, NCERT-based questions, case studies, or quick exam preparation.

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Class: 12
Subject: Business Studies
Chapter Number: 4
Chapter Name: Planning

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Definition of Planning	Features of Planning
Importance/Signifiance of Planning	Limitations of Planning
Planning Process	Types of Plans

DEFINITION OF PLANNING

Planning can be defined as “thinking in advance what is to be done, when it is to be done, how it is to be done and by whom it should be done”.

In simple words we can say, planning bridges the gap between where we are standing today and where we want to reach.

Planning means setting objectives and targets and formulating an action plan to achieve them. It is concerned with both ends means i.e., what is to be done and how it is to be done.

Features of Planning

Planning contributes to objectives

Planning starts with the determination of objectives. We cannot think of planning in absence of objective. After setting up the objectives, planning decides the methods, procedures and steps to be taken for the achievement of set objectives. For example, If an organization has the objective of manufacturing 1500 washing machines and in one month only 80 washing machines are manufactured, then changes are made in the plan to achieve the final objective.

Planning is the primary function of management

Planning is the primary or first function to be performed by every manager. No other function can be executed by the manager without performing the planning function because objectives are set up in planning and other functions depend on the objectives only. For example, In organising function, managers assign authority and responsibility to the employees and level of authority and responsibility depends upon the objectives of the company. Similarly, in staffing, the employees are appointed. The number and type of employees again depends on the objectives of the company. So planning always proceeds and remains at no.1 as compared to other functions.

Planning is Pervasive

Planning is required at all levels of management. It is not a function restricted to top level managers only but planning is done by managers at every level. Formation of major plan and framing of overall policies is the task of top level managers whereas departmental managers form plan for their respective departments. Lower level managers make plans to support the overall objectives and to carry on day-to-day activities.

Planning is futuristic/forward-looking

Planning always means looking ahead or planning is a futuristic function. Planning is never done in the past. All the managers try to make predictions and assumptions for future and these predictions are made on the basis of past experiences of the manager and with the regular and intelligent scanning of the general environment.

Planning is Continuous

Planning is a never-ending or continuous process because after making plans also one has to be in touch with the changes in changing environment and in the selection of one best way. So, after making plans also planners keep making changes in the plans according to the requirement of the company. For example, If the plan is made during the boom period and during its execution there is a depression period then planners have to make changes according to the conditions prevailing.

Planning involves Decision Making

The planning function is needed only when different alternatives are available and we have to select the most suitable alternative. We cannot imagine planning in the absence of choice because in the planning function managers evaluate various alternatives and select the most appropriate. But if there is one alternative available then there is no requirement for planning.

Importance/Significance of Planning

Planning provides direction: Planning is concerned with predetermined course of action. It provides the directions to the efforts of employees. Planning makes clear what employees have to do, how to do, etc. By stating in advance how work has to be done, planning provides direction for action. Employees know in advance in which direction they have to work. This leads to unity of direction also. If there was no planning, employees would be working in different directions and organization would not be able to achieve its desired goal.
Planning reduces the risk of uncertainties: Organisations have to face many uncertainties and unexpected situations every day. Planning helps the manager to face uncertainty because planners try to foresee the future by making some assumptions regarding the future keeping in mind their past experiences and scanning of business environments. The plans are made to overcome such uncertainties. The plans also include unexpected risks such as fire or some other calamities in the organization. The resources are kept aside in the plan to meet such uncertainties.
Planning reduces overlapping and wasteful activities: The organizational plans are made keeping in mind the requirements of all the departments. The departmental plans are derived from the main organizational plan. As a result, there will be coordination in different departments. On the other hand, if the managers, non-managers and all the employees are following course of action according to the plan then there will be integration in the activities. Plans ensure clarity of thoughts and action and work can be carried out smoothly.
Planning promotes innovative ideas: Planning requires high thinking and it is an intellectual process. So, there is a great scope for finding better ideas, better methods, and procedures to perform a particular job. Planning process forces managers to think differently and assume the future conditions. So, it makes the managers innovative and creative.
Planning facilitates decision-making: Planning helps managers to make various decisions. As in planning goals are set in advance and predictions are made for future. These predictions and goals help the manager to make fast decisions.
Planning establishes standard for controlling: Controlling means comparison between planned and actual performance and if there is variation between both then find out the reasons for such deviations and take measures to match the actual performance with the planned performance. But in case there is no planned output then the controlling manager will have no base to compare whether the actual output is adequate or not. For example, If the planned output for a week is 100 units and the actual output produced by an employee is 80 units then the controlling manager must take measures to bring the 80 units production up to 100 units but if the planned output, i.e. 100 units is not given by the planners then finding out whether 80 units production is sufficient or not will be difficult to know. So, the base for comparison in controlling is given by the planning function only.
Focuses attention on objectives of the company: Planning function begins with the setting up of the objectives, policies, procedures, methods and rules, etc. which are made in planning to achieve these objectives only. When employees follow the plan, they are leading towards the achievement of objectives. Through planning, efforts of all the employees are directed towards the achievement of organizational goals and objectives.

