Unit 2: Planning, decision-making & CSR
Business Organization and Management notes · PTU syllabus (BCOM 101-18)
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Unit summary
Planning bridges where we are and where we want to be, and every plan involves decisions. This unit covers the nature and types of plans, business forecasting, Management by Objectives, the decision-making process, social responsibility of business and business ethics.
After this unit you can
- Explain the nature, importance and types of plans
- Explain business forecasting and its techniques
- Describe the MBO process and the decision-making process
- Explain the social responsibility of business and business ethics
PTU syllabus topics
- Nature and types of plans
- business forecasting
- MBO
- decision-making process
- social responsibility
- business ethics
- 1Identify the problem
- 2Develop alternatives
List possible courses of action
- 3Evaluate alternatives
Costs, benefits and risks
- 4Choose
Select the best option
- 5Implement and review
Act and check results
Topic 1
Nature and types of plans
Planning is deciding in advance what to do, how to do it, when to do it and who is to do it (Koontz and O'Donnell).
Nature
- Primary function — precedes all others.
- Goal-oriented, pervasive, continuous, futuristic, involves choice, mental exercise.
- 1
Setting objectives
- 2
Developing premises
Assumptions about the future
- 3
Identifying alternatives
- 4
Evaluating alternatives
- 5
Selecting the best alternative
- 6
Implementing the plan
- 7
Follow-up
Types of plans
Standing (repeated use)
Objectives, strategies, policies, procedures, methods, rules
Single-use
Programmes, budgets, projects
| Plan | Meaning | Example |
|---|---|---|
| Objective | End result to be achieved | Increase sales by 10% this year |
| Strategy | Comprehensive plan to achieve objectives | Enter tier-2 cities |
| Policy | General guideline for decisions | Promote from within |
| Procedure | Chronological steps for an activity | Steps for purchase of raw materials |
| Method | Prescribed way of performing a task | Method of training salespeople |
| Rule | Specific statement of what to do or not do | No smoking in the factory |
| Programme | Detailed statement of a project with all steps | Programme for launching a new product |
| Budget | Plan expressed in numbers | Sales budget, cash budget |
- By time: strategic (long term), tactical (medium), operational (short term).
Exam tip
Limitations of planning: rigidity, unsuitable in dynamic environment, costly, time-consuming, does not guarantee success, reduces creativity.
Topic 2
Business forecasting
Business forecasting is estimating future business conditions (sales, demand, prices, costs) based on analysis of past and present data. Forecasts form the premises of planning.
- Qualitative techniques: jury of executive opinion, Delphi technique (anonymous rounds of expert opinion), sales force composite, consumer surveys.
- Quantitative techniques: time-series analysis (trend, moving averages), regression and correlation, econometric models, index numbers.
- Limitations: future is uncertain, depends on assumptions, time-consuming and costly.
Topic 3
Management by Objectives (MBO)
MBO, popularised by Peter Drucker (The Practice of Management, 1954), is a process in which superiors and subordinates jointly set goals, define each person's area of responsibility in terms of expected results, and use these measures to guide operations and assess contributions.
- Benefits: clarity of goals, better planning, motivation through participation, objective appraisal, improved communication.
- Limitations: time-consuming, difficulty in setting measurable goals, emphasis on short-term goals, more paperwork, resistance.
Topic 4
The decision-making process
Decision-making is selecting the best course of action among alternatives.
- 1
Identify and define the problem
- 2
Analyse the problem
Collect facts, find causes
- 3
Develop alternatives
- 4
Evaluate alternatives
Costs, benefits, risks
- 5
Select the best alternative
- 6
Implement the decision
- 7
Follow-up and feedback
- Types: programmed vs non-programmed; strategic vs tactical vs operational; individual vs group; under certainty, risk and uncertainty.
- Bounded rationality (Herbert Simon): managers "satisfice" — choose a satisfactory rather than the optimal solution due to limited information and time.
- Techniques: cost-benefit analysis, decision trees, brainstorming, Delphi, operations research models.
Topic 5
Social responsibility of business and business ethics
Social responsibility is the obligation of business to pursue policies and actions that are desirable in terms of the objectives and values of society.
Shareholders
Fair return, safety of investment, transparency
Employees
Fair wages, safe conditions, growth, participation
Consumers
Quality goods, fair prices, honest advertising
Community
Employment, pollution control, development
Government
Tax compliance, obeying laws
Suppliers
Fair terms, timely payment
- Arguments for: long-term self-interest, public image, avoiding government regulation, business has resources, moral obligation.
- Arguments against: profit is the only aim (Milton Friedman), cost burden, lack of social skills, too much power to business.
- CSR in India: Section 135, Companies Act, 2013 — companies with net worth ₹500 crore or turnover ₹1,000 crore or net profit ₹5 crore must spend 2% of average net profit of three years on Schedule VII activities.
Business ethics
Business ethics is the application of moral principles to business decisions and behaviour.
- Elements: top management commitment, code of conduct, ethics committees, employee involvement, whistle-blower mechanism, compliance checks.
- Unethical practices: adulteration, black-marketing, misleading ads, tax evasion, insider trading.
Example
Tata Group's code of conduct and Infosys's whistle-blower policy are often cited Indian examples of institutionalised ethics.
Key terms
- Planning
- Deciding in advance what to do and how
- Policy
- A general guideline for decision-making
- MBO
- Joint goal-setting by superior and subordinate with performance measured against goals
- Bounded rationality
- Decisions made within limits of information, time and ability
- Business ethics
- Moral principles applied to business
Quick revision
- Planning steps: objectives → premises → alternatives → evaluation → selection → implementation → follow-up.
- Standing plans vs single-use plans.
- Forecasting: qualitative (Delphi) and quantitative (time series).
- MBO = joint goal setting + periodic review (Drucker).
- Social responsibility to shareholders, employees, consumers, community, government.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Define planning.
- Q2.Distinguish policy and procedure.
- Q3.What is business forecasting?
- Q4.What is MBO?
- Q5.What is programmed decision-making?
- Q6.What is meant by social responsibility of business?
Long-answer questions
- Q1.Explain the nature, steps and types of planning.
- Q2.What is MBO? Explain its process, merits and limitations.
- Q3.Explain the process of decision-making.
- Q4.Discuss the social responsibility of business towards various groups and the importance of business ethics.
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