Class - XII
Business Studies Theory
TIME: 3 Hrs.
General Instructions :
1. This question paper contains 34 questions.
2. Marks are indicated against each question.
3. Answer should be brief and to the point.
4. Answers to the questions carrying 3 marks may be from 50 to 75 worlds.
5. Answers to the questions carrying 4 marks may be about 150 worlds.
6. Answers to the questions carrying 6 marks may be about 200 worlds.
7. Attempt all parts of the questions together.
Q.1. Management follows a series of continuous inter-related functions, so it is called:
(d) None of these
Q.2. “Although it is easy to scan the environment but it is very difficult to know how these changes will influence Business decisions. Some-time change may be minor but it might have large impact.” Which feature of the Business environment is being highlighted in the above statement?
Q.3. `Service sector contributes to almost half of India’s GDP (48.9%) and it only employs around onethird of its workforce.’
Identify the dimension of Business Environment stated in above lines.
Q.4. “An industry must gain enough funds to meet the costs that would be incurred.” Identify the organizational goal discussed in the above statement.
(d) Employment generation
Q.5. Devendra, the Plant Superintendent of Faulty Works Inc., is very energetic and he likes to deal with severe situations. He is a perfectionist who pursues quality management. He prepares a timetable every week to minimize departmental work and time waste. However, he was disturbed by the brutal competition among employees, which had a negative impact on overall production. Even if all these problems occur, he can handle the situation well. On February 26, he informed his boss that the goal he had been given had been achieved and the quality was the highest.
The best part is that there are two days left for the deadline, which is February 28. However, his boss was dissatisfied because the expenses incurred by his team to complete the project exceeded the allowable upper limit.
In the above case, find out the concepts of management violated.
Q.6. Savita joined ‘Aykaa Ltd.’ as Head of Production Department. In the past, the performance of the company was not so good. She analyzed that production was not scientific. Then, she developed the best method using several parameters right from deciding the sequence of operations, place of men, machines and raw materials till the delivery of the product to the customers. Out of the following, identify the technique of scientific management followed by Savita.
(a) Motion study
(b) Fatigue study
(c) Method study
(d) Time study
Q.7. “It is very difficult to predict the changes of Business Environment. As environment is changing very fast for example in IT, fashion industry frequent and fast changes are taking place.” Identify the feature of business environment being described above.
Q.8. Devendra, the Plant Superintendent of Faulty Works Inc., is very energetic and he likes to deal with severe situations. He is a perfectionist who pursues quality management. He prepares a timetable every week to minimize departmental work and time waste. However, he was disturbed by the brutal competition among employees, which had a negative impact on overall production. Even if all these problems occur, he can handle the situation well. On February 26, he informed his boss that the goal he had been given had been achieved and the quality was the highest.
The best part is that there are two days left for the deadline, which is February 28. However, his boss was dissatisfied because the expenses incurred by his team to complete the project exceeded the allowable upper limit.
Identify the function of middle-level management which is required to be performed by Amit:
(a) Motivating employees of their respective departments to achieve the desired objectives
(b) Co-ordinating the activities of different departments
(c) Formulating overall organisational goals and strategies for their achievement
(d) Overseeing the efforts of the workforce
Q.9. What should be the ‘focus point’ for a manager while controlling, as controlling at each and every step is not possible ?
(a) Special area
(b) Key result area
(c) Normal area
(d) None of these
Q.10. An important project at AMB consultants is running behind schedule by a month. This has upset their clients and might affect the reputation of the company in the long run. No managerial action like assigning more workers, equipment or giving overtime has been able to solve the problem. What managerial action may now be taken by the company to avoid such a situation from arising in the future?
(a) Revise the schedule
(b) Assigning additional workers and equipment to the project
(c) Get permission for further overtime work
(d) Both B & C
Q.11. ................ refers to the right of an individual to command his subordinates and to take action within the scope of his position.