Limitations of Planning

Planning leads to rigidity: Once plans are made to decide the future course of action the manager may not be in a position to change them. Following pre-decided plan when circumstances are changed may not bring positive results for the organisation. This kind of rigidity in plan may create difficulty.
Planning may not work in dynamic environment: Business environment is very dynamic as there are continuous changes taking place in economic, political and legal environment. It becomes very difficult to forecast these future changes. Plans may fail if the changes are very frequent. For example, There may be a change in economic policy, a change in fashion and trend or a change in competitors' policy. A manager cannot foresee these changes accurately and the plan may fail if many such changes take place in the environment.
Planning reduces creativity: With the planning, the managers of the organisation start working rigidly and they become blind followers of the plan only. The managers do not take any initiative to make changes in the plan according to the changes prevailing in the business environment. They stop giving suggestions and new ideas to bring improvement in working because the guidelines for working are given in planning only.
Planning involves huge cost: The planning process involves lot of cost because it is an intellectual process and companies need to hire professional experts to carry on this process. Along with the salary of these experts the company has to spend a lot of time and money to collect accurate facts and figures. So, it is a cost-consuming process. If the benefits of planning are not more than its cost then it should not be carried on.
Planning is a time consuming process: Planning process is a time consuming process because it takes a long time to evaluate the alternatives and select the best one. Lot of time is needed in developing planning premises. So, because of this, the action gets delayed. And whenever there is a need for prompt and immediate decision then we have to avoid planning.
Planning does not give guarantee success: Sometimes, managers have a false sense of security that plans have worked successfully in past so these will be working in future also. There is a tendency for managers to rely on pretested plans. It is not true that if a plan has worked successfully in past, it will bring success in future also as there are so many unknown factors which may lead to failure of the plan in future. Planning only provides a base for analysing the future. It is not a solution for future course of action.
Lack of Accuracy: In planning we are always thinking in advance and planning is concerned with the future only and the future is always uncertain. In planning many assumptions are made to decide about the future course of action. But these assumptions are not 100% accurate and if these assumptions do not hold true in the present situation or in future conditions then the whole planning will fail. For example, If in the plan it is assumed that there will be 5% inflation rate and in future conditions, the inflation rate becomes 10% then the whole plan will fail and many adjustments will be required to be made.

Planning Process

Setting Objectives - The first and foremost step in the planning process is to set up an objective. The managers set up very clearly the objectives of the company keeping in mind the goals of the company and the physical and financial resources of the company. Managers prefer to set up goals which can be achieved quickly and in specific limit of time. After setting up the goals, the clearly defined goals are communicated to all the employees. Objectives serve as a guide for overall business planning. They are usually set by the top management of the organization.
Developing Premises - Premises refer to making assumptions regarding future. Premises are the base on which plans are made. It is a kind of forecast made keeping in view existing plans and any past information about various policies. There should be total agreement on all the assumptions. The assumptions are made based on forecasting. Forecast is the technique of gathering information. Common forecast are made to find out the demand for a product, change in government or competitor policy, tax rate, etc.
Identifying Alternative Courses of Action - After setting up of objectives the managers make a list of alternatives through which the organization can achieve its objectives as there can be many ways to achieve the objective and managers must know all the ways to reach the objectives. For example : If the objective is to increase in sale by 10% then the sale can be increased : a) By adding more lines of products b) By offering discounts; c) By increasing expenditure on advertisements; d) By appointing salesmen for door-to-door sales, etc. So, managers lists out all the alternatives.
Evaluating Alternative Courses of Action - After making the list of various alternatives along with the assumptions supporting them, the manager starts evaluating each and every alternative and notes down the positive and negative aspects of every alternative. After this, the manager starts eliminating the alternatives with more negative aspect and the one with the maximum positive aspect and with the most feasible assumption is selected as the best alternative. Alternatives are evaluated in the light of their feasibility.
Selecting an Alternative - The best alternative is selected but as such there is no mathematical formula to select the best alternative. Sometimes instead of selecting one alternative, a combination of different alternatives can also be selected. The most ideal plan is the most feasible, profitable and with the least negative consequences. After preparing the main plan, the organisation has to make several small plans to support the main plan. These plans are related to the performance of routine jobs in the organisation. These are derived from the major plan. so, they are also known as derivative plans.
Implementing the Plan - The managers prepare or draft the main and supportive plans on paper but there is no use for these plans unless and until they are put in action. For implementing the plans or putting the plans into action, the managers start communicating the plans to all the employees very clearly. After communicating the plan to employees and taking their support the managers start allocating the resources according to the specification of the plans. For example, if the plan is to increase sales by increasing the expenditure on the advertisement, then to put it into action, the managers must allot more funds to the advertisement department, select better media, hire advertising agency, etc.
Follow up Action - Planning is a continuous process so the manager's job does not get over simply by putting the plan into action. The managers monitor the plan carefully while it is implemented. The monitoring of a plan is very important because it helps to verify whether the conditions and predictions assumed in the plan are holding in the present situation or not.

