Functions of Management – Business studies


By the end of this lesson, you should be able to Discuss the various functions of management.


Planning is the function that determines in advance what should be done. it is looking ahead and preparing for the future. It is a process of deciding the business objectives and charting out the methods of attaining those objectives. In other words, it is the determination of what is to be done, how and where it is to be done, who is to do it and how results are to be evaluated. This is done not only for the organization as a whole but for every division, department or sub-unit of the organization. Thus, planning is a function, which is performed by managers at all level top, middle and supervisory. Plans made by top management for the organization as a whole may cover periods as long as five or ten yearship. Plans made by middle or first line managers, cover much shorter periods. Such plans may be made for the next day’s work, for example, or for a two-hour meeting to take place in a week.


Planning is the beginning of the process of management. A manager must plan before he can possibly organize, staff, direct or control. Because planning sets all other functions into action, it can be seen as the most basic function of management. Without planning other functions become mere activity, producing nothing but chaos.

Planning is an intellectual process, which requires a manager to think before acting. It is thinking in advance. It is by planning that managers of organizations decide what is to be done, when it is to be done, how it is to be done, and who is to do it. Decision-making is thus an integral part of planning. It is defined as the process of choosing among alternatives.

Obviously, decision-making will occur at many points in planning process. For example, in planning for their organization, managers must first decide which goal to pursue: “Shall we manufacture all parts internally or buy some from outside?” in fact, deciding which goal to pursue is probably the most important part of the planning process. Managers must also decide which assumptions about the future and about the environment they will use in making their plans: Will taxes on our earnings increase, and thus strain our company’s cash flow, or can we expect taxes to remain at the present level?” in addition, managers must decide how they will allocate their resources to attain their goals: “Should we fill up a senior position by promoting an existing employee or should we hire someone from outside the organization?” Because decision-making is such an integral part of planning, we will discuss it extensively in the following chapter.

Planning is a continuous process. Koontz and O’Donnell’ rightly observe that like a navigator constantly checking where his ship is going in the vast ocean, a manger should constantly watch the progress of his plans. He must constantly monitor the conditions, both within and outside the organization to determine if changes are required in his plans. It is wiser for him to be right than merely being consistent. They call it the principle of navigational change.

As a corollary to the above principle, it can be said that a plan must be flexible. By flexibility of a plan is meant its ability to change direction to adapt to changing situations without undue cost. Because circumstances change, it is simple common sense that a plan must provide for as many contingencies as possible. It needs to possess a built-in flexibility in at least five major areas viz., technology, market, finance, personnel and organization. Flexibility in technology means the mechanical ability of a company to change and vary its product-mix according to the changing needs of its customership. Flexibility in market means the company’s ability to shift its marketing when there is a sudden spurt of demand in those areas. Flexibility in finance means the company’s ability to obtain additional funds on favorable terms whenever there is need for them. Flexibility in personnel means the company’s ability to shift individuals from one job to another.

Flexibility in organization means the company’s ability to change its organization structure.

However, flexibility is possible only within limits. It is almost invariably true that it involves extra cost. Sometimes it may be so expensive that its benefits may not be worth the cost. Sometimes people may develop patterns of thought that are resistant to change. Sometimes already established policies and procedures may become so deeply ingrained in the organization that changing them may become difficult. In most cases irretrievable costs already incurred in fixed assets, training, advertising, etc. may block flexibility.

Planning is an all-pervasive function. In other words, planning is important to all managers regardless of their level in the organization. There are , however, some differences in involvement by managers at different levels. One major difference concerns the time period covered. Top-level managers are generally concerned with longer time periods. Much of their planning involves activities that will take place six months to five years later, or even after that. Lower level managers are more concerned with planning activities for the day, week, or the month. First-line supervisors, for example, plan the work activities for their people for the day. They are not responsible for predicting sales levels and ordering materials to produce products six months in the future. A second major difference concerns the time spent on planning. Top managers generally spend more time on planning. They are more concerned with establishing objectives and developing plans to meet those objectives. Lower-level managers are more involved in executing these plans.


Without planning, business decisions would become random, ad hoc choices. Four concrete reasons for the paramount importance of the planning function are as follows:

Minimizes Risk an Uncertainty
In today’s increasingly complex organizations, intuition alone can no longer be relied upon as a means for making decisions. This is one reason why planning has become so important. By providing a more rational, fact-based procedure for making decisions, planning allows managers and organizations to minimize risk and uncertainty. In a dynamic society such as ours, in which social and economic conditions alter rapidly, planning helps the manager to cope with and prepare for the changing environment.

Planning does not deal with future decisions, but with the futurity of present decisions.  The manager has a feeling of being in control if he has anticipated some of the possible changes and has planned for them. It is like going out with an umbrella in cloudy weather. It is through planning that the manager relates the uncertainties and possibilities of tomorrow to the facts of today and yesterday.

Leads to Success
Planning does not guarantee success, but studies have shown that, often things being equal, companies which plan not only outperform the non- planners but also outperform their own past results. This may be because when a businessman’s actions are not random or ad hoc, arising as mere reaction to the market place, i.e., when his actions are planned, he definitely does better. Military historians attribute much of the success of the world’s greatest generals to effective battle plans.

Planning leads to success by going beyond mere adaptation to market fluctuations. It is proactive. It involves an attempt to shape the environment on the belief that business is not just the creation of environment but its creator as well.

Focuses Attention on the Organization’s Goals.
Planning helps the manager to focus attention on the organization’s goals and activities. This makes it easier to apply and coordinate the resources of the organization more efficiently. The whole organization is forced to embrace identical goals and collaborate in achieving them. It also enables the manager to chalk-out in advance an orderly sequence of steps for the realization’s goals and to avoid a needless overlapping of activities.

