PRINCIPLES OF MANAGEMENT

UNIT I
NATURE OF MANAGEMENT
MEANING
In the modern times one of the most important human activities is managing group of people. Ever since
people began forming groups to accomplish aims they could not achieve as individuals, managing has been
essential to ensure the coordination of individual efforts. As society has come to rely increasingly on group
effort and as many organized groups have become large the task of managers has been rising in importance.
Management is the process of designing and maintaining an environment in which individuals working
together in groups efficiently accomplish selected aims.
The basic definition of Management explain that
* As managers, people carry out the managerial functions of planning organizing, staffing, leading and
controlling.
* Management applies to any kind of organization.
* It applies to managers at all organizational levels.
* The aim at all managers is the same to create a surplus.
* Managing is concerned with productivity, which implies effectiveness and efficiency.
Management is a problem solving process of effectively achieving organizational objectives by effective
utilization use of scarce resources in a changing environment.
Management is thus the process of planning, organising, staffing, directing and controlling human efforts to
achieve organizational objectives effectively.

DEFINITION OF MANAGEMENT

According to Koontz and Weihrich “Management is the process of designing & maintaining an
environment in which individuals, working together in group, efficiently accomplish selected goals.”

According to F.W. Taylor “Management is the art of knowing what you want to do and then seeing that it
is done in the best and cheapest way.”

NATURE OF MANAGEMENT
1. Universality: It is a universal phenomenon in the sense that it is common and essential in all
enterprises. The principles of management can be applied in all managed situations regardless of
size, nature and locations of organisation. Universality also implies that managerial skills are
transferable and managers can be trained and developed.
2. Purposeful: It is always aimed at achieving organisation goals and purposes. The success of
management is measured by the extent to which desired objectives are attained. The tasks of
management are directed towards effectiveness and efficiency.
3. Social Process: It involves managing people organized in work groups. It involves retaining,
developing and motivating people at work as well as taking care of their satisfaction as social beings.
4. Coordinating Force: It coordinates the efforts of organizational members through elderly
arrangement of inter-related activities to avoid duplication of efforts.
5. Intangible: It is intangible. Its presence can be felt by outcomes of its efforts in the form of orderly,
adequate, work output, employee satisfactions etc.
6. Continuous Process: It is an ongoing process. The cycle of management continues as long as there is
existence of organization.
7. Composite Process: Management is a composite process made up of individual components. All the
functions are performed by several components in orderly fashion.
8. Creative Organ: Management creates synergy by producing results which are more than the sum of
individual efforts of group members. It provides creative ideas, new imagination and vision to group efforts.
5
IMPORTANCE OF MANAGEMENT

1. Achievement of Organizational Goals: Management helps organizations to effectively design their

goals and frame plans and policies to achieve them efficiently.
2. Optimum Utilization of Organizational Resources: Management helps the organization utilise its
scarce resources (human, physical and financial resources) efficiently. Human resources are the people with
their talent, skill, knowledge, experience and abilities for effective conversion of inputs into outputs.
Material or physical resources are the raw material or plant and machinery required for producing goods and
services.
Financial resources are the money or funds needed for meeting organisational short- term and long-term
requirements of raw material, labour, machinery and other current and fixed assets.
3. Develop Analytical and Conceptual Ability of Managers: Management helps to analyse the
organisational problems, link them with other organisational matters and arrive at solutions geared towards
organisational goals.
4. Balance between Multiple Goals: At a point of time, managers face multiple goals which cannot be
simultaneously achieved. Deciding about what is more important so that scarce organisational resources can
be optimally allocated to different organisational goals is facilitated through management.
5. Economic and Social Development: Drucker asserts that “developing countries are not underdeveloped,
they are undermanaged.” If knowledge of management is transferred from developed to developing
countries, developing countries will develop their entrepreneurial ability, managerial excellence, rate of
savings, capital formation and, thus, economic and social developmnt.
6. Coordination between Individual and Organisational Goals: Effective management coordinates
individual goals of people with formal goals of the organisation. It motivates employees to put their best
efforts to contribute to organisational goals and through it, achieve their personal goals.
7. Face Competition: Management helps firms face tough competition in the contemporary business
environment. Effectively managed business firms outperform those which are not effectively managed and,
thus, capture bigger share of the market. Management promotes innovation as fast changing technology,
social processes and organisation structures have become inevitable part of organizational working. It helps
the organizations adopt the complex environmental changes and promote their level of competence.
8. Social Upliftment: Management promotes social development by generating and directing human
energies towards the needs of the society such as health care, education, clean environment etc.
9. Reform Government and Society: Management teaches respect for individual values, tradition and
social culture. The more management of an organisation believes in traditions, customs, values and beliefs
of the society, the more that organisation is accepted by the society and the Government.
10. Social Innovation: The social and economic development is more a result of social innovation than
technical innovation. The needs of our society, educate, health care, clean environment, entrepreneurship,
productivity etc. are fulfilled through able and skilled managers. The knowledge of management, therefore,
plays important role in the social upliftment of society. “Economic and social development are the result of
management. Development is a matter of human energies rather than of economic wealth. And the
generation and direction of human energies is the task of management. Management is the mover and
development is a consequence.”
11. Foundation to Organization: Clearly defined tasks, their distribution to people with authority provides
foundation to the organization. It assigns right task to the right person to avoid duplication and confusion in
organisational activities.
12. Environmental Analysis: Management enables an organisation to analyse its strengths and weaknesses
and relate them with environmental threats and opportunities. (This is done with the help of SWOT
analysis). It helps managers to minimise risks and maximise environmental opportunities and business gains.

PURPOSE OF MANAGEMENT
It is the process of bringing together physical, financial and human resources and developing productive
relationship amongst them for achievement of organizational goals.
to organize a business involves determining & providing human and non-human resources to the
organizational structure.
organizing as a process involves:
• Identification of activities.
• Classification of grouping of activities.
• Assignment of duties.
• Delegation of authority and creation of responsibility.
• Coordinating authority and responsibility relationships

The main purpose of staffing is to put right man on right job i.e. square pegs in square holes and round pegs
in round holes.
• Establishment of standard performance.
• Measurement of actual performance.
• Comparison of actual performance with the standards and finding out deviation if any.
• Corrective action

FUNCTIONS OF MANAGEMENT
The major functions of management are discussed below:
1. Planning: It includes forecasting, formation of objectives, policies, programmes, producer and budget. It
is a function of determining the methods or path of obtaining their objectives. It determines in advance what
should be done, why should be done, when, where, how should be done. This is done not only for
organization as awhole but also for every division, section and department. Planning is thinking before
doing.
2. Organizing: It includes departmentation, delegation of authority, fixing of responsibility and
establishment of relationship. It is a function of providing everything useful to the business organization.
There are certain resources which are mobilize i.e. man, machine, material, money, but still there are certain
limitations on these resources. A manager has to design and develop a structure of various relations. This
structure, results from identification and grouping work, delegation of authority and responsibility and
establishing relationship.
3. Staffing: It includes man power planning, recruitment, selection, placement and training. People are
basically responsible for the progress of the organization. Right man should be employed for right job. It
also involved training of personnel and proper remuneration.
4. Directing: It includes decision making, supervising, guidance etc. It reflects providing dynamic
leadership. When the manager performs these functions, he issues orders and instructions to supervisors. It
also implies the creation of a favourable work, environment motivation, managing managers, managing
workers and managing work environment.
5. Communication: Communication provides the vital link in any organization. Every successful manager
has to develop an effective system of communication. Communication means exchange of facts, ideas and
information between two or more person. It helps in building up high moral.
6. Controlling: It is a process of checking actual performance against standard performance. If there is any
difference or deviation then these differences should be detected and necessary steps should be taken. It
involves three elements:
1. Establishing standard of performance.
2. Measuring actual performance with establishment.
3. Finding out reasons for deviation.

MANAGEMENT AS AN ART, SCIENCE AND PROFESSION

Management is treated as art, science and profession because it has some characteristics of an art, a science
and a profession.
(A) Management as an art
• To understand Management as an art form, we should first understand the meaning of art. Art is defined as
the ability to use information and skills to get the desired results. Artists have the ability to come up with
unique solutions and art forms for complicated problems.
• The analogy stands upright in Management as managers come up with unique and creative solutions to
business challenges. There are no predefined solutions to business problems, and using hundreds of ways to
build new processes is a normal part of Management.
● Art is personal skill. It is created by nature. It does not possess by all. Art is bringing about desired
results with the help of skills. Management is one of the most creative arts. It requires a lot of
● knowledge.
Management is an art because:
1] It is creative
2] It involves use of skill.
3] It involves use of technical knowhow.
4] It is directed towards getting results.
5] It is personalized.