(d) None of the above
............... refers to the systematic effort to delegate to the lowest level, all authority except which can be exercised at the central point.
(d) None of the above
Ans: c OR a
Q.12. Match the decisions related to product in Column I with their function in Column II.
(a) (iii), (i), (ii)
(b) (i), (ii), (iii)
(c) (ii), (i), (iii)
(d) (iii), (ii), (i)
Tomato Ltd., a food delivery service app has recently faced criticism for the tampering of their product, by their delivery boys. Tomato Ltd. decided to put a hologram seal on the food packets in order to protect the contents from spoilage, leakage, pilferage, damage, along with a tag with a safety warning for the consumers to check the seal. Which concept of marketing discussed above is performing the important function of communicating with the potential buyer and promoting the sale?
(b) Product designing and development
Ans: a OR c
Q.13. Ramesh chooses a person who is authenticated to buy or sell securities on his behalf. He is registered by SEBI. Then, Ramesh opened an account in the bank through this person. Then he took the next step. He issues an order to the person in which he specifies the number and type of securities to be purchased or sold. This process moves forward. After obtaining instructions from Ramesh, the selected person purchases and issues d’paper. The file contains the name and price of the securities, brokerage fees and the names of the parties involved. Then comes the final stage of the process. Here, securities transactions are completed by a selected person on behalf of Ramesh.
Identify the process highlighted in the above case.
(a) Trading procedure on a Stock Exchange
(b) Opening a Demat Account
(c) Trading procedure on a primary market
(d) None of the above
Q.14. Rajesh is the CEO of a leading petrochemical company. Recently, the company issued share capital to cover some expenses. However, in order to meet the floating cost of issuing shares, the company decided to conduct Bridge Financing. Therefore, it decided to issue a money market tool. The wise CEO’s wise decision wisely met the company’s requirements. Three months later, the company decided to issue new shares in the primary market again. According to the floating method it involves, it decided to adopt the method mainly adopted by listed companies and attract the masses by directly contacting the public. Again, success comes from the company’s approach and the realization of its goals. However, when the company tried the same type again three months later, the company had encountered many problems. The problem is to determine a key aspect related to the security of the new release. If the same process is carried out in the secondary market, the company will not care too much about this key aspect.
Which method of floatation was adopted by the company three months later?
(b) Offer through Prospectus
(c) Right Issue
(d) Offer for Sale
Q.15. Rajni Auto Manufacturers have decided to give a special privilege to the existing shareholders to subscribe to the new issue of shares where they will be given shares according to the proportion of shares held by them. The company always gives special treatment to loyal stakeholders. Last year, the company was dealing through the capital market where both the buying and selling of securities were taking place. The owner of the company is a man of ethical business. He recently wrote an article about the watchdog of stock market. The article gained a lot of popularity and now is part of the curriculum of MBA students.
Which watchdog of the capital market has been referred to in the above case?
(a) Capital market
(b) Stock market
Q.16. Ramesh chooses a person who is authenticated to buy or sell securities on his behalf. He is registered by SEBI. Then, Ramesh opened an account in the bank through this person. Then he took the next step. He issues an order to the person in which he specifies the number and type of securities to be purchased or sold. This process moves forward. After obtaining instructions from Ramesh, the selected person purchases and issues d’paper. The file contains the name and price of the securities, brokerage fees and the names of the parties involved. Then comes the final stage of the process. Here, securities transactions are completed by a selected person on behalf of Ramesh.
What is the role of the person he has chosen?
(c) Depository Participant
(d) None of these
Q.17. Large-scale production done to reduce the average cost of production is the essence of ______concept of Marketing management :
Q.18. Which function of labelling has been highlighted in the above case?