Facilitates Control
In planning, the manager sets goal and develops plans to accomplish these goals. These goals and plans then become standards or benchmarks against which performance can be measured. The function of control is to ensure that the activities conform to the plans.

Thus, controls can be exercised only if there are plans.


Although the basic process of planning is the same for every manager, planning can task many forms and styles in practice. Planning may be comprehensive or limited in scope. There are organizations that plan to the last detail; others rest content, simply with setting broad targets for the next financial period. Planning may be done by an army of experts using sophisticated forecasting technique; or it may be done in a seat-of-the-pants manner, by a number of executives sharing their judgments over a cup of coffee. Planning may begin at the top with the top executive; deciding on targets and passing them down for implementation; or it may begin at bottom with the lowest sections formulating their targets and sending them up for evaluation and coordination. Planning may be done participatively, with many members of the organization chipping in with their ideas and judgments or it may be done in an elitist manner by a few executives or technocrats. Thus , there are many forms and styles of planning and planning practices are likely to vary from organization to organization. However, one useful way of classifying them is to distinguish between strategic and tactical planning.

Strategic planning involves deciding what the major goals of the entire organization will be and what policies will guide the organization in its pursuit of these goals. It deals with question such as: what business should the organization be in a decade from now? What should the organization look like five years? Tactical planning involves deciding specifically how the resources of the organization will be used to help the organization achieve its strategic goals. It deals with questions such as: what should the levels of our operations be a year from now? How should we adjust our marketing strategy? What are our short-term financial personnel needs?

It should be noted, however, that in practice the distinction between strategic and tactical plans is not always as clear-cut as presented above. For example, as part of an organization-wide strategic plan, a divisional plan for the development of more detailed tactical plans for sub-units in the division.


Plans are arranged in a hierarchy within the organization (fig. 4.1). At the top of this hierarchy stand objectives. Objectives are the broad ends of the organization, which are achieved by means of strategies. Strategies in their turn are carried out by means of the two other major groups of plan-single- use plans and standing plans. Single-use plans, as their name suggests, are developed to achieve a specific end; when that end is reached, the plan is dissolved. The major types of single-use plans are programs and budgets. Standing plans, on the other hand, are designed for situations that recur often enough to justify a standardized approach. For example, it would be inefficient for a bank to develop a single-plan for processing a loan application of each new client. Instead, it uses one standing plan that anticipates in advance whether to approve or turn down any request based on the information furnished, credit rating, and the like. The major types of standing plans are policies, procedures, methods and rules. We now describe each type of plan in detail.

Fig. 3.1 Hierarchy of organizational plans


Objectives are goals or aims, which the management wishes the organization to achieve. These are the end points or pole-star towards which all business activities like organizing, staffing, directing and controlling are directed.

Only after having defined these end points can the manager determine the kind of organization, the kind of personnel and their qualifications, the kind of motivation, supervision and direction and the kind of control techniques, which he must employ to reach these points.

Objectives should be distinguished from other words ‘purpose’ and ‘mission’. The purpose of an organization is its primary role defined by the society in which operates. For example, the purpose of every university is to impart education or the purpose of every hospital is to provide health care.

Purpose is therefore a broad aim that applies not to a given organization but to all organizations of its type in that society. The mission of an organization is the unique aim that sets the organization apart from others of its type. It is an organization’s specialization in some area-service, product or client. Thus a university may have as its mission imparting education to women only or a hospital may treat heart disorders only. Objectives are the specific targets to be reached by an organization. They are the translation of an organization’s mission into concrete terms against which results can be measured. For example, a university may decide to admit a certain number of students or a hospital may decide to admit a certain number of indoor patients.

Some characteristics of Objectives

Some important characteristics of objectives are as under:

Objectives are multiple in numbers
This implies that every business enterprise has a package of objectives set out in various key areas. As pointed out by Peter Drucker2, there are eight key areas in which objectives of performance and results have to be set.

These are: market standing, innovation, productivity, physical and financial resources, profitability, manger performance and development, worker performance and attitude and public responsibility.

Thus, for example, a fertilizer manufacturing and marketing company may have the following objectives:
(a) a specified capacity utilization,
(b) specified costs and return on capital,
(c) specified quality of the product,
(d) specified marketing services,
(e) extension and market development,
(f) serving remote and virgin areas,
(g) maintaining the desired network of retail outlets,
(h) extension of warehouse facilities and ex-warehouse sales to small retailer and farmers close to consumption points.

Objectives are either tangible or intangible.
For some, of the objectives (such as in the areas of market standing, productivity, and physical and financial resources) there are quantifiable values available. Other areas of objectives are not readily quantifiable and are completely intangible, such as manager’s performance, workers’ morale, public responsibility, etc.

Objectives have a priority.
This implies that at a given point in time, the accomplishment of one objective is relatively more important than the others. For example the goals of maintaining a minimum cash balance may be critically important to a firm having difficulty meeting pay rolls and due dates on accounts. Priority of goals also says something about the relative importance of certain goals regardless of time. For example, the survival of the organization is a necessary condition for the realization of all other goals.

The establishment of priorities is extremely important in that the resources of any organization must be allocated by rational means. At all points in time, managers are confronted with alternative goals, which must be evaluated and ranked. Managers of non-business organizations are particularly concerned with the ranking of seemingly independent goals. For example, a university vice-chancellor must determine, implicitly or explicitly, the relative importance of teaching, research and service goals.Of course, the determination of goals and priorities is often a judgmental decision and, therefore, is difficult.