Management as a science
• Science is an organized collection of knowledge that has an explanation on the basis of facts for every
phenomenon. The concepts and hypotheses of science are all defined with principles, and a similar thing is
practiced in Management.
• Like art, Management also shares key factors with science, which can quickly help us term Management as
a science.
Management is science because:
1) Systematic structure – Subjects of science like Chemistry and physics have defined systematic
principles and divisions. Each subsection has another set of principles that help you experiment with new
things in a particular domain. Similarly, Management has a systematic structure of divisions andprinciples.
Every principle can be used as a reference while experimenting with new things.
2) Universal validity – The concepts and basic principles of Management have universal validity. For
example, the principles used in finance management are similar in every company, and the rules are valid
universally. These sets of principles do not change with situations and applications.
3) Experiments – Concepts and principles of science are predefined and are always experimented with trial
and error to justify them and bring new inventions. Similarly, concepts in Management are often tested to
improve business practices.

Management as a science
• Science is an organized collection of knowledge that has an explanation on the basis of facts for every
phenomenon. The concepts and hypotheses of science are all defined with principles, and a similar thing is
practiced in Management.
• Like art, Management also shares key factors with science, which can quickly help us term Management as
a science.
Management is science because:
1) Systematic structure – Subjects of science like Chemistry and physics have defined systematic
principles and divisions. Each subsection has another set of principles that help you experiment withnew
things in a particular domain. Similarly, Management has a systematic structure of divisions and principles.
Every principle can be used as a reference while experimenting with new things.
2) Universal validity – The concepts and basic principles of Management have universal validity. For
example, the principles used in finance management are similar in every company, and the rules are valid
universally. These sets of principles do not change with situations and applications.
3) Experiments – Concepts and principles of science are predefined and are always experimented with trial
and error to justify them and bring new inventions. Similarly, concepts in Management are often tested to
improve business practices.

Management as a science
• Science is an organized collection of knowledge that has an explanation on the basis of facts for every
phenomenon. The concepts and hypotheses of science are all defined with principles, and a similar thing is
practiced in Management.
• Like art, Management also shares key factors with science, which can quickly help us term Management as
a science.

Management as a profession
• A profession is a form of occupation in which a person renders his/her services after acquiring expertise in
a particular domain. The professional is remunerated by the company for which he/she renders the services.
• The profession involves a contract between a company and the professional for a specific period, and the
entry factors for the role are limited by various factors.
Characteristics of a profession:
1. Systematic body of knowledge: - Professionals require expert knowledge in a particular discipline. E.g. a
doctor requires knowledge of medicine; Chartered Accountant needs to have knowledge of Income Tax.
2. Formal Education: - A true professional needs to have formal education from the institution. E.g.
Lawyer needs degree of law.
3. Social Responsibility:- The professional are socially responsible while handling their tasks and
responsibilities. Their aim should not be only profit maximization, but they have to follow certain rules for
social responsibilities.
4. Independent Office: - Normally professionals practice from their independent office.
5. Specialization: - The professionals may specialize in a particular field. E.g. heart specialist, child
specialist and ENT surgeon.
6. Fees: - The professionals required license or a permission to practice. E.g. a doctor requires license to
practice as a medical practitioner.

The modern concept of management has developed as a profession because:-

1. Organization is a systematic body of knowledge.
2. Formal methods of acquiring knowledge and skill with the help of different institution.
3. Rise in professional management consultant.
4. Need for honesty

Management as a Social Science

Management is a social science because it deals with human being. Management is a social science due to
the following reasons:-
1. Systematic collection and processing of information:- Management collects information either by
observation or experiment and practice. E.g. Marketing people collect information about expected sales on
the basis of observation, experiment and practice. The data is collected. Then it is process and with the help
ofcomputer and statistical tools and then the data is analyzed and decisions are taken.
2. Output may change though the inputs are same: - In management the output may change even when
the input remains the same because it deals with human being. Subordinates working under one manager
may give different result though resources are same. Process of management is universally followed i.e.
planning, organizing, staffing, directing, controlling and reporting. Every manager while performing his job
must use his knowledge to get better results.
3. Principles of Management are universally accepted:- All successful organizations must follow
established principles of management, such as division of work, unity of command, authority and
responsibilities, discipline etc. So it is said that management is not only an art, a science or a profession but
combination of all.

CONCEPT OF MANAGEMENT, ORGANISATION & ADMINISTRATION

(A) Management
Management is a distinct process consisting of planning, organizing, staffing and controlling, performed to
determine and accomplish stated objectives by the use of human beings and other resources.
Features of Management
 Organized activities
 Existence of objectives
 Relationship among resources
 Working with & Through people
 Decision- Making
(B) Organization
“Organizations which can be defined as group of people working together to create a surplus.”
 In business organizations, this surplus is profit.
 In non profit organizations, such as charitable organizations, it may be the satisfaction of needs.
(C) Administration
Administration means overall determination of policies, setting of major objectives, the identification of
general purposes and laying down of broad programmes and projects”. It refers to the activities of higher
level. It laysdown basic principles of the enterprise.
According to Newman, “Administration means guidance, leadership & control of the efforts of the groups
towards some common goals”.
(D) Management & Administration:
 Administration is above management
 Administration is part of management
 Management & administration are same
(a) Administration is above management:
 “Administration is that phase of business enterprise that concerns itself with the over all determination of
institutional objectives & the policies necessary to be followed in achieving those objectives.”
 “Management on the other hand, is an executive function which is primarily concerned with carrying out
broad policies laid down by the administration.”
(b) Administration is a part of management:
 Management is a generic name for the total process of executive control in industry or commerce.
 It is a social process entailing responsibility for the executive & economic planning & regulation of the
operation of an enterprise, in the fulfilment of a given purpose or task.

● Administration is that part of management which is concerned with the installation & carrying out
the procedures by which it is laid down & communicated, & the process of activities regulated &
checked against plans.
(c) Management & Administration are same:
 Management & administration are synonymous; the difference between the two terms lies mostly in their
usage in different countries or different fields of human organizations.
 The distinction between the two terms may be drawn by analyzing the origin of the word
“administration”.
 The government often uses the word administrator, instead of manager, to handle & manage its affairs.

Difference between management, administration and organization

Conclusion
Theoretically both the terms are different but when put into practice the terms can be used interchangeably
as all the levels of management are performing both administrative & functional activities.

LEVELS OF MANAGEMENT
An enterprise may have different levels of management. Levels of management refer to a line of
demarcation between various managerial positions in an enterprise. The levels of management depend upon
its size, technical facilities, and the range of production. We generally come across two broad levels of
management, viz. (i) administrative management (i.e., the upper level of management) and (ii) operating
management (i.e., the lower level of management).

THREE LEVELS OF MANAGEMENT NAMELY:

Top management of a company consists of owners/shareholders, board of directors, its chairman, managing
director, or the chief executive, or the general manager or executive committee having key officers.
Middle management of a company consists of heads of functional Departments viz. purchase manager,
production manager, marketing manager, financial controller, etc. and divisional and sectional officers
working under these functional heads.
lower level or operative management of a company consists of superintendents, foremen, supervisors, etc.
TOP MANAGEMENT : Top management is the ultimate source of authority and it lays down goals,
policies and plans for the enterprise. it devotes more time on planning and coordinating functions top
management include :
 To establish the objectives or goals of the enterprise.
 To make policies and frame plans to attain the objectives laid.
 To set up an organizational frame work to conduct the operations as per plans.
 To assemble the resources of money, men, materials, machines and methods to put the plans into action.
 To exercise effective control of the operations.
 To provide overall leadership to the enterprise.

MIDDLE MANAGEMENT : The job of middle management is to implement the policies and plans
framed by the top management. It serves as an essential link between the top management and the lower
level or operative management.
The main functions of middle management:
To interpret the policies chalked out by top management.
To prepare the organizational set up in their own departments for fulfilling the objectives implied in
various business policies.
To recruit and select suitable operative and supervisory staff.
 to assign activities, duties and responsibilities for timely implementation of the plans.
 to compile all the instructions and issue them to supervisor under their control.
 to motivate personnel to attain higher productivity and to reward them properly.
● To cooperate with the other departments for ensuring a smooth functioning of the entire
organization.
 to collect reports and information on performance in their departments.
 to report to top management
 to make suitable recommendations to the top management for the better execution of plans and policies.