(a) Grading of products
(b) Product differentiation
(c) Providing information required by law
(d) Describing the product
Q.19. An FMCG company has recently launched a new type of biscuit in the market. The name of the biscuit is ‘Standard’. The company has made the biscuits of the highest quality possible. It wants to create an irreplaceable place for the new brand in the market. The price of the biscuit is also the highest in the market suggesting its quality. The CEO of the company in an interview said that the branding of the new biscuit will help the company to connect with the customers. A customer can ask for the promised quality in case the company deviates from it. As far as packaging of the biscuit is concerned it is different from others. The immediate outer covering is beautiful and an additional layer of cardboard box is provided to ensure protection to the shape of the biscuits.
Which advantage of branding to the customers has been highlighted in the above case?
(a) Differentiating the product of company
(b) Ensuring quality to the customers
(c) Introducing a new product
(d) Charging differential price
Q.20. “It is an important marketing function desiribing the marketing activities relating to the flow of raw materials from the suppliers to the factory and the movement of finished goods from the end of production line to the final consumer or user.”
Identify the concept of marketing stated above.
(a) Physical distribution
(d) None of the above
Q.21. ‘Management should achieve its objectives effectively and efficiently ’. Do you agree with this statement? If yes, present a comment in favour of your answer.
Ans: Yes, it is important for the management to achieve its objectives effectively and efficiently. Effectiveness and Efficiency are two sides of the same coin.
(i) Efficiency : It means performing the tasks correctly with the minimum cost. It involves an inputoutput relationship.
(ii) Effectiveness : It means finishing the tasks on time. It involves doing the required tasks, completing activities and achieving goals on time.
A management has to balance these two aspects. It has to achieve goals effectively on time with optimum utilisation of scarce resources.
Q.22. “External sources of recruitment are likely to strain the relations between management and the employees.” Do you agree? Explain reason in support of your answer.
Ans: Yes, external sources of recruitment are likely to strain the relations between management and the employees as external recruitment may lead to dissatisfaction and frustration among existing employees. They may feel that their chances of promotion are reduced. When a company considers a new applicant for the senior position than the existing candidates, then there is a higher chance that the company existing employees might show some sort of internal dispute among the officials of the company.
Q.23. “It is an execution function of management as it sets an organisation into motion, while other functions are initiated and activated.” Identify and explain the function of management stated above.
“Directing is the heart of management process.” Do you agree? Give any three reasons in support of your answer.
Ans: Directing: Directing is an execution function of management as directing sets an organisation into motion, while other functions prepare a setting for action. Through directing, other managerial functions are initiated and activated. Directing helps the management to supervise, communicate, lead and motivate people at work to function in the desired way for achieving organisational goals. Thus, a manager performs this function according to planning, organising, staffing and controlling.
Yes, directing is considered as the heart of management process as it:
(i) Helps in introducing changes in an organisation, as it calms down the resistance which occurs against that change.
(ii) Helps in integrating employees’ efforts, as it integrates all their actions by proper communication and leadership.
(iii) Initiates action, as through proper directions all the necessary steps are initiated.
(iv) Brings stability and balance in the organisation by properly defining authority- responsibility relationships. This eliminates any chances of confusion.
(v) Helps in bringing out potential and enhancing capabilities of employees by motivating and leading them as and when required.
Q.24. Write the meaning of financial management and state its primary objectives.
Ans: Financial Management refers to that part of a managerial activity which is concerned with procurement and utilisation of funds for business purposes. In other words, it deals with the proper management of funds.
The primary and most important objective of financial management is to maximise the wealth of equity shareholders, which means maximising the market price of equity shares.
Q.25. Mrs. Rajlaxmi is working as the Human Resource Consultant in a firm manufacturing cosmetics, which is facing a problem of high employee turnover. The CEO of the company has invited suggestions from her for retaining the talented employees and reducing the employee turnover. Mrs. Rajlaxmi recommends that the good employees be rewarded in a way that it creates a feeling of ownership among the employees and at the same time, makes them contribute towards the growth of the organisation.