Objectives are generally arranged in a hierarchy.
This means that we have corporate objectives of the total enterprise at the top, followed by divisional or departmental objectives. Next come objectives of each section and finally individual objectives. Objectives at all levels (except at the top) serve both as an end and as a means. They are the ends of a unit and they are also the means of the next higher unit.

Objectives sometimes clash with each other.
The process of breaking down the enterprise into units, for example, production, sales and finance, requires that objectives be assigned to each unit. Each unit is given the responsibility for attaining an assigned objective. The process of allocating objectives among various units creates the problem of potential goal conflict and sub-optimization, wherein achieving the goals of one unit may jeopardize achieving the goals of another. For example,the products may conflict with the sales goal of selling high quality products.

The resolution of this problem is a careful balance of the goal for each unit with the recognition that the goal of neither unit can be maximized. The result is a situation known as sub-optimization of goals. The exact form and relative weight to be given to any particular unit or interest group is precisely the nature of management’s dilemma; yet it is precisely management’s responsibility to make these kinds of judgments.

Requirements of Sound Objectives.
While laying down objectives there are certain requirements that the manager should always keep mind.

Objectives must be both clear and acceptable.
The ultimate test of clarity is the people’s understanding of the objectives. Unambiguous communication is helpful in ensuring clarity of understanding. The objective must also be acceptable to the people, that, they should be compatible with their individual goals. As Barnard3 appointed out, each participant in an organization determines for himself the range of acceptable behavior, and if the activities required of him are outside this range, he will not pursue the objective. A production line foreman can find all kinds of legitimate means to foil a production schedule if the meeting of that schedule requires behavior, which he considers unacceptable. For example, if the schedule requires a heavy-handed approach to push his subordinates to levels of production beyond those, which they themselves believe appropriate, the foreman can simply claim that it is impossible to meet.

Objectives must support one another.
Objectives could interlock or interfere with one another. For example, the goals of the production department in a company may be operating at cross- purpose with those of the marketing department. In view of this, there is need for coordination and balancing the activities of the entire organization, otherwise its members may pursue different paths making it difficult for the manager to achieve the company’s overall objectives. Further, there should be a close-knit relationship between short-range and long-range objectives. What is to be done the first year should provide a foundation for is to be done each successive year, and this can be guaranteed only if short-range plans are part of the long-range plan.

Objectives must be precise and measurable.
An objective must always be spelled out in precise measurable terms. There are several reasons for this:

  1. The more precise and measurable the goal, the easier it is to decide how to achieve it: for example, the goal of ‘becoming more active in the community’ leaves managers in doubt as to how to proceed. If instead, managers select as their goals ‘increasing profits by 10 percent’, they have described their goals in much more meaningful terms.
  2. precise and measurable goals are better motivators of people than general goals.
  3. precise and measurable goals make it easier for lower level managers to develop the own plans for actually achieving those goals. For example,if a general manager is aiming a 15 percent growth rate over the next four years, the sales manager can determine ho sales must increase in order to meet this goal.
  4. it is easier for managers to a certain whether they are succeeding or failing if the goals are precise and measurable. For example, if they are aiming for a profit of Kshs 15 million over the next two years, they can check their progress as profit and loss figures come. They would then be in a better position to take whatever corrective action may be necessary to help them meet their goal.

Even objectives, which are not immediately measurable, can be made so by using quantifiable element that correlates with them. For example, absenteeism may correlate closely with employees morale, even though morale itself cannot be measured. Hence specific objective of reducing absenteeism by 50 percent in, say, a year provides substitute measurable objective for improvement of morale.

Objectives should always remain valid.

This means that the manager should constantly review, reassess and adjust them according to changed conditions. If the manager is constantly on the alert, this will not be so much a radical change but more a part of the evolutionary process.

Advantages of objectives.
Basically the following benefits result from objectives:

  1. They provide a basis for planning and for developing other type of plans such as policies, budgets and procedures.
  2. They act as motivators for individuals and departments for an enterprise imbuing their activities with a sense of purpose.
  3. They eliminate haphazard actions, which may result in undesirable consequences.
  4. They facilitate coordinated behavior of various groups which otherwise may pull in different directions.
  5. They function as a basis for managerial control by serving as standards against which actual performance can be measured.
  6. They facilitate better management of the enterprise by providing abasis for leading, guiding, directing and controlling the activities of people of various departments.
  7. They lessen misunderstanding and conflict and facilitate communication among people by minimizing jurisdiction disputes.


In a competitive situation, it is not enough to build plans logically from goals unless the plans take into account the environmental opportunities and threats and the organizational strengths and weaknesses. A corporate strategy is a plan, which takes these factors into account and provides an optimal match between the firm and the environment. The essence of a corporate strategy is to know and capitalize on one’s strengths while avoiding weaknesses and then attempting to match these appropriately with opportunities.

Two important activities involved in strategy formulation are environmental appraisal and corporate appraisal.

Environmental Appraisal An analysis of the relevant environment results in the identification of threats and opportunities. Andrews defines the environment of a company as the pattern of all external influences that affect its life and development. While every company must define its own relevant environment, some key environmental factors, which need to be studied, are given below:

1. Political and legal factors:
a) Stability of the government and its political philosophy.
b) Taxation and industrial licensing laws.
c) Monetary and fiscal policies.
d) Restrictions on capital movement, repartriation of capital, state trading, etc.

2. Economic factors:
a) Level of economic development and distribution of personal income.
b) Trend in price, exchange rates, balance of payments etc.
c) Supply of labor, raw material etc.