LOWER OR OPERATIVE MANAGEMENT: It is placed at the bottom of the hierarchy of management,

and actual operations are the responsibility of this level of management. it consists of foreman, supervisors,
sales officers, accounts officers and so on. they are in direct touch with the rank and file or workers. their
authority and responsibility is limited.

ROLE OF MANAGEMENT / ROLE OF MANAGERS

1. Interpersonal Roles:
A. Figurehead: In this role, every manager has to perform some duties of a ceremonial nature, such as
greeting the touring dignitaries, attending the wedding of an employee, taking an important customer to
lunch, and so on.
B. Leader: As a leader, every manager must motivate and encourage his employees. He must also try to
reconcile their individual needs with the goals of the organization.
C. Liaison: In this role of liaison, every manager must cultivate contacts outside his vertical chain of
command to collect information useful for his organization.
2. Informational Roles:
A. Monitor: As monitor, the manager has to perpetually scan his environment for information, interrogate
his liaison contacts and his subordinates, and receive unsolicited information, much of it as result of the
network of personal contacts he has developed.
B. Disseminator: In the role of a disseminator, the manager passes some of his privileged information
directly to his subordinates who would otherwise have no access to it.
C. Spokesperson: In this role, the manager informs and satisfies various groups and people who influence
his organization. Thus, he advises shareholders about financial performance, assures consumer groups that
the organization is fulfilling its social responsibilities and satisfies government that the origination is abiding
by the law.

3. Decisional Roles:
A. Entrepreneur: In this role, the manager constantly looks out for new ideas and seeks to improve his unit
by adapting it to changing conditions in the environment.
In addition, managers in any organization work with each other to establish the organization’s long-range
goals and to plan how to achieve them. They also work together to provide one another with the accurate
information needed to perform tasks. Thus, managers act as channels of communication with the
organization.
B. Disturbance Handler: In this role, the manager has to work like a fire-fighter. He must seek solutions of
various unanticipated problems – a strike may loom large a major customer may go bankrupt; a supplier
may renege on his contract, and so on.
C. Resource Allocator: In this role, the manager must divide work and delegate authority among his
subordinates. He must decide who will get what.
D. Negotiator: The manager has to spend considerable time in negotiations. Thus, the chairman of a
company may negotiate with the union leaders a new strike issue; the foreman may negotiate with the
workers a grievance problem, and so on.

UNIT II

EVOLUTION OF MANAGEMENT THOUGHT

INTRODUCTION
The schools of management thought are theoretical frameworks for the study of management. Each of the
schools of management thought are based on somewhat different assumptions about human beings and the
organizations for which they work.
Since the formal study of management began late in the 19th century, the study of management has progressed
through several stages as scholars and practitioners working in different eras focused on what they believed to be
important aspects of good management practice.
Over time, management thinkers have sought ways to organize and classify the voluminous information about
management that has been collected and disseminated. These attempts at classification have resulted in the
identification of management schools

CONCEPT OF MANAGEMENT THOUGHTS

Management Thought is the gathering knowledge about the origin of management, thinking proper and
foundation of management research of different authors about the basic concepts of management.
Henny Fayol, “To manage is to forecast and plan, to organize, to command, to co-ordinate and to control.”
EVOLUTION OF MANAGEMENT THOUGHT
1. Pre – Historical Period: - Management is as old as man. Awareness of needs & satisfaction of needs is the
part & parcel of management. In the ancient time in the villages, head of the village plans for the villages. There
was a good labour planning. Villages were isolated. The basic needs in the villages were satisfied by the persons
in the villages. Responsibilities were distributed among the people to satisfy the basic needs.
2. Organized Society: - (Church & Military) The next contribution to the development of organization &
management was by roman church. 1500 years ago Chinese ruler advised government about management of
human institutions. The German public gives contribution towards management thoughts. During this period
management techniques were largely developed in administrative military & state administration.
3. Industrial Revolution: - This period is known as the period of scientific management. It is proved that
management is related with enterprise & business. In this period lots of technological changes took place.
Withthe industrial revolution the question of traditional management appears. The traditional management
concept was replaced by professional management.
4. Towards Consolidation: - This stage mark the beginning of the work of investigation of principles of
management i.e. division of work, authority, responsibility, discipline, scalar chain. These ideas were developed
by ‘Henry Fayol’.
5. Recent Development: - Recently management concepts are based on mathematical analysis. They are based
on linear programming, operational research, PERT (Programme Evaluation and Review Technique), CPM
(Critical Path Method). These techniques are useful in decision making, controlling, problem solving etc. In
today’s competitive world these techniques are essential for controlling the cost that is why management iscalled
as a separate profession.
CONTRIBUTION OF FREDERICK TAYLOR, ELTON MAYO, HENRY FAYOL AND PETER
DRUCKER

CONTRIBUTION OF F.W.TAYLOR
• Frederick Winslow Taylor (20 March 1856-21 March 1915), widely known as F. W. Taylor, was an
American mechanical engineer who sought to improve industrial efficiency.
• He is regarded as the father of scientific management, and was one of the first management consultants.
• One of the first people to study the behavior and performance of people at work.
• became a consultant and taught other managers how to apply his scientific management techniques
• Believed that by increasing specialization and the division of labor, the production process will be more
efficient.
SCIENTIFIC MANAGEMENT
• It is the art of knowing what exactly you want from your men to do & then seeing that it is done in best possible
manner.
• In simple words it is just an application of science to management.
• The systematic study of relationships between people and tasks for the purpose of redesigning the work process
to increase efficiency.
MANAGEMENT THEORY BY TAYLOR
• Analyzing the work – One best way to do it.
• He is remembered for developing time and motion study.
• He would break a job into parts and measure each of 100th of a minute.
• The efforts of his disciples (most notably H. L. Gantt) made the industry to implement these ideas.

Taylor’s view about management

• Taylor believed that the industrial management of his day was amateurish, that management could be
formulated as an academic discipline.
• Best results would come from the partnership between trained and qualified management and a
cooperative and innovative workforce.
• Each side needed the other and there is no need for trade unions.
Mechanism:-
1. Separation of Planning & Doing:- Before Taylor’s scientific management a worker used to plan about his
work & instruments necessary for that. Supervisors’ job was to see how the workers were performing. This
creates a lot of problems. So Taylor has separated planning & doing authority.
2. Functional Foremanship:- Separation of planning from doing resulted into development of supervision
system. In this system 8 persons were engaged, out of that 4 persons were engaged in planning department.
They are time & cost clerk, routine clerk, instruction card clerk & disciplinarian. In production process 4
personnel were engaged, they are speed boss, repair boss, supervisor & gang boss.
3. Job Analysis:- It is related with finding out best way of doing. It means that least movements in doing job. It
will lead to complete production in less time & lesser cost. It includes:-
A) Time Study:- It means determining time required to complete a job in a particular time. The movement
which takes minimum time is the best one.
B) Motion study:- It means study of movement while performing a job i.e. elimination of wasteful movement in
performing a job, only necessary movements are engaged.
C) Fatigue Study:- It shows the amount & frequency of rest required, while completing the work. After certain
period of time workers feel fatigue & can’t work with full capacity. Therefore they require rest in between. When
rest is allowed they start working with full capacity.
D) Standardization:- As far as possible standardization should be maintained in respect of instruments & tools,
period of work, amount of work, working conditions, cost of production etc. these all things are fixed in advance
on the basis of job analysis.
E) Scientific Selection & Training of Workers: - Taylor has been suggested that worker should be selected on
scientific basis taking into account their education, work experience, attitude & physical strength.
F) Financial Incentives:- Financial incentives help to motivate workers in maximum efforts. Higher wages lead
to increase in efforts. He applied differential piece rate system. According to him workers have to completethe
work within specified time and then only he will get wages at higher rate per piece & one does not complete a
job get a lower rate. Wages should be based on individual performance & not on the position occupied.
G) Economy: - Techniques of cost estimated & control should be adopted. Waste should be controlled properly.
Profit will be achieved with elimination of wastage. He explained how resources are wasted.
H) Mental Revolution:- Scientific management depends upon mutual co-operation between workers &
management. Taylor say’s great revolution takes place in the mental attitude of two parties under scientific
management. He has given systematic design of work. Labour management, co-operation required a
completemental change on the part of both parties. The workers have specific duties towards management &
vice-aversa.
The method of scientific investigation & knowledge should be accepted by both parties.
Criticisms:-
In the beginning Taylor’s scientific management was considered as something very unique. But after some time
it was subjected to several criticism.
1) Taylor’s scientific management was related to production management. It takes practical view of
Management & focuses attention only on the production management. Taylor’s study of management has
become the study of lower level management. He stressed on efficiency on lower level. He has neglected
marketing, financial and decision making aspects completely.
2) Scientific management is applicable to large scale organization. It involves high expenditure. It is a luxury for
small scale organization. It involves research, experiment & analysis. It is difficult for small scale organization.
3) It was also argued that devices of work analysis, time study & motion & fatigue study can’t be applied in the
practical life.
4) The idea of best way of doing a job was also criticized. Everyone has his own natural style of work & he can
give best only if he is allowed to work in his style. The maximum efficiency will be attained by the group & not
by individual worker.
5) Wages of workers are not increased in a direct proportion of productivity. It leads to exploitation to workers.
6) People are not ready to use the word ‘scientific’. The scientific does not have any significance. Management is
a social science and not an exact science.

