LIMITATIONS OF PLANNING:- Following are the limitations of
planning:1.
LACK OF ACCURATE INFORMATION:- The reliability of a plan depends
upon facts & information on which it is based. If reliable information &
dependable data are not available, planning is sure to lose its importance.
2.
LACK OF ACCURATE FORECAST:- Planning concerns future activity & its
quality will be determined by the quality of forecast of future events. No
manager can predict completely & accurately the events of future, the plans
may cause problems in operation.
3.
COMPLEX PROCESS:- Planning is a complex & expensive process. It
demands serious thinking, hard work & time. Some managers do not like to
undergo such a complicated process as they like short-cuts. Such planning
may not yield the desired results.
4.
RIGIDITIES:- Planning may result in internal inflexibilities. By limiting
individual freedom, planning may stifle initiative & personal development.
Rigidities appear from managers negligence to revise the plan, policies &
procedures.
5. LACK OF SPECIFIC GOALS:- Qualitative objectives like social
responsibility, management development, quality of work life, etc are often
expressed. Planning cannot be effective unless goals are specific & clear.
6. LACK OF PLANNING SKILLS:- Planning is an art & takes a special type
of person to plan. Not everyone is capable of planning & solving
organizational problems. A planner should not only have skill, but also
intelligence & vision for long range planning & must have ability to
forecast.
7.
RESISTANCE TO CHANGE:- Resistance to change is another r factor
which puts limits on planning. It is commonly experienced in the business
world. Sometimes, planners themselves do not like change & they do not
think it is good & necessary to bring changes as it will create resistance on
the part of workers. This attitude makes the planning process ineffective.
TYPES OF PLANNING:- Big organizations use hundreds of plans. Some are
of very important; others are not. Some are in effect for long periods; others are
short-lived. In studying these plans, we will find it helpful to classify the various
types of plans that a company may use. Basically, plans my be classified on the
bases of duration, specificity & organizational level.
DURATION OF PLANS:- Some plans are made for long-term use whereas others
are made for short-term purposes. Long-range planning sets long-term goals for
the enterprise & then proceeds to formulate specific plans for achieving these
goals. It involves an attempt to anticipate, analyze & make decisions about basic
problems & issues which have significance reaching well beyond the present
operating of the enterprise. Short-range planning, on the other hand, is concerned
with the determination of short-term activities. Short-range planning relates to a
short period. Operational plans are generally related to short periods,
administrative plans related to medium terms & strategic plans to long-terms.
SPECIFICITY OF PLANS:- Plans may be classified according to how general or
specific they are. Single-use plans are predetermined. A budget, for example is a
single-use of plan. It becomes disused whenever the time period for which it was
prepared expires.
LEVELS OF PLANS:- Plans are formulated at various levels in an organization.
On this basis they may be classified as strategic, administrative & operational.
TOP-LEVEL OR STRATEGIC PLANNING:- In strategic or overall planning,
the top level management determines the general objectives of the enterprise.
Strategic planning is concerned with solving long-term problems associated with
external, environmental influences. It helps to solve these questions like: What
business are we in? What business should we be in? Where will be in ten years if
continue doing what we are now doing? For example, firms in garment industry
cannot plan not more than 4-5 years, would like to be with where it is now &
where it will be if it does nothing is called the “PLANNING GAP”. Strategic
planning is primary concerned with closing that gap.
MIDDLE-LEVEL OR FUNCTIONAL PLANNING:- It is also known as
“ADMINISTRATIVE PLANNING” which is concerned with structuring the
organizational resources to achieve maximum performance. Every functional unit
e.g. production, finance, marketing, etc. has its separate administrative plans to
put its goals into effect. In other words, administrative plans concentrate on
polices dealing with the major functions of the organization. They serve the bases
of operational or tactical plans.
LOWER-LEVEL OR TACTICAL PLANNING:- It is also known as
“OPERATIONAL PLANNING” . It is done by lower level managers to put
the administrative plans into effect. It is concerned with the efficient day-today use of resources given to a department manager. Such managers work
with a one-year operating budget. For example, a sales manager may be
required to develop an operational plan to sell a certain number of items
within a specific period.
DIFFERENCE BETWEEN STRATEGIC & TACTICAL PLANNING:1.
Strategic planning is concerned with decisions that have long-lasting effects.
For example, next week’s production planning is more tactical & less strategic
than planning a new plant. Strategic planning is concerned with longest time
period & tactical planning is concerned with shortest time period. Both types
of planning are important.
2.
Strategic planning has a board scope; tactical planning has a narrow scope.
Other things being equal, planning at corporate level is generally more
strategic than planning at any organizational level below it.
3.
Tactical planning selects means to pursue specified goals. The goals are
supplied by the higher level of management in an organization. Strategic
planning is concerned with both determining the goals & selecting the means
to achieve them. Strategic planning is concerned with ends as well as means.
PROCESS OF PLANNING:- Planning is an intellectual process which the
managers carry out for the efficient management of the organization. The
nature of this exercise will differ from one organization to another & from one
managerial level to another. Following are the general stages that should be
followed:1.
ESTABLISHMENT OF OBJECTIVES:- The first step in planning is the
determination of objectives. Objectives provide direction to various activities
in the enterprise. Planning is not useful unless it is related to certain
objectives. The establishment of objectives can be very important than
objectives themselves since their establishment emphasizes how various people
& units fit into the overall organization framework. This process can be used
to motivate individuals to achieve objectives which they helped to establish.
2.