3. Competitive factors:
a) Identification of principal competitorship.
b) Analysis of their performance and programs in major areas, such as mark penetration, product life-cycle, product mix, distribution channels and sale organization, servicing, credit and delivery, advertising and promotion, pricing a branding, labor unions, training of personnel, technological development productivity and efficiency in manufacturing, financial strength, profitability a rate of return on sales and investment.
c) Anti-monopoly laws and rules of competition.
d) Protection of patents, trade marks, brand names and other industrial property rights.

4. Social and cultural factors:
a) Literacy levels of population.
b) Religious and social characteristics.
c) Extent and rate of urbanization.
d) Rate of social change.

Corporate Appraisal

This involves an analysis of the company’s strengths and weakness. A company’s strengths may lie in its outstanding leadership, excellent product design, low, cost manufacturing skill, efficient distribution, efficient customer service, personal relationship with customers efficient transportation and logistics, effective sales promotion, high turnover of inventories and/or capital, ability to influence legislation, ownership of low- cost or scar raw materials, and so on. The company must plan to exploit these strengths to the maximum. Similarly, it may suffer from a number of weaknesses, which it must try to circumvent, thus, formulation of the strategy is like preparing for a beauty contest in which a lady tries to highlight her strong points and hide her weak points.

The above mode of strategy formulation is known as the ‘planning’ mode. It is systematic and rational. There are two other modes also viz., entrepreneurial and adaptive. Entrepreneurial mode is one in which a proactive, bold plan is drawn to seek new opportunities on the basis of intuition. Adaptive mode is reactive and timid. This mode is generally used to formulate strategies for solving problems as they come. In real life, however, we find organizations following a combination of all the three modes. Thus, a manufacturing company may use the planning mode to formulate the strategy of its finance department, the entrepreneurial mode to formulate the strategy of its marketing department and the adaptive mode to formulate the strategy of its personnel department.

Standing Plans.

A policy is a general guideline for decision-making. It sets up boundaries around’ decisions, including those that can be made and shutting out those that cannot. In so doing it channelizes the thinking of the organization objectives. In the words of George R. Terry, “policy is a verbal written 0 implied overall guide, setting up boundaries that supply the general limits and directions in which managerial action will take place.”

Although, policies deal with “how to do” the work, they do not dictate terms to subordinates. They only provide a framework within which decisions must be made by the management in different spheres. Thus w~ hear about personnel policy, recruitment policy, price policy and advertisement policy. More concretely, it is said, the policy of the company is to recruit through the employment exchange; the advertisement policy of the company is to avoid cutthroat competition with its rivals in the field; or the distribution policy of a fertilizer company needs to be farmer-oriented.

It should be noted that both policies and objectives guide thinking and action, but with a difference. Objectives are end points of planning while policies while policies channelize decisions to these ends; or to put it another way, policies lead to objectives in the way a series of alternate highway routes lead to a city.

Advantages of policies.
The advantages of policies are as follows:

  1. Policies ensure uniformity of action in respect of various matters at various organizational points this makes actions more predictable.
  2. Policies speed up decisions at lower levels because subordinates need not consults their superiors frequently.
  3. Policies make it easier for the superior to delegate more and more authority to his subordinates without being unduly concerned because he knows that whatever decision the subordinates make will be within the boundaries of the policies.
  4. Policies give a practical shape to the objectives by elaborating and directing the way in which the predetermined objectives are to be attained.

Types of policies

Policies may be variously classified on the basis of sources, functions or organizational level.

  1. Classification on the basis of sources.

On this basis, policies may be divided into originated, appealed, implied and externally imposed policies.

a) Originated policies:

These are policies which are usually established formally and deliberately by top managers for the purpose of guiding the actions of their subordinates and also their own. These policies are generally set down in print and embodied in manual.

b) Appealed policies:

Appealed policies are those, which arise from the appeal made by subordinate to his superior regarding the manner of handling a given situation. When decisions are made by the superior on appeals made by subordinates, they become precedents for future action. For example, let us assume that a company allows a discounts of 2 percent to its buyership. If any customer states that he is willing to purchase in large quantities and is prepared to pay part of the price in advance, provided he is allowed a 2 to 21 percent discount, then the sales manager not knowing what to do may approach the general manager for his advice. If the general manager accepts the proposal for 2 plus, percent discount, the decision of the general manager could become a guideline for the sales manager in the future. This policy is appealed policy because it comes into existence fro the appeal made by the subordinate to the superior.

c) Implied policies:
There are also policies, which are stated neither in writing nor verbally. Such policies are called implied policies. Only by watching the actual behavior of the various superiors in specific questions can be presence of the implied policy be ascertained. For example, if office space is repeatedly assigned to individuals on the basis of seniority, this may become an implied policy of the organization.

d) Externally imposed policies:
Policies are sometimes imposed on the business by external agencies such as government, trade associations and trade unions. For example, a policy might have been dictated by the government law regulating prices or by a decision of a trade association limiting production or by a decision of the trade union to fill up higher posts only by promoting existing employees.

  1. Classification on the basis of functions:

On the basis of business functions, policies may be classified into production, sales, finance, personnel policies, etc. every one of these functions will have a number of policies. For example, the sales function may have policies relating to market, price, packaging, distribution channel, commission to middlemen, etc.; the production function may have policies relating to the method of production, output, inventory, research, etc.; the financial function may have policies relating to capital structure, working capital; internal financing, dividend payment, etc.; the personnel function may have policies relating to recruitment, training, working conditions, welfare activities, etc.

  1. Classification on the basis of organization level:

On this basis, policies range from major company policies through major departmental policies to minor or derivative policies applicable to the smallest segment of the organization.