CONTRIBUTION OF HENRY FAYOL

(ADMINISTRATIVE MANAGEMENT)

Henry Fayol has been considered as the real father of modern management. He was a French industrialist and
graduated as a mining engineer in 1860. In 1908, Fayol contributed his famous “functional approach” to the
management literature.

Henry Fayol has written a book for his contribution in which he has explained the problems managing &
organization from top management point of view. He has used the term administration instead of management.
o Fayol found that activities of industries should be divided into 6 group’s i.e.
􀀀 Technical (production)
􀀀 Commercial (buying, selling and exchange)
􀀀 Financial (optimum use of capital)
􀀀 Security (protection of property)
􀀀 Accounting (including statistics)
􀀀 Managerial (all functions of management)

Fayol also stressed that managers should possess physical, mental, moral, educational and technical qualities to
conduct operations of a business enterprise. While giving management principles Fayol has emphasized on two
things:-
i. The principles of management can be followed in every organization.
ii. These principles are not fixed. They are flexible.
He has listed certain fundamental principles which are to be adopted by managers in dealing with sub-ordinates.
These 14 principles are worldwide applicable.
1) Division of Work (specialization):- A business activity carried out by small scale may be managed &
controlled by proprietor. As business expands, activities grow & need more people to control those activities.
Organization is jointly managed by a group of person. Fayol has advocated division of work to take the
advantage of specialization.
2) Authority & Responsibility:- Authority represents a power enjoyed by a person of his position in the
organization. It may be for taking decision, spending money or in many other ways. Responsibility is obligation
created upon a person for the use of authority, which is entrusted to him. These two terms are co-related. Fayol
suggested that there must be balance between authority & responsibility.
3) Discipline:- All the personnel serving in an organization must follow discipline. Discipline is obedience,
application of behaviour & energy shown by an employee. Discipline may be self employed or command
discipline. Discipline can be obtained lower remuneration, dismissal, demotion of position. While applying such
circumstances proper proof should be taken into account.
4) Unity of Command:- Each employee should receive order from single superior. In the organization structure
it should be clearly stated that who is responsible to whom? & who should receive order from whom?
5) Unity of Direction:- According to this principle each group of activity with some objective must have one
head. There is a difference between unity of command & unity of direction. Direction is concerned with
planning & unity of command is concerned with reporting.
6) Subordination of individual interest to general interest:- In an organization individual interest should not
be given any importance. The manager should always keep organizational interest before him & should
determine such policies which will be beneficial to entire group & not just few personnel. It is responsibility to
management to create common understanding between all.
7) Remuneration:- Every employee must be paid an adequate remuneration for his services. Remuneration
should be fair & should provide maximum satisfaction to person who is working in the organization. Personal
factors such as demand for labour, position of the labour & competition as well as cost of living index should be
taken into account. General Economic Conditions should be considered while deciding the remuneration of an
employee. In any case exploitation of the worker should be avoided.
8) Order:- Fayol has suggested that at one position one person should be appointed. Each person must have
appropriated position in organization.
9) Centralization:- It means the extent to which authority should be concentrated in the hands of top level
management. It may be centralized or decentralized. There are limitations of complete centralization &
complete decentralization. Therefore, there should be proper balance between this two.
10) Scalar Chain: - (Straight line & Command) It shows the straight line of authority from highest level to
lower level for communication. Scalar chain is the extract of organization chart & shows the responsibility or
position of everybody in an organization.

11. EQUITY : it means that subordinates should be treated with justice and kindliness . this is essential for
eliciting their devotion and loyalty to the enterprise . it is, therefore the duty of the chief executive to instill a
sense of equity throughout all levels of scalar chain .
12.STABILITY OF TENURE OF PERSONNEL : the managerial policies should provide a sense of
reasonable job security. the hiring and firing of personnel should depend not on the whims of the superiors
but on the well-conceived personnel policies. however, "a mediorce manager who stays is infinitely
preferable to outstanding managers who come and go ".
13. INITIATIVE : it focuses on the ability, attitude and resourcefulness to act without prompting from
others. managers must create an environment which encourages their subordinates to take initiative and
responsibility.
14. ESPRIT DE CORPS : cohesiveness and team spirit should be encouraged among employees . it is one of
the chief characteristics of organized activity that a number of people work together in close coopearation
for the achievement of common goals.. where necessary, should always be supplemented by oral
communication because face-to-face contacts tend to promote speed, clarity and harmony.
CONTRIBUTION OF PETER DRUCKER

● Born in Vienna,Austria
● Popularly known as “The Father of Modern Management”
● Professor at New York University (1950-1971)
● Professor at Claremont Graduate University (1971-2005)
● Some of the major contributions of Peter Drucker are as follows: 1. Nature of Management 2.
Management Functions 3. Organisation Structure 4. Federalism 5. Management by Objectives 6.
Organizational Changes.