(i) Identify the incentive and explain its type, which has been suggested by Mrs. Rajlaxmi to the CEO of the company?
(ii) Also explain two other incentives of the same type.
Ans: (i) Financial Incentive :
(a) Co-Partnership/Stock Option: Under these incentive schemes, employees are offered company shares at a set price which is lower than the market price. Sometimes, management may allot shares in line of various incentives payable in cash. The allotment of shares creates a feeling of ownership to the employees and makes them to contribute for the growth of the organisation. In Infosys, the scheme of stock option has been implemented as a part of managerial compensation.
(ii) Other Financial Incentives :
(a) Pay and Allowances : For every employee, salary is the basic monetary incentive. It includes basic pay, dearness allowance and other allowances.
(b) Retirement Benefits : Several retirement benefits such as provident fund, pension, and gratuity provide financial security to employees after their retirement. This acts as an incentive when they are in service in the organisation.
(c) Perquisites : In many companies, perquisites and fringe benefits are offered such as car allowance, housing, medical aid, education to the children etc., over and above the salary. These measures help to provide motivation to the employees/ managers.
Q.26. Anjana Chemicals is looking for qualified and talented people to apply for vacant jobs in the organisation. With the passage of time, the organisation has learned a lot and gained a lot of experience. The company knows that, when it goes for final selection of candidates, it will have to design different tests. They want to test the employees on the basis of their learning and decisionmaking ability. The company wants to ensure proper testing of the recruited candidates. After this, the candidates will be judged on the basis of in-depth formal conversation.
After the selection, the candidates are placed and trained. Employees have to be trained on the equipment they will be using but this training will take place away from the workplace.
(i) Which type of recruitment should the company depend upon?
(ii) Which type of test should be conducted done by the organisation to suit their need?
(iii) Which stage in the selection process is highlighted after the written test?
(iv) What type of training is given to the candidates?
Identify the type of training involved and also categorise whether it is ‘on the job’ training or ‘off the job training’:
(i) In a shoe manufacturing company a group of new recruits are being trained. They are trained under an experienced trainer Mr. Arun. He is training them skills which will require at least six months of dedication under real work environment.
(ii) A student of ABC MBA College is having a combined training analysis where he is having two mentors. One mentor is from the college and the other is from the company. The idea is to give real knowledge about the corporate functioning. Ans: (i) The company should depend upon external recruitment to meet its needs. Anjana chemicals is looking for qualified and talented people to apply for vacant jobs in the organisation.
(ii) Intelligence Test : It measures the level of intelligence quotient of an individual. It is an indicator of a person’s learning ability or the ability to make decisions and judgments.
(iii) Employment Interview : Interview is a formal, in-depth conversation conducted to evaluate the applicant’s suitability for the job. The role of the interviewer is to seek information and that of the interviewee is to provide the same. Though, in present times, the interviewee also seeks information from interviewer.
(iv) Vestibule Training : It is a method of training which is imparted with the help of equipment & machines identical to those at the place of work. The training is conducted away from actual work floor and is generally used where the employees are required to handle sophisticated machinery. It is generally used where the employees are required to handle sophisticated machinery.
The types of training involved in the given above cases are:
(i) Apprentice Programme (On-the-job training):
(a) Apprenticeship Training/Programme is a method of training in which the trainee is kept under guidance of a master worker for a prescribed period of time to acquire a higher level of skill.
(b) People who want to enter skilled trades e.g. plumbers & electricians are often required to undergo such programme.
(ii) Internship training (On-the-job training):
(a) Internship Training is a joint programme of training between educational institutions and business firms.
(b) Besides carrying out regular studies, the trainees also work in some factory or office to acquire practical knowledge and skills.
Q.27. Briefly explain the positive and negative aspects of the type of communication which refers to the flow of official information through proper, predefined channels and routes.