Guidelines for effective policy-making

The guidelines for making effective policies are as follows:

  1. Policies should, as far as possible, be stated in writing and should be clearly understood by those who are supposed to implement them.
  2. Policies should reflect the objectives of the organization, define the appropriate methods; and action, and delineate the limits of freedom of action permitted to those whose actions are to be guided by them.
  3. To ensure successful implementation of policies, the top managers and the subordinates who are supposed to implement them must participate in their formulation. Participation is the best assurance of loyalty to a policy.
  4. A policy must strike a reasonable balance between stability and flexibility. Conditions change and policies must change accordingly.On the other hand, some degree of stability must also prevail if order and a sense of direction are to be achieved. There are no rigid; guidelines to specify the exact degree of the requisite flexibility; only the judgment management can determine the balance.
  5. Different policies in the organization should not pull in different directions and should support one another. They must be internally consistent. A family-owned organization which is thinking to expand rapidly and also to retain exclusive family control over the enterprise is following an internally inconsistent policy because to achieve expansion outside finance will have to be raised which may involve loss of family control.
  6. Policies should not be detrimental to the interest of society. They must conform to canons of ethical behavior, which prevail in society.
  7. Policies must be comprehensive to cover as many contingencies as possible. For example, the policy to hire people through employment exchanges should also provide for a situation when adequate member of persons are not so available.
  8. Policies should be periodically reviewed in order to see whether they are modified changed, or completely abandoned and new ones put in their place.


Policies are carried out by means of more detailed guidelines called ‘procedures’. A procedure provides a detailed set of instructions for performing a sequence of actions involved in doing a certain piece of work. The same steps are followed each time that activity is performed. For example, the procedure for purchasing raw materials may be: (i) requisition from the storekeeper to the purchasing department;
(ii) calling tenders for purchase of materials;
(iii) placing orders with the suppliers who are selected;
(iv) inspecting the materials purchased by the inspecting department; and
(v) making payment to the supplier of materials by the accounts department.

Similarly, the procedure for recruitment of personnel may be:

(i) inviting applications through advertisement;
(ii) screening the applications;
(iii) conducting written test;
(iv) conducting interview for those who have passed the written test; and
(v) medical examination of those who are selected for the posts.

Procedures may also exist for conducting the meetings of directors and shareholders, granting loans to employees, issuing raw materials from the stores department, granting sick leave to the employees, passing bills by the accounts department, and so on.

Difference between policy and procedure.
Various points of distinction between the two are as under:

  1. Policies are general guide to both thinking and action of people at higher levels. Procedures are general to action only usually for people at lower levels.
  2. Policies help in fulfilling the objectives of the enterprise.Procedures show us the way to implement policies.
  3. Policies are generally broad and allow for some discretion.Procedures are specific and lay down the sequence of definite acts.
  4. Policies are often established without any study or analysis.Procedures are always established after through study and analysis of work.

Advantages of procedures.

There are several advantages of procedures. First, they indicate a standard way of performing at ask. This ensures a high level of performance in the enterprise. Second, they result in work simplification and elimination of unnecessary steps and overlapping. Third, they facilitate executive control over performance by lying down the sequence and timing of each task.

Finally, they enable employees to improve their efficiency by providing them with knowledge about the entire range of work. One limitation of procedures is that by prescribing one standard way of performing a task, they limit the scope for innovation or improvement of work performance. But this limitation can be overcome if the management reviews and appraises the procedure periodically with an intention to improve it.

A method is a prescribed way in which one step of a procedure is to be performed. A method is thus a component part of the procedure. For performing a particular step, an organization may have a number of methods. The method that is selected for discharging a particular ask under the existing conditions may become outdated in due course of time because of the discovery of better and more economical methods. The need for better and more economical methods of operation is great because of the pressure of competition in the markets for the products of the concern.

Methods help in increasing the effectiveness and usefulness of the procedure. By improving the methods, reduced fatigue, better productivity and lower costs can be achieved. Methods can be improved in a number of ways. Manual methods of performing a task can be replaced by mechanical means, or the existing mechanized process may be improved, or work simplified and unproductive efforts removed by conducting ‘motion study’.

Rules are detailed and recorded instructions that a specific action must or must not be performed in a given situation. In sanctioning overtime to workmen, in regulating traveling allowances, in sanctioning entertainment bills and in other similar matters, a uniform way of handling them dealing with the case has to be followed. These are all covered by rules of the enterprise, the object of which is to avoid repeated reference to higher levels for authorization of routine matters, which occur frequently.

A rule is different from a policy, procedure or method. It is a policy because it does not give a guide to thinking and does not leave any discretion to the party involved. It is not a procedure because there is no time sequence to a particular action. It is not a method because it is not concerned with any one particular step of a procedure.

Single-Use Plans

Programs are precise plans or definite steps in proper sequence, which need to be taken to discharge a given task. In other words, programs include all the activities necessary for achieving a given objective. Programs are drawn in conformity with the objectives and are made up of policies, procedures, budgets, etc. thus, an enterprise may have a program of opening five branches in different parts of the country or of deputing its employees for training or of acquiring a new line of business or installing new machines in the factory or of introducing a new product in the market. The essential ingredients of every program are time phasing and budgeting. This means that specific dates should be laid down for the completion of each successive stage of a program. In addition, a provision should be made in the budget for financing the program. In the absence of these ingredients it may be a prospect or a hope but it is not a program. Thus, a program for the opening of five branches must earmark money and specific time periods for:

  1. Securing the necessary accommodation.
  2. Recruiting personnel to manage the branches
  3. Arranging the supply of goods, which are to be sold through the branches.