1. Nature of Management:
Drucker is against bureaucratic management and has emphasised management with creative and
innovative characteristics. The basic objective of management is to read towards innovation. The
concept of innovation is quite broad. It may include development of new ideas, combining of old and
new ideas, adaptation of ideas from other fields or even to act as a catalyst and encouraging others to
carry out innovation.
He has treated management as a discipline as well as profession. As a discipline, management has its
own tools, skills, techniques and approaches. However, management is more a practice rather than a
science. Thus, Drucker may be placed in ’empirical school of management’.
While taking management as a profession. Drucker does not advocate to treat management as a strict
profession but only a liberal profession which places more emphasis that managers should not only have
skills and techniques but should have right perspective putting the things into practice. They should be
good practitioners so that they can understand the social and cultural requirements of various
organisations and countries.
2. Management Functions:
According to Drucker, management is the organ of its institution. It has no functions in itself, and no
existence in itself. He sees management through its tasks. Accordingly, there are three basic functions of
a manager which he must perform to enable the institution to make its contribution for:
(i) The specific purpose and mission of the institution whether business, hospital or university;
(ii) Making work productive and the worker achieving; and
(iii) Managing social impacts and social responsibilities.
All these three functions are performed simultaneously within the same managerial action. A manager
has to act as administrator where he has to improve upon what already exists and s already known. He
has to act as an entrepreneur in redirecting the resources from seas of tow or diminishing results to areas
of high or increasing results.
Thus, a manager has to perform several functions: setting of objectives, making, organising and
motivating. Drucker has attached great importance to the objective setting function and has specified
eight areas where clear objective setting is required. These are: market standing, innovation,
productivity, physical and financial resources, profitability, managerial performance and development,
worker performance and attitude, and public responsibility.
3. Organisation Structure:
Drucker has decried bureaucratic structure because of its too many dysfunctional effects. Therefore, it
should be replaced. He has emphasised three basic characteristics of an effective organisation structure.
These are:
(i) Enterprise should be organised for performance;
(ii) it should contain the least possible number of managerial levels;
(iii) it must make possible the training and testing of tomorrow’s top managers—responsibility to a
manager while still he is young.
He has identified three basic aspects in organising activity analysis, decision analysis, and relation
analysis. An activity analysis shows what work has to be performed, what kind of work should be put
together, and what emphasis is to be given to each activity in the organisation structure.
Decision analysis takes into account the four aspects of a decision: the degree of futurity In the decision,
the impact of decision over other functions, number of qualitative factors that enter into it, and whether
the decision is periodically recurrent or rare. Such an analysis will determine the level at which the
decision can be made. Relation analysis helps in defining the structure and also to give guidance in
manning the structure.
4. Federalism:
Drucker has advocated the concept of federalism. Federalism refers to centralised control in
decentralised structure Decentralised structure goes far beyond the delegation of authority. It creates a
new constitution and new ordering principle. He has emphasised the close links between the decisions
adopted by the top management on the one hand and by the autonomous unit on the other.
This is just like a relationship between federal government and state governments. In a federal
organisation, local managements should participate in the decision that set the limits of their own
authority. Federalism has certain positive values over other methods of organising.
These are as follows:
(i) It sets the top management free to devote itself to its proper functions;
(ii) It defines the functions and responsibilities of the operating people;
(iii) It creates a yardstick to measure their success and effectiveness in operating jobs; and
(iv) It helps to resolve the problem of continuity through giving the managers of various units education
in top management problems and functions while in an operating position.
5. Management by Objectives:
Management by objectives (MBO) is regarded as one of the important contributions of Drucker to the
discipline of management. He introduced this concept in 1954. MBO has further been modified by
Schleh which has been termed as management by results’. MBO includes method of planning, setting
standards, performance appraisal, and motivation.
According to Drucker, MBO is not only a technique of management but it is a philosophy of managing.
It transforms the basic assumptions of managing from exercising cattalo to self-control. Therefore, in
order to practice MBO, the organisation must change itself MBO has become such a popular way of
managing that today t is regarded as He most modern management approach. In fact, it has
revolutionalised the management process.
6. Organizational Changes:
Drucker has visualised rapid changes in the society because of rapid technological development. Though
he is not resistant to change, he feels concerned for the rapid changes and their impact on human life.
Normally, some changes can be absorbed by the organisation but not the rapid changes.
Since rapid changes are occurring in the society, human beings should develop philosophy to face the
changes and take them as challenges for making the society better. This can be done by developing
dynamic organizations which are able to absorb changes much faster than static ones. Drucker’s
contributions have made tremendous impact on the management practices. His contributions have been
recognised even by the management thinkers of Socialist Bloc.
Conclusion
 Peter Drucker contributed to many fields of management.
 He has contributed to several management areas like Human Resource Management, Marketing
Management and organisational behaviour.
 His contribution seems much valuable in both management theory and practice.
 His concepts are widely accepted globally.

CONTRIBUTION OF ELTON MAYO

(1880-1949) (HAWTHORNE EXPERIMENTS)

Elten Mayo can be called as the Founder of Human relations school. Mayo conducted experiments at the
Department of Industrial research of Harward. Mayo was of the opinion that an individual is not very important,
his personality is important as a member of the group.
The human relations movement was evolved during 1920’s in the U.S.A. Elten Mayo (1880-1949) laid the
foundations for the human relations approach. Hawthorne experiments was conducted from 1924 to 1932 at a
plant of Western Electric Company, Chicago was manufacturing Telephone System Bell. It employed 30,000
employees at the time of experiment. The experiment was conducted in 4 phases.
I] Illumination Experiment :- (Physical, conducting, lighting effect) It was undertaken to find out how change
in the level of light & physical factor affects production. Higher illumination will help in increasing the
production; decrease in illumination will lead to decrease in production.
II] Relay Assembly Test Room:- Under this study, two small groups of six female telephone relay assemblers
were put in separate rooms under close observation and control. Frequent changes were made in working
conditions such as working hours, rest periods, hot lunch etc. Over the two years period, it was concluded that
social or human relationship among workers exercised greater influence on productivity of workers than
working conditions. This special attention and treatment given to workers developed a sense of group pride and
belongingness which motivated them to increase their performance.
III] Mass Interview Program:- During the course of experiment about 20,000 interviews were conducted from
1928 to 1930. For determination of employee’s attitude towards company such as supervision, insurance plan,
promotion, wages etc. & yes & no type of questions were asked. During the course of interview it was
discovered that workers behaviour was influenced by group behaviour. The programme indicated that
productivity can be increased if people allowed talking freely.
IV] Bank wiring observation room:- This experiment was carried from 1931 to 1932 with a view to analysis
functioning of small group & its impact on individual behaviour. The group was formed consisting of 14 male
members, 9 wire men & two inspectors. Hourly wage rate was based on average output of each worker & bonus
was based on the productivity of group of workers. It was found that the group has established its own standards
of output and social pressure was exercised.
The main conclusions of Hawthorne Experiments are as follows:
1) Social factor in output:- Worker is influenced by social factor & the behaviour within the group. Man is a
social animal. Only monetary incentives are not sufficient to increase the production but non-monetary
incentives will also help to increase the production. Means, behaviour within the group will definitely increase
the production. This acts as a motivating factor.
2) Group Influence:- Worker forms a group in the organization means, they develop informal relationship.
They try to change their behaviour & manager is considered as a part & parcel for that group & not as a
manager.
3) Leadership:- Leadership is important for directing group behaviour. But the formal relationship is not
accepted by the workers. Informal relationship which is express in relay assembly test room & bank wiring
observation room is lead to increase the efficiency of the workers.
4) Supervision:- Supervision is important for determining efficiency of output but friendly supervision helps to
increase the productivity of the workers in the organization.
5) Communication:- In every organization communication is very important. Workers participation in the
process of decision making helps in increasing the productivity. Workers must communicate freely with
managers to explain their problem. Better understanding between manager & workers develops positive
attitude.
Criticism:-
1) The Hawthorne experiment is criticized because there is no scientific base. It is based on social relationship.
2) It was also pointed out that this experiment does not have any guarantee because it has limited scope.
3) The human relationship approach is criticized on the several bases. It is observed that this approach try to soft
corner of the requirement of the organization. No attempt was made to understand human behaviour at work
place.
4) As a result of the impact of human relation approach, human relation become fad and fashion with many
people of the organization. They believe that happy workers are productive workers. This is not always true.
5) With the passage of time both managers & workers begin to realize disadvantage of the situation.
6) When decisions are made secretly is important which is not possible in the Hawthorne experiment.
However, human relationship approach should not be totally neglected. Human psychology is basically sound &
should be properly understood.

CHESTER BARNARD'S SOCIAL SYSTEMS APPROACH AND CONTRIBUTION TO MANAGEMENT

Barnard suggested social systems approach to management . his main contributions to management
thought can be described as follows:
1. THEORY OF FORMAL ORGANISATION:
Barnard gave a theory of formal organisation. he defined it as "a system of consciously co-ordinated
activities of forces of two or more persons." according to him, organisation consisted of human beings
whose activities were co-ordinated and therefore becomes a system : according to barnard initial existence
of organisation depends upon three elements : (i) the willingness of persons to contribute efforts to the co -
operative system (ii) there should be an objective of co-operation and (iii) proper communication system is
necessary.
2. ORGANISATIONAL EQUILIBRIUM:
barnard suggested an equilibrium model to describe the balance achieved between the contributions of the
members of an organisation and return contribution made by the organisation to the fulfilment of private
goals of the members. barnard treated organisation as separate from the environment where it works .
the persons working in the organisation have two roles —a personal role and an organisational role. there
should be a balance between what employees get out of the organisation (money, status, recognition, etc.)
and what they contribute in form of time, knowledge, discomfort, production, etc.
3. ACCEPTANCE THEORY OF AUTHORITY:
according, to barnard the decision as to whether an order has authority or not lies with the person to whom
it is addressed, and does not reside in persons of authority or those who issue these orders . thus in
barnard's view, if a subordinate does not accept his manager 's authority, it does not exist.
a person will accept authority under following conditions ':
(a) he can and does understand the communication;
(b) at the time of his decision he believes that it is not inconsistent with the purpose of the organisation .
(c) at the time of his decision, he believes it to be compatible with his personal interest as a whole ; and
(d) he is able (mentally and physically) to comply with it.
4. FUNCTIONS OF THE EXECUTIVE:
Barnard postulated three types of functions for the executives in forma ! organisational set up. these
functions are:
(a) maintaining proper communication in the organisation
(b) obtaining essential services from individuals for achieving organisational goals
(c) formulating purposes and objectives at all levels .
5. INFORMAL ORGANISATION:
Barnard was of the opinion that both formal and informal organisations co -exist in every enterprise. informal
organisation refers to those social interactions which do not have consciously co -ordinated joint purpose.
this organisation exists to overcome the problems of formal organisation . barnard suggested that
executives should encourage the development of informal organisation to bring cohesiveness in the
organisation and also to serve as a means of communication .