Identity and explain the elements of directing mentioned below
(i) Rajeev is an HR manager leading a team of 12 people. He knows that the duties and responsibilities of an HR employee are challenging. He knows in order to make his team work with a positive frame of mind, he will have to set a personal example as a role model and influence their behaviour and working style to increase the output of his team.
(ii) Priya and Raghav are discussing about an element of directing. They say that without this element no group or people can achieve a common understanding. This element requires effort from both the sides and consumes 90% of the time of a manager.
Ans: Positive aspects of Formal communication:
(i) Formal communication facilitates the smooth transmission of official messages.
(ii) Formal communication enhances the coordination by using the official channels.
(iii) It has documentary evidence which can be used for future references.
(iv) As it has documentary evidence, it is more reliable than other forms of communication.
(v) As formal channel is used, chances of ambiguity decreases.
(vi) Through formal communication, coordination among different divisions of an organization increases. As a result organizational efficiency is also enhanced.
Negative aspects of Formal communication:
(i) As information flows through the chain it takes a long time to convey information form upper level to lower level.
(ii) As strict formalities or chain of command is maintained, it is not flexible.
(iii) More time and more formalities increases the overall cost of the communication.
(iv) In case of formal communication, lower-level employees cannot exchange their views freely with the executives by breaking the chain of command.
(v) On the way of communication, messages can be distorted. Thus, the chance of distortion increases in formal communication.
(i) Leadership: Leadership is the process of influencing the behaviour of people by making them strive voluntarily towards the achievement of organisational goals.
(ii) Communication: Communication is a process by which people create and share information with one another in order to reach at a common understanding.
Q.28. ‘Determining the relative proportion of various types of funds depends upon various factors’. Explain any four such factors.
Explain any four factors affecting the decision that determines the amount of profit earned to be distributed and to be retained in the business.
Ans: Following are the factors affecting the choice of capital structure of a company.
(i) Cash flow position
(ii) Interest coverage ratio
(iii) Debt service coverage ratio
(iv) Return on investment
(v) Cost of debt
(vi) Tax rate
(vii) Cost of equity
(viii) Floatation costs
(ix) Fixed operating cost
(x) Risk consideration
(xiii) Regulatory framework
(xiv) Stock market conditions
(xv) Capital structure of other companies.
Factors affecting Capital Structure :
(i) Cash Flow Position : Decision regarding capital structure depends upon the ability of business to generate enough cash flow. If company is sure of generating enough cash flow, it may have more of debt securities whereas if there is shortage of cash, it may go for equity.
(ii) Interest Coverage Ratio (ICR) : It shows how many times the earning before interest and tax is available to the payment of interest. Higher ICR means company has less of borrowed funds whereas, it is possible that despite of better ICR the cash flow position of the company may be weak.
(iii) Debt Service Coverage Ratio (DSCR) : It is one step ahead of ICR. It takes care of rate of interest as well as principal repayment. Higher DSCR means, company can have more of debt and lower DSCR means, company should go for equity capital.
(iv) Return on Investment : If return on investment is more than rate of interest then company can prefer debt in its capital structure but if return on investment is less than rate of interest then, company should prefer equity as it will not be able to pay interest.
(v) Cost of Debt : If rate of interest is less, i.e., cost of debt, more debt can be utilised in the capital structure.
(vi) Tax Rate : Interest on debt is tax deductible which makes debt cheaper. So high end rate of tax means to prefer equity in capital structure.
Factors affecting Dividend Decision:
(i) Earnings: T he dividend is paid out of the present and reserved profits. Therefore, greater amount of total profit will ensure greater dividend.
(ii) Stability of Earnings: A company having stable earnings is in a position to declare more dividends and vice-versa.
(iii) Stability of Dividend: Generally companies follow a policy of stable dividend per share. It is increased only when there is a confidence that their earning potential has gone up permanently and is of large amount.
(iv) Growth opportunities: Companies having high growth opportunities retain more earnings to capitalise these opportunities. While companies with no growth plans can declare more dividends.