According to the Institute of Costs and Works Accountants, London, a budget is “a financial and/or quantitative statement prepared prior to a definite period of time, of the policy to be pursued during that period, for the purpose of obtaining a given objective.” It is clear from this definition that budgets are plans for the future period of time containing statements of expected results in numerical terms, i.e. rupees, man-hours, product-units and so forth. The important budgets are sales budgets, production budget, cash budget, and revenue and expense budget. The sales budget shows the expected sales of finished goods for a period the production budget reflects the anticipated production over a period, a cash budget projects flow of cash for a period in advance, and the revenue and expense budget shows the anticipated revenue and expenses for a period.

Budgets are very useful for an enterprise. Being expressed in numerical terms they facilitate comparison of actual results with the planned ones and thus, serve as a control device and yard-stick for measuring performance.

They also help in identifying and removing dead heads of expenditure. For example, in zero-based budget the sums appropriated to various heads of expenditure in previous years are set to zero and the manager is required to justify each expenditure afresh from scratch.


The steps generally involved in planning are as follows:

  1. Establishing verifiable Goals or Set of Goals to beAchieved.

The first step in planning is to determine the enterprise objectives. These are, most often set by upper level of top managers, usually after a number of possible objectives have been carefully considered. There are many types of objectives managers may select: a desired sales volume or growth rate, the development of a new product or service, or even more abstract goal such as becoming more active in the community. The type of goal selected will depend on a number of factors: the basic mission of the organization, the value its managers hold, and the actual and potential abilities of the organization.

  1. Establishing Planning Premises:

The second step in planning is to establish planning premises, i.e. certain assumptions about the future on the basis of which the plan will be ultimately formulated. Planning premises are the vital to the success of planning as they simply pertinent facts and information relating to the future such as population trends, the general economic conditions, production costs and prices, probable competitive behavior, capital and material availability, governmental control and so on.

Planning premises can be variously classified as under:

  1. Internal and external premises.
  2. Tangible and intangible premises.
  3. Controllable and non-controllable premises.

a) Internal and external premises.

Premises may exist within and outside the company. Important internal premises include sales forecasts, polices and programs of the organization, capital investment in plant and equipment, competence of management, skill of the labor force, other resources and abilities of the organization in the form of machines, money and methods, and beliefs, behavior and values of the owners and employees of the organization. External premises may be classified in three groups: business environment, factors which influence the demand for the products of the enterprise and the factors, which affect the resources available to the enterprise. These external premises may include the following:

  • General business and economic environment.
  • Technological change
  • Government policies and regulations
  • Population growth
  • Political growth
  • Political stability
  • Sociological factors
  • Demand for industry’s product.

b) Tangible and intangible premises.
Some of the planning premises may be tangible while some others may be intangible. Tangible premises are those, which can be quantitatively measured while intangible premises are those being qualitative in character cannot be so measured. Population growth, industry demand, capital and resources invested in the organization are all tangible premises whose quantitative measurement is possible. On the other hand, political stability sociological factors, business and economic environment attitudes, philosophies and behavior of the owners of the organization are all intangible premises whose quantitative measurement is not possible

c) Controllable and non-controllable premises.
While some of the planning premises may be controllable, some others are non-controllable. Because of the presence of uncontrollable factors, there is need for the organization to revise the plans periodically in accordance with current developments. Some of the examples of uncontrollable factors are strikes, wars, natural calamities, emergency, legislation, etc. controllable factors are those, which can be controlled and normally cannot upset well- thought calculations of the organization regarding the plan. Some of the examples of controllable factors are: the company’s advertising policy, competence of management members, skill of labor force, availability of resources in terms of capital and labor, attitude and behavior of the owners of the organization, etc.

  1. Deciding the planning period.

Once upper-level managers have selected the basic long-term goals and the planning premises, the next task is to decide the period of the plan Businesses vary considerably in their planning periods. In some instances plans are made for a year only while in others they span decades. In each case, however, there is always some logic in selecting a particular time range for planning. Companies generally base their period on a future that can reasonably be anticipated. Other factors which influence the choice of a period are as follows:
(a) lead time in development and commercialization of new product
(b) time required to recover capital investments or the pay-back period; and
(c) length of commitments already made.

a) Lead time in development and commercialization of a new product
For example, a heavy engineering company planning to start a new project should have planning period of; say five years with one or two years for conception, engineering and development and as many more years for production and sales. On the contrary, a small manufacturer of spare parts who can commercialize his idea in a year or so need make annual plans only.

b) Time required to recover capital investments or pay-backperiod.
These are number of years over which the investment outlay will be recovered or paid back from the cash inflow if the estimates turn out to be correct. If a machine costs Kshs. 10 million and generates cash flow of Kshs. 2 million a year, it has a pay back period of five years. Therefore, the plan should also be for at least five years.

c) Length of commitments already made.
The plan period should, as tar as possible, be long enough to enable the fulfillment of commitments already made. For example, a if a company has agreed to supply goods to the buyers for five years or has agreed to work out mines for ten years it need also plan for the same period to fulfill its commitments. However, if the length of commitments can somehow be reduced, the plan period can also be reduced. Thus if the company can grant sub-lease of its mines to other parties, then it can reduce its plan period also.

  1. Finding Alternative Courses of Action.

The fourth step in planning is to search for examining alternative courses of action. For instance, technical know-how may be secured by engaging a foreign technician or by training staff abroad. Similarly, products may be sold directly to the consumer by the company’s salesmen through exclusive agencies. There is seldom a plan for which reasonable alternatives do not exist, and quite often an alternative that is not obvious proves to be the best.