UNIT III

FUNCTIONS OF MANAGEMENT
FORECASTING

Meaning of Forecasting
 In simple terms forecasting means, “estimation or prediction of future”. The prediction of outcomes,
trends, or expected future behaviour of a business, industry sector, or the economy through the use of
statistics. Forecasting is an operational research technique used as a basis for management planning and
decision making.
 Forecasting is a systematic guessing of the future course of events.
Forecasting provides a basis for a planning.
Definition of Forecasting
 Websters new collegiate dictionary defines that, “A forecast is a prediction and its purpose is to
calculate and predict some future events or condition.”
 Allen L.A., “Forecasting is a systemic attempt to probe the future by inference from known facts.”
 Neter & Wasserman, “Business forecasting is refers to a statistical analysis of the past and current
movements in the given time series so as to obtain clues about the future pattern of these movement.

Features of Forecasting
 It is concerned with future events.
 It is necessary for planning process.
 The impact of future events has to be considered in the planning process.
 It is a guessing of future events.
 It considers all the factors which affect organizational functions.
 Personal observation also helps forecasting.

Need & Importance of Forecasting

1. Pivotal role in an organization:- Many organizations have failed because of lack of forecasting or
faulty forecasting. The reason is that planning is based on accurate forecasting.
2. Development of a business:- The performance of specified objectives depends upon the proper
forecasting. So the development of a business or an organization is fully based on the forecasting.
3. Co-ordination:- Forecasting helps to collect the information about internal and external factors. Thus
collected information provides a basis for co-ordination.
4. Effective control:- Management executive can ascertain the strength and weaknesses of sub-ordinates
or employees through forecasting.
5. Key to success:- All business organizations are facing risks. Forecasting provides clues and reduces risk
and uncertainties. The management executives can save the business and get success by taking
appropriate action.
6. Implementation of project:- Many entrepreneurs implement a project on the basis of their experience.
Forecasting helps an entrepreneur to gain experience and ensures him success.
7. Primacy to planning:- The information required for planning is supplied by forecasting. So,
forecasting is then primacy to the planning.

Process/Steps for Forecasting

1. Developing the Basis: The future estimates of various business operations will have to be based on the
results obtainable through systematic investigation of the economy, products and industry.
2. Estimation of Future Operations: On the basis of the data collected through systematic investigation into
the economy and industry situation, the manager has to prepare quantitative estimates of the future scale of
business operations. Here the managers will have to take into account the planning premises.
3. Regulation of Forecasts: It has already been indicated that the managers cannot take it easy after they have
formulated a business forecast. They have to constantly compare the actual operations with the forecasts
prepared in order to find out the reasons for any deviations from forecasts. This helps in making more realistic
forecasts for future.
4. Review of the Forecasting Process: Having determined the deviations of the actual performances from the
positions forecast by the managers, it will be necessary to examine the procedures adopted for the purpose so
that improvements can be made in the method of forecasting.
Forecasting Methods & Techniques
Forecasting technique can be classified into two major categories:
1. Qualitative forecasting technique.
2. Quantitative forecasting technique.
1. Qualitative Techniques:
i. Jury or executive opinion (Dolphi technique)
ii. Sales force estimates.
iii. Customer expectations.
i. Jury or Executive Opinion:
The jury of expert opinion sometimes referred to as the Dolphi technique; involves soliciting opinions or
estimates from a panel of “experts” who are knowledgeable about the variable being forecasted.
In addition to being useful in the creation of a sales or demand forecast this approach is used to predict future
technological developments. This method is fast less expensive and does not depend upon any elaborate
statistics and brings in specialized viewpoints.
ii. Sales Force Estimates:
This approach involves the opinion of the sales force and these opinions are primarily taken into consideration
for forecasting future sales. The sales people, being closer to consumers, can estimate future sales in their own
territories more accurately. Based on these and the opinions of sales managers, a reasonable trend of the future
sales can be calculated.
These forecasts are good for short range planning since sales people are not sufficiently sophisticated to predict
long-term trends. This method known as the “grass roots” approach ends itself to easy breakdowns of product,
territory, customer etc., which makes forecasting more elaborate and comprehensive.
iii. Customer Expectations:
This type of forecasting technique is to go outside the company and seek subjective opinions from customers
about their future purchasing plans. Sales representatives may poll their customers or potential customers about
the future needs for the goods and services the company supplies.
Direct mail questionnaires or telephone surveys may be used to obtain the opinions of existing or potential
customers. This is also known as the “survey method” or the “marketing research method” where information is
obtained concerning.
Customer buying preferences, advertising effectiveness and is especially useful where the target market is small
such as buyers of industrial products, and where the customers are co-operative.
2. Quantitative Techniques: Quantitative techniques are based on the analysis of past data and its trends.
These techniques use statistical analysis and other mathematical models to predict future events.
Some of these techniques are:
i. Time series analysis.
ii. Economic models.
iii. Regression analysis.
i. Time Series Analysis:
Time series analysis involves decomposition of historical series into its various components, viz., trend,
seasonal variations, cyclical variations and random variations. Time series analysis uses index numbers but it is
different from barometric technique. In barometric technique, the future is predicted from the indicating series,
which serve barometers of economic change.
In time series analysis, the future is taken as some sort of an extension of the past. When the various
components of a time series are separated, the variations of a particular phenomenon, the subject under study
stay say price, can be known over the period of time and projection can be made about future.
A trend can be known over the period of time, which may be true for future also. However, time series analysis
should be used as a basis for forecasting when data are available for a long period of time and tendencies
disclosed by the trend and seasonal factors are fairly clear and stable.
ii. Economic Models: Utilize a system of interdependent regression equations that relate certain economic
indicators of the firm’s sales, profits etc. Data center or external economic factors and internal business factors
interpreted with statistical methods. Often companies use the results of national or regional econometric models
as a major portion of a corporate econometric model.
While such models are useful in forecasting, their major use tends to be in answering “what if”? Questions.
These models allow management to investigate and in major segments of the company’s business on the
performance and sales of the company.
iii. Regression Analysis: Regression Analysis are statistical equations designed to estimate some variables such
as sales volume, on the basis of one or more ‘independent’ variables believed to have some association with it.
Advantages
1. Establishing a New Business:
While setting up a new business, a number of business forecasts are required. One has to forecast the demand
for the product, capacity of competitors, expected share in the market, the amount and sources of raising
finances, etc. The success of a new business will depend upon the accuracy of such forecasts. If the forecasts are
made systematically, then the operations of the business will go smoothly and the chances of failure will be
minimized.
2. Formulating Plans:
Forecasting provides a logical basis for preparing plans. It plays a major role in managerial planning and
supplies the necessary information. The future assessment of various factors is essential for preparing plans. In
fact, planning without forecasting is an impossibility. Henry Fayol has rightly observed that the entire plan of an
enterprise is made up of a series of plans called forecasts.
3. Estimating Financial Needs: Every business needs adequate capital. In the absence of correct estimates of
financial requirements, the business may suffer either from inadequate or from excess capital. Forecasting of
sales and expenses helps in estimating future financial needs.
The plans for expansion, diversification or improvement also necessitate the forecasting of requirements of
funds. A proper financial planning depends upon systematic forecasting.
4. Facilitating Managerial Decisions: Forecasting helps management to take correct decisions. By providing a
logical basis for planning and determining in advance the nature of future business operations, it facilitates
correct managerial decisions about material, personnel, sales and other requirements.
5. Quality of Management: It improves the quality of managerial personnel by compelling them to look into
the future and make provision for the same. By focusing attention on future, forecasting helps the management
in adopting a definite course of action and a set purpose.
6. Encourages Co-operation and co-ordination: Forecasting calls for some minimum effort on the part of all
and. thus, creates a sense of participation. It is not a one man’s or one department’s job. No department or
person can make its forecasts in isolation. There should be a proper co-operation and co-ordination among
different departments for setting proper forecasts for the business as a whole.
So, forecasting process leads to better co-operation and co-ordination among people of various departments of
the organisation.
7. Better Utilisation of Resources: Forecasting ensures better utilisation of resources by revealing the areas of
weaknesses and providing necessary information about the future. Management can concentrate on critical areas
and control more effectively.
8. Success in Business: Success in business, to a great extent, depends upon correct predictions about the
future. Systematic forecasting ensures smooth and continuous working of the business. By knowing the future
course of events in advance, one could always face the difficulties in a planned manner.
Limitations
The following limitations of forecasting are listed below:
1. Basis of Forecasting: The most serious limitations of forecasting arises out of the basis used for making
forecasts. Top executives should always bear in mind that the bases of forecasting are assumptions,
approximations, and average conditions. Management may become so concerned with the mechanism of the
forecasting system that it fails to question its logic.
This critical examination is not to discourage attempts at forecasting, but to sound caution about the practice of
forecasting and its inherent limitations.
2. Reliability of Past Data: The forecasting is made on the basis of past data and the current events. Although
past events/data are analysed as a guide to the future, a question is raised as to the accuracy as well as the
usefulness of these recorded events.
3. Time and Cost Factor: Time and cost factor is also an important aspect of forecasting. They suggest the
degree to which an organisation will go for formal forecasting. The information and data required for forecast
may be in highly disorganized form; some may be in qualitative form.
The collection of information and conversion of qualitative data into quantitative ones involves lot of time and
money. Therefore, managers have to tradeoff between the cost involved in forecasting and resultant benefits. So
forecasting should be made by eliminating above limitations.