Types of Plans

Objectives (Neither Single Use nor Standing Plan):

Objectives are the endpoints which are numerically expressed, that the management seeks to achieve within a given time period. E.g., increasing sales by 10% in the next quarter.

Serves as guide for overall business planning.
All activities are guided towards objectives.
These are usually set by top-level management

Strategy (Neither Single Use nor Standing Plan):

A strategy is a comprehensive plan to achieve organizational objectives. The dimensions of strategy are:

Determining long term objectives
Adopting a particular course of action
Allocating resources for achieving the objectives

E.g., choice of advertising media, sales promotion techniques, which channels of distribution to be used, who are the customers, what is the demand, etc.

It is the blueprint of the business and provides an outline of the business.
Strategy is influenced by the business environment.
Strategy directs future decision making and scope in long run

Policies (Standing Plan):

The policy is a general guideline that guides thinking or channelizes energies towards a particular direction. It brings uniformity in decision-making and action for the interpretation of strategy.

E.g., the admission policy of an educational institution, recruitment policy, and pricing policy of a company within which objectives are set and decisions are made.

Based on objectives
Guides managers to implement the strategy
It defines broad parameters within which a manager may function.

Procedures (Standing Plan):

Procedures are required steps established in advance to handle future conditions. The sequence of steps to be followed by employees in different situations must be predetermined.

For example, the procedure for admission to a particular school can be defined clearly. Procedures are made common for the entire department to help coordinate activities. Therefore, procedures often cut across departmental lines.

Sequence of steps to carry on different activities
Generally meant for insiders only
Are mostly in a chronological order

Methods (Standing Plan):

Methods can be defined as formalized or systematic ways of doing routine or repetitive jobs. Selections of the right method save time, money and effort and increases efficiency. It deals with a task consisting of one step of a procedure and specifies how this step is to be performed.

For example, for the valuation of depreciation whether to use straight line or diminishing balance method of depreciation.

Methods vary from task to task
Selection of the right method saves time, and money and increases efficiency
Standardized way in which a task has to be performed

Rules (Standing Plan):

A rule is a specific statement that specifies clearly what is to be done or not to be done. It is a guide to behavior. A rule does not allow for any flexibility or discretion and prescribes a penalty for violation.

For example: No Smoking‟ in office premises, reporting for work at a particular time, etc.

Specifies what to do and what not to do
Are rigid, stringent and compulsive in nature

Programmes (Single use Plan):

Programmes are the combination of objectives, policies, procedures and rules. The programmes are made to get systematic working in the organisation. The programmes create relation between policies, procedures and goals.

For example : The construction of a shopping mall, and the opening of a new department.

Detailed statement about a project
Is prepared for various activities?

Budgets (Single use Plan):

A budget is a statement of expected result for a given future period expressed in numerical terms. A budget is a plan which quantifies future facts and figures. A budget is a statement of expenses, revenue and income for a specified period.

For example: sales budget, and cash budgets

Statement of expected result expressed in numerical terms
Quantifies future facts and figures
Budgets are prepared by managers at every level

The End

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A List of Notes:

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CBSE Class 12 Business Studies Chapter 4 Notes: Planning