  1. Evaluating and Selecting a Course of Action.

Having sought alternative courses, the fifth step is to evaluate them in the light of the premises and goals and to select the best course of action. This is doe with the help of quantitative techniques and operations research.

  1. Developing Deductive Plans.

Once a plan has been formulated, its broad goals must be translated into day- to-day operations of the organization. Middle and lower-level must draw up the appropriate plans, programs and budgets for their sub units. These are described as derivative plans. In developing these derivative plans, lower- level managers take steps similar to those taken by upper-level managers- selecting realistic goals, assessing their sub-units’ particular strengths and weaknesses and analyzing those parts of the environment that can affect them.

  1. Measuring and Controlling the Progress.

Obviously, it is foolish to let a plan run its course without monitoring its progress. Hence the process of controlling is a critical part of any plan. Managers need to check the progress of their plans so that they can (a) take whatever remedial action is necessary to make the plan work, or (b) change the original plan if it is unrealistic.


A manager’s plans are directed at achieving goals. But a planning effort encounters the following limitations:

  1. Planning is an expensive and time-consuming process. It involves significant amounts of money, energy and also risk, without any assurance of the fulfillment of the organization’s objectives. In views of this, many organizations, particularly the smaller ones, are usually unable to afford a formal planning program.
  2. Planning sometimes restricts the organization to the most rational and risk-free opportunities. It curbs the initiative of the manager and forces him to operate within the limits set by it. Sometimes planning may cause delay in decision-making. In an emergency when there is need for the manager to take a quick decision, he may be bogged down by rules and procedures.
  3. The scope of planning is said to be limited in the case of organizations with rapidly changing solutions. It is claimed that for industries producing fashionable articles or for industries engaged in the publication of textbooks, working on a day-to-day basis is more economical than on a planned basis.
  4. Flexibility of planning cannot be maintained when there are unforeseen changes in the environment, such as a business recession, change in government policy, crop failure, etc. when such events take place, the original plan loses its value and there is need to draw up a fresh plan.
  5. Another limiting factor in planning is the difficulty of formulating accurate premises. Since these premises are the backgrounds against which a set of plans is made, they necessarily deal with the future. Since the future cannot be known with accuracy, premising must be subject to a margin of error.
  6. Planning may sometimes face people’s resistance to it. in old,established organizations, managers are often frustrated in instituting a new plan simply by the unwillingness or in ability of people to accept it.

Whatever be its limitations, planning is essential for every business enterprise. Unplanned business operations produce chaos and disorder. Moreover, it is always possible to overcome some of the limitations of planning. For instance, the rigidity of a plan be overcome by revising it periodically, the expensiveness of a plan can be overcome by avoiding elaborate processes and errors in premising can be overcome by entrusting the work of planning to knowledgeable and competent staff.


The following are some guidelines for making planning effective:

  1. Coordination

The planning process is complex, consisting of many major and derivative plans. Even so simple a plan as that to select a new piece of factory machinery may require many subsidiary or derivative plans, such as plans for its purchase, shipment, payment, receipt, unpacking, inspection, installation, use, maintenance, etc. it is important that all these derivative plans fit together, not only in terms of content and action but also in terms of timing. Similarly, short and long-range planning should fit together.

  1. Communication.

Best planning occurs when every manager in the organization has access to complete information, not only pertaining to his own area of planning but also to other areas. This is necessary to make him understand how his departmental goals and policies tie in with those of the enterprise as a whole. He should know what are the premises upon which he is expected to plan.

  1. Participation.

Participation of subordinates with superiors is also a key element in making planning effective. It improves understanding of objectives and loyalty in the subordinates and makes execution of plans easy. There are several methods to increase participation of subordinates. MBO is one such method. Bottom- up planning is another method, which encourages subordinates to develop, depend and sell their ideas. Committees and management clubs also develop in subordinates a strong feeling of unity with top management.

  1. ProperClimate.

It is critical that top managers establish proper climate for planning. This involves stimulating planning interest among the rank and file of managers by setting their goals, establishing planning premises, communicating policies and developing a tradition of change in the organization.


Nowadays, corporate planning is receiving great importance by Kenyan companies. Many large companies have established separate corporate planning divisions and have formalize the planning process. Many companies have diversified their production on the basis of their SWOT (Strength and Weaknesses, Opportunities and Threats) analyses. The management have also decided to close down some of its age-old units which proved to be drag on the companies’ profitability.


  • Planning has a primacy over other management functions and is a pervasive element in organizations. By planning. Managers minimize uncertainty and help focus the sight of their organization on its goals.
  • There are two important forms of planning: strategic and tactical. Strategic planning involves deciding the major goals of the organization. It is always done at the top management level. Tactical planning is concerned with the implementation of strategic plans. It is done at the middle and lower management levels.
  • Besides objective, which are the end-goals of the organization there are two broad categories of plans: single-use plans and standing plans. Single-use plans are developed for a specific activity that is usually not repeated. They include programs and budgets. Conversely, standing plans are used for repetitive activities. They include policies, procedures, methods and rules.
  • There are seven steps in the process of planning: (a) establishing verifiable goals: (b) establishing planning premises; (c) deciding the planning period; (d) searching alternative courses of action; (e) evaluating and selecting a course of action; (f) developing derivative plans; and (g) measuring and controlling the progress.
  • The major limitations of planning are: (a) it is time-consuming and expensive; (b) it stifles the Initiative of the manager; (c) its flexibility cannot be maintained in rapidly changing situations; (d) it is sometimes based on inaccurate premises; and (e) it sometimes faces people’s resistance.