PLANNING
Meaning of Planning
 Planning is essential in every walk of life.
 Planning is the first and foremost function of management.
 The planner can develop his efficiency by preparing himself to face the future developments.
 Planning is as intellectual process of thinking resorted to decide a course of action which helps to
achieve the pre-determined objectives of the organization in future.
Definition of Planning
 Koontz and O'Donnell: ‘Planning is deciding in advance what to do, how to do it, when to do it,and
who is going to do it. Planning bridges the gap between where we are and where we want to go. It
makes it possible for things to occur which would not otherwise happen.’
 George R Terry: ‘Planning is the selecting and relating of facts and the making and using of
assumptions regarding the future in the visualisation and formulation of purposed activities believed
necessary to achieve desired results.’
 Phillip Kotler : ‘Planning is deciding in the present what to do in the future. It is the process whereby
companies reconcile their resources with their objectives and opportunities.’
Nature / Characteristics of Planning
1. Planning is primary function of management: The functions of management are broadly classified as
planning, organisation, direction and control. It is thus the first function of management at all levels. Since
planning is involved at all managerial functions, it is rightly called as an essence of management.
2. Planning focuses on objectives: Planning is a process to determine the objectives or goals of an enterprise. It
lays down the means to achieve these objectives. The purpose of every plan is to contribute in the achievement
of objectives of an enterprise.
3. Planning is a function of all managers: Every manager must plan. A manager at a higher level has to
devote more time to planning as compared to persons at the lower level. So the President or Managing director
in a company devotes more time to planning than the supervisor.
4. Planning as an intellectual process: Planning is a mental work basically concerned with thinking before
doing. It is an intellectual process and involves creative thinking and imagination. Wherever planning is done,
all activities are orderly undertaken as per plans rather than on the basis of guess work. Planning lays down a
course of action to be followed on the basis of facts and considered estimates, keeping in view the objectives,
goals and purpose of an enterprise.
5. Planning as a continuous process: Planning is a continuous and permanent process and has no end. A
manager makes new plans and also modifies the old plans in the light of information received from the persons
who are concerned with the execution of plans. It is a never ending process.
6. Planning is dynamic (flexible): Planning is a dynamic function in the sense that the changes and
modifications are continuously done in the planned course of action on account of changes in business
environment.
As factors affecting the business are not within the control of management, necessary changes are made as and
when they take place. If modifications cannot be included in plans it is said to be bad planning.
7. Planning secures efficiency, economy and accuracy: A pre- requisite of planning is that it should lead to
the attainment of objectives at the least cost. It should also help in the optimum utilisation of available human
and physical resources by securing efficiency, economy and accuracy in the business enterprises. Planning is
also economical because it brings down the cost to the minimum.
8. Planning involves forecasting: Planning largely depends upon accurate business forecasting. The scientific
techniques of forecasting help in projecting the present trends into future. ‘It is a kind of future picture wherein
proximate events are outlined with some distinctness while remote events appear progressively less distinct.”
9. Planning and linking factors: A plan should be formulated in the light of limiting factors which may be any
one of five M’s viz., men, money, machines, materials and management.
10. Planning is realistic: A plan always outlines the results to be attained and as such it is realistic in nature.