(v) Cash flow position: The payment of dividend results in outflow of cash. The better the cash flow position of company, the better will be the capacity of company to pay dividends.
(vi) Stock market reactions: Share prices react positively and negatively on increase and decrease in dividend respectively. This possible impact on share prices should be considered while declaring dividend.
(vii) Shareholders’ preference: Generally, it is observed that retired and middle-class shareholders prefer regular and stable amount of dividend whereas young and wealthy shareholders prefer capital gain.
(viii) Taxation policy: If tax on dividend is higher, the companies would prefer to pay fewer dividends whereas higher dividends may be declared if tax rates are relatively lower.
(ix) Access to capital market: Companies having easy access to capital market may depend less on retain earnings and declare more dividends. While companies having less access to capital market will retain more and pay low dividends.
Q.29. Radhika got 10, 00,000 rupees after selling her parental property which she had got as a gift from her grandmother. Her friend advised her to invest in securities in the stock market. Radhika was unaware of the procedure for the same. Her friend introduced her to a stockbroker, who was registered with the National Stock Exchange. Radhika approached the broker. The broker guided her to open a DEMAT account with a Depository, as well as a Bank account. Radhika opened a Bank account and DEMAT account with Exim Bank.
(i) Identify the steps in the trading procedure for buying and selling of securities which have been discussed above.
(ii) State the next two steps of the trading procedure.
Ans: (i) The steps discussed in given para are:
(a) Selection of broker: The buying and selling can be done through a SEBI broker. The first step is to select a broker who will buy/sell securities on behalf of the investor.
(b) Opening DEMAT account with a depository participant.
(ii) The next two steps of the trading procedure:
(a) Placing an order: Investor places an order with the broker to buy or sell shares. Brokers go ahead with the deal and order confirmation slip is issued to the investor by the broker.
(b) Match the order: The broker will go online and match the share and the price.
Q.30. What is meant by ‘consumer ’ as per the provisions of Consumer Protection Act, 1986?
Ans: Under the Consumer Protection Act, a consumer is defined as :
(i) Any person who buys any goods for a consideration, which has been paid or promised, or partly paid and partly promised, or under any scheme of deferred payment. It includes any user of such goods, when such use is made with the approval of the buyer, but does not include a person who obtains goods for resale or any other commercial purpose.
(ii) Any person who hires or avails of any service, for a consideration which has been paid or promised, or partly paid and partly promised, or under any system of deferred payment. It includes any beneficiary of services when such services are availed of with the approval of the person concerned, but does not include a person who avails of such services for any commercial purpose.
Q.31. ‘Coordination is a function that is inherent and pervasive. Coordination is not a separate function of management. Thus, it is the essence of management.’ Do you agree? Give reason in support of your answer.
‘Science is a systematised body of knowledge that explains certain general truths or the operation of general laws’. Based on the statement, identify and state the characteristics of management that establish it as a science.
Ans: Coordination is a function that is inherent and pervasive. Coordination is not a separate function of management. It is the essence of management. The Coordination is needed to perform all the functions of management.
(i) Coordination in Planning: In planning, coordination is needed:
(a) Between overall plan of the organisation and the departmental plans.
(b) Between objectives and available physical and human resources, e.g., coordination between production department and sales department targets.
(ii) Coordination in Organising: In organising, coordination is required:
(a) Between resources of an organisation and activities to be performed; and
(b) Among authority, responsibility and accountability, e.g., if a supervisor is given a responsibility to get the work done, he should also be given the appropriate authority to divide the work among his subordinates.
(iii) Coordination in Staffing: In staffing, coordination is needed:
(a) Between the skills of the workers and the jobs assigned to them.
(b) Between the efficiency of the workers and the compensation, etc. e.g., an employee at managerial post should get a commensurate salary.
(iv) Coordination in Directing: In directing, coordination is required.
(a) Among orders, instructions, guideline and, suggestions.