  1. What is planning? What are the steps involved in it?
  2. What is the nature and purpose of planning? Briefly explain the components of planning.
  3. “Planning is the essence of management, as it is a management function”. Elucidate.
  4. Is planning necessary for a “Jua Kali” operator? Explain its characteristics.
  5. Discuss the importance of planning. If two football teams of equal ability are going to meet two weeks hence, which do you think will have the best chance of winning: Team 1, which has scouted the other team and trained its players on Team 2’s strengths and weaknesses,or Team 2 which has ignored its opponents but has all the playing kits?
  6. What are planning premises? Explain the classifications ofplanning premises.
  7. Explain the advantages and limitations of planning. Areadvantages and disadvantages a factor for consideration by an institution like Kenyatta University?
  8. Discuss the importance of planning. What should be done to overcome its limitations?
  9. Define objectives. Discuss the characteristics of business objectives. Why should objectives be verifiable?
  10. Define objectives. Explain the criteria of sound objectives. Can an objective be a planning premise? Give suitable reasons.
  11. What do you understand by the term policy? Explain the different types of policies and describe how they are formulated.
  12. Distinguish between the terms ‘strategy’ and ‘policy’. List some of the issue on which a policy is to be laid down in the area offinance.
  13. discuss the technique of ‘management by objectives’ and brieflyshow itsbenefits.
  14. What is the difference between policy and a procedure? Shoulda policy be permanent of subject to readychanges?
  15. “Planning is essentially forward looking”.Explain.
  16. What is the importance of planning in modern business? Describethe important principles ofplanning.
  17. Distinguish between a policy and a strategy. Give yoursuggestions for making policies effective.
  18. point out the difference between planning and forecasting andexplain the various steps involved in planning.
  19. Explain ‘planning premises’. List the planning premises you would have, as a manufacturer, of any one of the following: cement,sugar; liquor.
  20. “Planning is described as the selection from the alternativesof policies, procedures and programs”. Examine thisstatement.
  21. Why are the strategies important? Can an organization besuccessful without effective strategies? How do policies differ fromstrategies?



What is an organizing? According to AmitaiEtzoi1, an organization is a social unit or human grouping, deliberately structured for the purpose of attaining specific goals. Thus, corporations, armies, schools, hospitals, churches, prisons, etc. all are organizations. But tribes, ethic and friendship groups and families are not organizations because they do involve any significant amount of conscious planning or deliberate structuring.

Importance of organizations.

Study of organizations is important for the following reasons:

  1. Organizations pervade all the important of man’s life. A man is born in organizations (hospitals or clinics), he is educated in organizations (schools, colleges and universities) and he works in organizations(offices orfactories).
  2. Organizations satisfy and sometimes frustrate different kinds of human needs. As pay masters they satisfy the physiological needs of their employees. They also satisfy various types of security, social and egoistic needs of their people. But they are not a totally unmixed blessing. Many people who are robbed of their autonomy, who are engage inmonotonous jobs and who are unable to climb the promotional ladder feel frustrated in these organizations.
  3. Knowledge of organizations helps managers to work effectively. They learn various things, such as how to react to environment needs, howto motivate subordinates, how to manage conflict, how introduce change and soon.
  4. To behavioral scientists, organizations serve as a great naturallaboratory. They provide an ideal setting for the study of human behavior. Research into and study or organization leads to many important discoveries vital for continued well-being of oursociety.

Process of organizing.

The term ‘organization’ is used in two different senses. In the first senses it is used to denote the process of organizing. In the second sense it is used to denote the result of that process, namely, the organization structure.

Using it in the first sense, organization is the process of defining and grouping the activities of the enterprise and establishing the authority relationships among them. In performing the organizing function, the manager differentiates and integrates the activities of his organization. By differentiation is meant the process of departmentalization or segmentation of activities of the basis of some homogeneity. Integration is the process of achieving unity of efforts among the various departments (segments or subsystems).

We can describe this differentiation and integration in terms of a six-step procedure.

Considerations of objectives

The first step in organizing is to know the objectives of the enterprise. Objectives determine the various activities, which need to be performed, and the type of organization, which needs to be built for this purpose.

Management writers, such as Alfred D. Chandler2 refer to this phenomenon as one in which “structure follows strategy.” For example, the structure required for an army is different from structure required for a business enterprise. In view of this, consideration of objectives is the first step in the process of organization.

Grouping of activities into departments.

After the consideration of objectives, the next step is to identify theactivities necessary to achieve them and to group the closely related and similar activities into divisions and departments. For example, the activities of a manufacturing concern may be grouped into such departments as production, marketing, financing and personnel. In addition, the activities of each department may be further classified and placed under the charge of different sections of that department. For example, in the production department separate sections may be created for research, industrial engineering, etc. the topic of departmentalization has been dealt with in a separate section in thischapter.

Deciding which departments will be key departments.

Key departments are those, which are rendering key activities, i.e. activities essential for the fulfillment of goals. Such key departments demand key attention. Other departments exist merely to serve them. Experience suggests that where key departments are not formally identified, the attention of top management is focused on the minor issues raised by vocal managership. This is known as the ‘decibel system’ of management. The key departments should be placed directly under the higher management.

Which department needs to be emphasized how much will depend, of course, on the company 5 objectives and the ay it seeks to be distinctive. For example, a company, which believes that advertising is a primary key of success, will set up a separate advertising department that reports directly to the president. But another company, which considers it much less important, ay only creates a separate section for it under its sales department. Similarly, product development, which is treated as a key department in all chemical and pharmaceutical companies, which those in charge reporting directly to the president, may be treated only as a section of the production department in the textile companies. The importance of an activity may also grow with times. Thus, personnel management, which was hitherto considered less important, is now treated as an important activity and has risen in organizational status.