Importance of Planning
1. Increases efficiency: Planning makes optimum utilization of all available resources. It helps to reduce
the wastage of valuable resources and avoids their duplication. It aims to give the highest returns at the
lowest possible cost. It thus increases the overall efficiency.
2. Reduces business-related risks: There are many risks involved in any modern business. Planning helps
to forecast these business-related risks. It also helps to take the necessary precautions to avoid these
risks and prepare for future uncertainties in advance. Thus, it reduces business risks.
3. Facilitates proper coordination: Often, the plans of all departments of an organization are well
coordinated with each other. Similarly, the short-term, medium-term and long-term plans of an
organization are also coordinated with each other. Such proper coordination is possible only because of
efficient planning.
4. Aids in Organizing: Organizing means to bring together all available resources, i.e. 6 Ms. Organizing is
not possible without planning. It is so, since, planning tells us the number of resources required and
when are they needed. It means that planning aids in organizing in an efficient way.
5. Gives right direction: Direction means to give proper information, accurate instructions and useful
guidance to the subordinates. It is impossible without planning. It is because planning tells us what to
do, how to do it and when to do it. Therefore, planning helps to give the right direction.
6. Keeps good control: With control, the actual performance of an employee is compared with the plans,
and deviations (if any) are found out and corrected. It is impossible to achieve such control without the
right planning. Therefore, planning becomes necessary to keep good control.
7. Helps to achieve objectives: Every organization has certain objectives or targets. It keeps working hard
to fulfill these goals. Planning helps an organization to achieve these aims, but with some ease and
promptness. Planning also helps an organization to avoid doing some random ( done by chance)
activities.
8. Motivates personnel: A good plan provides various financial and non-financial incentives to both
managers and employees. These incentives motivate them to work hard and achieve the objectives of the
organization. Thus, planning through various incentives helps to motivate the personnel of an
organization.
9. Encourages creativity and innovation: Planning helps managers to express their creativity and
innovation. It brings satisfaction to the managers and eventually a success to the organization.
10. Helps in decision-making: A manager makes many different plans. Then the manager selects or
chooses the best of all available strategies. Making a selection or choosing something means to take a
decision. So, decision-making is facilitated by planning.
Types of Planning
(i) Nature of planning:
a. Formal planning.
b. Informal planning.
(ii) Duration of planning:
a. Short term planning.
b. Long term planning.
(iii) Levels of Management:
a. Strategic planning.
b. Intermediate planning.
c. Operational planning.
(iv) Use:
a. Standing plans
b. Single-use plans.
(i) Nature of Planning:
a. Formal Planning:
Planning is formal when it is reduced to writing. When the numbers of actions are large it is good to have a
formal plan since it will help adequate control.
The term formal means official and recognised. Any planning can be done officially to be followed or
implemented. Formal planning is aims to determine and objectives of planning. It is the action that
determine in advance what should be done.
Advantages:
1. Proper Cooperation among employees,
2. Unity of Action,
3. Economy,
4. Proper coordination and control,
5. Choosing the right objectives, and
6. Future plan.
b. Informal Planning:
An informal plan is one, which is not in writing, but it is conceived in the mind of the manager. Informal
planning will be effective when the number of actions is less and actions have to be taken in short period.
(ii) Duration of Planning:
a. Short term Planning:
Short term planning is the planning which covers less than two years. It must be formulated in a manner
consistent with long-term plans. It is considered as tactical planning. Short-term plans are concerned with
immediate future; it takes into account the available resources only and is concerned with the current
operations of the business.
These may include plans concerning inventory planning and control, employee training, work methods etc.
Advantages:
1. It can be easily adjustable.
2. Changes can be made and incorporated.
3. Easy to Gauge.
4. Only little resources required.
Disadvantages:
1. Very short period-left over things will be more.
2. Difficult to mobiles the resources.
3. Communication cycle will not be completed.
b. Long-Term Planning:
Long-term planning usually converse a period of more than five years, mostly between five and fifteen
years. It deals with broader technological and competitive aspects of the organisation as well as allocation of
resources over a relatively long time period. Long-term planning is considered as strategic planning.
Short-term planning covers the period of one year while long term planning covers 5-15 years. In between
there may be medium-term plans. Usually, medium term plans are focusing on between two and five years.
These may include plan for purchase of materials, production, labour, overhead expenses and so on.
Advantages:
1. Sufficient time to plan and implement.
2. Effective control.
3. Adjustment and changes may be made gradually.
4. Periodic evaluation is possible.
5. Thrust areas can be identified easily.
6. Weakness can be spotted and rectified then and there.
Disadvantages:
1. Prediction is difficult.
2. Full of uncertainties.
3. Objectives and Targets may not be achieved in full.
4. More resources required.
(iii) Levels of Management:
a. Strategic Planning:
The strategic planning is the process of determining overall objectives of the organisation and the policies
and strategies adopted to achieve those objective. It is conducted by the top management, which include
chief executive officer, president, vice-presidents, General Manger etc. It is a long range planning and may
cover a time period of up to 10 years.
It basically deals with the total assessment of the organisation’s capabilities, its strengths and its weaknesses
and an objective evaluation of the dynamic environment. The planning also determines the direction the
company will be taking in achieving these goals.
b. Intermediate Planning:
Intermediate planning cover time frames of about 6 months to 2 years and is contemplated by middle
management, which includes functional managers, department heads and product line mangers. They also
have the task of polishing the top managements strategic plans.
The middle management will have a critical look at the resources available and they will determine the most
effective and efficient mix of human, financial and material factors. They refine the broad strategic plans
into more workable and realistic plans.
c. Operational Planning: Operational planning deals with only current activities. It keeps the business
running. These plans are the responsibility of the lower management and are conducted by unit supervisors,
foremen etc. These are short-range plans covering a time span from one week to one year.
These are more specific and they determine how a specific job is to be completed in the best possible way.
Most operational plans .ire divided into functional areas such as production, finance, marketing, personnel
etc.
Thus even though planning at all levels is important, since all levels are integrated into one, the strategic
planning requires closer observation since it establishes the direction of the organisation.
(iv) Use:
a. Standing Plan: Standing plan is one, which is designed to be used over and over again. Objectives,
policies procedures, methods, rules and strategies are included in standing plans. Its nature is mechanical. It
helps executives to reduce their workload. Standing plan is also called routine plan. Standing or routine plan
is generally long range.
b. Single Use Plan: Single use plan is one, which sets a course of action for a particular set of
circumstances and is used up once the particular goal is achieved. They may include programme, budgets,
projects and schedules. It is also called specific planning. Single use plan is short range.
Advantage / Benefits of Planning
(1) Reduces Uncertainty: An organization has to work in an environment, which uncertain and ever-changing.
Planning gives an opportunity to a manager to foresee various uncertainties, which may because of changes in
technology, taste, and fashion of the people, etc. It helps in reducing uncertainties of the future because it
involves anticipation of future events. Effective planning is the result of deliberate thinking based on past
experience and present situations.
(2) Focus on Objectives/Goals: Organizations exist to pursue and achieve certain goals or objectives. Planning
focuses on these objectives and direct actions for achieving these objectives. Planning defines these objectives
more clearly while determining the course of action to achieve them. It eliminates aimless activities. A plan
serves as the blueprint of the action to be followed for the achievement of objectives. Hence, good management
is management by objectives.
(3) Economical Operation: Planning involves a selection of the best possible course of action. It helps to
eliminate all types of waste and to achieve the utilization of available resources. Planning is a rational activity
that leads to efficient and economical operations. It helps to minimize the cost of operations and improve the
competitive strength of an organization.
(4) Facilitates Control: Planning and control are inseparable. Planning provides the standard against which the
actual performance can be measured and evaluated. Actual performance is compared with standards fixed by
the plans. Deviation if any is located. Control involves keeping activities on the predetermined course b
rectifying deviations from plans. Thus, planning helps to control by setting standards and comparing actual
performance.
(5) Encourages Innovation and Creativity: Planning is basically the deciding function of management.
Planning helps innovative and creative thinking among managers when they are planning. It helps to think out
new ideas and adjust to the realities of the existing situation. It creates a forward-looking attitude among the
managers.
(6) Improves Motivation: Good planning ensures the participation of all managers which will improve their
motivation. It encourages a sense of involvement and team spirit. It improves the motivation and morale of
workers because they know clearly what is expected of them.
(7) Ensures Better Coordination: Planning provides the basis for an organized and coordinated effort of the
organization. It secures the unity of direction towards the organizational objectives. All the activities are
directed towards common goals. There is an integrated effort throughout the organization. This will lead to
better coordination in the organization.
(8) Avoids Random Activity: Planning means deciding in advance what objectives are to be achieved and
how they are to be achieved. It makes systematically integrated and orderly efforts possible and avoids random
activity It avoids the need for snap decisions based on impulse and intuition. Planning provides order and
rationality to the organization. It avoids duplication of works and overlapping efforts.
(9) Improves Competitive Strength: Effective planning increases the competitive strength of an organization.
Planning is based on systematic and careful forecasts. It enables the organization to discover new opportunities
and thereby shape its own future. It ensures the orderly progress of the organization.
Thus, planning is essential to the successful functioning of every organization. It makes systematic, integrated,
and orderly efforts.
In fact, it increases the overall efficiency of the organization and the timely completion of jobs at minimum
cost. It avoids duplication of work, random activity, and over-lapping efforts.

Constraints / Disadvantage or Limitations of Planning

(1) Lack of Reliable Data: Planning is undertaken on the basis of certain assumptions in the future. The future
is unpredictable and uncertain. Hence, future cannot be known accurately because reliable information d data
are not available. If reliable information and data are not available for planning it is sure to lose much of its
value. Planning becomes inaccurate and unreliable due to errors in individual judgment and imperfect
techniques of planning. A wrong assumption or lack of required competence on the part of planners also
reduces the effectiveness of planning. Thus, planning for future risks and uncertainties can give no perfect
assurance.
(2) Rigidity: Planning implies strict adherence to predetermined policies procedures and programs. This
restricts an individual’s freedom, initiative and desire for creativity. Business is by nature dynamic and the
redtapism created by detailed planning can prove disastrous for an organization. However, this difficulty can be
overcome by making flexible plans.
(3) Time Consuming Process: Planning is a time-consuming process. The various steps of planning may
consume a lot of time. Considerable time is required for the collection, analysis, and interpretation of
information for planning. It is, therefore, unsuitable in those situations where sudden or immediate action is
required to meet unexpected contingencies. In some cases, advance planning can delay action, resulting in the
loss of profitable opportunities.
(4) Costly Process: Planning is also a costly process. Money and effort have to be spent on collecting
information, preparing estimates, forecasting, and evaluating alternatives. Services of experts are necessary to
select the best and most economical course of action for the organization. Planning costs may go on increasing
if planning becomes more elaborate and formulated due to additional time and proper work.
(5) Rapid Change: Rapid changes in technology, consumer tastes, and fashions are further constraints to
planning. In a complex and rapidly changing environment planning is more difficult as it adds new problems. In
rapidly changing conditions planning activity taken in one period cannot be relevant for another period.
(6) Internal Inflexibility: Internal inflexibility may be psychological, policy and procedures, and capital
investment which create difficulties in planning and implementation. Psychological inflexibility lies in the form
of resistance to change. Whenever a change is undertaken employees resistance to change, as they believe that
the present is more desirable and more reliable. Similarly, once policies and procedures are established they are
hard to change. In most cases, once capital is invested in fixed assets, it becomes more difficult to change work
procedures in the near future. This inflexibility continues during the entire life of fixed assets.
(7) External Inflexibility: There is certain external inflexibility over which managers do not have any control.
Changes in technology, changes in government policies, industrial unrest, etc are important external inflexibility
On planning. They greatly hamper managerial planning in the organization.