(b) Between superiors and subordinates, e.g., a manager instructs the subordinates, motivates them and also supervises their work.
(v) Coordination in Controlling: In controlling, coordination is required.
(a) Between the standard and the actual performance.
(b) Between correction in deviations and achievement of objectives. Thus, coordination makes planning more purposeful, well-knit coordination and the controlling makes it more effective. It is the key to the success of management.
‘Science is a systematized body of knowledge that explains certain general truths or the operation of general laws.’ Management is a science but not an exact science. The reasons are :
(i) Systematised body of knowledge: Like science, management is a systematic body of knowledge with its own theories and principles that have developed over a period of time. So, this feature of science is present in management.
(ii) Principles based on experiments: Like science, Management principles are derived through observation and repeated experimentation. So, this feature of science is present in management. However, since management deals with human beings the outcome of these experiments are not capable of being accurately predicted.
(iii) Universal Validity: Principles of management like principles of pure science provide managers with certain standardised techniques that can be used in different situations. Since they have to be modified according to a given situation, their application and use is not universal. So, this feature of science is not fully present in management. (The statement that Management is not an exact science may be given at the beginning or at the end of the question)
Q.32. “During the organizing process, managers coordinate employees, resources, policies, and procedures to facilitate the goals identified in the plan.” In the light of this statement, explain the steps of organising process.
Differentiate between ‘Functional’ and ‘Divisional’ structure of organising on the basis of the following:
(v) Managerial development
(vi) Cost involved
Ans: Organising as a process involves following steps :
(i) Identification and Division of Work : The first step in the organising process is identifying and dividing the whole work into manageable activities, so that duplication of work can be avoided and the burden of work can be reduced.
(ii) Departmentation : Departmentation refers to the process of grouping the activities of similar nature under the same department. Departmentalisation can be done on the basis of function, type of product, territory, etc. It facilitates specialisation in an organisation.
(iii) Assignment of Duties : This implies assigning duties to the workers according to their abilities and competencies. For getting best results, a proper match should exist between the nature of work and ability of the individual.
(iv) Establishing Reporting Relationships : Next step is to allocate authority and responsibility among employees in such a way that each person knows who is reporting to whom and for what, etc.
Difference between Functional and Divisional Structure:
Q.33. ’Planning is certainly important as it tells us where to go, it provides direction and reduces the risk of uncertainty by preparing forecasts.’ In the light of the statement, state any four points of importance of planning.
Ans: The following information is to be provided on the label in any form:
Importance of Planning :
(i) 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.
(ii) 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.
(iii) 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.
(iv) 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.
(v) 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.
(vi) 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.
Q.34. What is meant by decentralisation? Explain any five points which highlight the importance of delegation in an organisation.
Ans: Decentralisation refers to systematic delegation of authority through all the levels of management and in all the departments except that which can be exercised only at central points.
Importance of Decentralisation is explained as follows :
(i) Relief to top management : In a Decentralised organisation, top managers are not burdened by common day-to-day problems. They have enough time to plan ahead and develop new strategies.
(ii) Develops managerial talent for the future : In a decentralised organisation, even lower level managers learn the art of exercising decision making authority. This prepares them for the promotion to the higher levels.
(iii) Quick decision making : In a decentralised organisation, decision making is not restricted in few hands only but decision power is entrusted with all the managers who perform the activities.
(iv) Develops initiative amongst the subordinates : Decentralisation helps to promote self-reliance and confidence amongst the subordinates. They learn to depend on their own judgement.
(v) Facilitates growth : Decentralisation provides greater autonomy to the lower levels of management as well as divisional or departmental heads. This allows them to function in a manner best suited to their department. Consequently, the productivity levels increase and the organisation is able to generate more returns which can be used for growth and expansion purposes.
(vi) Better control : Decentralisation makes it possible to evaluate performance at each level. The d epartments can be individually held accountable for their results.