ASSESSMENT OF ENVIRONMENT:- Sufficient information must be
collected in order to make the plans & sub-plans. Necessary information
includes critical assessment of the current status of the organization together a
forward look at the environment that is anticipated. The collection &
forecasting of information should be done in terms of external & internal
environment. The assessment of external environment should include
consideration of competition now & in future, government policies, social
values, political conditions, internal environment may consider the strong &
weak points of the organization.
3. PREMISING & FORECASTING:- It is important to identify the assumptions
on which the plans will be based. Assumptions denote the expected environment in
the future & are known as “PLANNING PREMISES”. Again forecasting is
important in premising. It helps in making realistic assumptions about sales, costs,
prices, products, technological developments, etc in the future. The assumption s
along with the future forecasts provide a basis for the plans. Since future
environments are so complex & uncertain, it would to be realistic to make
assumptions in great details are about every environment factor. It is advisable to
limit premising to those factors which are critical or strategic to the planning
process.
4. REVIEW OF KEY FACTORS:- There is always the possibility of existence of
certain limitations that could affect the ability of the work-group to reach its
objectives. An intelligent manager must make plans anticipating the conditions or
limitations that might restrict the smooth operation of the plans. Key are power,
machinery, finance & labor availability. These are some of the important areas
which must be given due weight-age while making plans. A good planner must
consider combinations of all possible limitations & make provision for them.
5. DEVELOPMENT OF ALTERNATIVE PLANS:- Determining the alternative
courses of action is an important step in planning process . There is hardly any
plan for which alternatives do not exist. Without resorting to a search for which
alternatives a planner is likely to be guided by his limited imagination. Generally,
there are several alternatives for any problem. A manager should try to screen out
the most viable alternative so that he has a small number of alternatives for final
selection. This will help in the thorough analysis of the alternatives so developed..
6. EVALUATION OF ALTERNATIVE PLANS:- After selecting the few viable
alternatives, they should be evaluated with the help of a number of parameters
which are related to planning premises & objectives. Each of the alternatives is to
be examined in relation to the following 2 tests:(i). To what extent is it in conformity with the basic or corporate objective of the
enterprise?
(ii). To what extent each of these plans satisfies the cost, speed, quality & rate of
return on investment requirements?
The evaluation of various alternatives will help in knowing which of them offers
greatest choice of success in reaching the desired objective. Sometimes, it may not
be possible to analyze the alternatives properly due to a number of complexities.
The planner should take the help of various quantitative techniques of
OPERATION RESEARCH like probability theory, game theory, linear
programming, etc.
7. SELECTION OF SUITABLE PLAN:- The purpose of evaluating the alternative
courses of action is to select the most suitable course of action which will achieve
organizational objectives. Techniques of decision making are applied to choose a
particular course of action. This may lead to the conclusion that no one course of
action is sufficient. So the management may decide to select 2 or more alternatives
& combine them to have the most feasible plan. While selecting the plan, the
following factors should be kept in mind:(i). The plan should be logical & practical.
(ii). The plan should be flexible & capable of being modified.
(iii). The plan should be specific rather than general.
(iv). The plan should be acceptable to the operating personnel.
(v). The resources required for the implementation of the plan should be made
available.
8. LAYING DOWN OF DERIVATIVE PLANS:- Basic organizational plans cannot
be used effectively unless they are supportive by derivative or sub-plans. The
derivative plans are developed within the framework of the overall planning. For
example, an airline decides to use a fleet of new planes, it will by the development
of a host of derivative plans dealing with the employment & training of various
types of personnel, the acquisition of spare parts, the installation of
maintenance facilities, scheduling, advertising, financing & insurance. The
important derivative plans used in business include policies, procedures, projects,
methods, budgets, rules, etc. They help in achieving the overall organizational
goals.
REQUIREMENT OF AN EFFECTIVE PLANS:- An effective plan should have
the following characteristic features:1.
A PLAN SHOULD BE SPECIFIC:- The more specific a plan is, the less
chance there is for it to be misinterpreted. Objectives should be clearly
defined. The means for carrying out the plan should also be indicated.
2.
A PLAN SHOULD BE COMPLETE & INTEGRATED:- A plan is said to be
complete when it is comprehensive enough to cover all actions expected from
the individuals & selections of undertaking as a whole. It is said to be an
integrated one when various administrative plans are so welded into one
another that the whole undertaking operates at the peak of its efficiency.
3. A PLAN SHOULD BE LOGICAL:- The more facts it is based on, the better it
is. If facts are not avoidable, reasonable assumptions may be made about the
future.
4. A PLAN SHOULD BE FLEXIBLE:- No plan is infallible nor can it cover all
possible contingencies. Conditions under which a plan will be most effective
change as do the variables & factors on which the plan is formulated.
Therefore, it is essential to introduce some flexibility in every plan.
5.
A PLAN SHOULD BE CAPABLE OF BEING CONTROLLED:- Effective
planning business activities depends upon the ability to foresee with accuracy
the nature & requirements of future events relating to industry in general &
the business undertaking in particular. Therefore, the plan must be distinguish
between controllable & uncontrollable future environment for better
administrative control.
MANAGEMENT BY OJECTIVES
DEFINITION & NATURE OF OBJECTIVES:- Objectives are desired state of
affairs which an organization attempts to realize. They are the end points towards
which the activities of the enterprise are aimed. They provide direction to various
activities. They serve as a benchmark for measuring the efficiency & effectiveness
of the enterprise. Objectives make every human activity purposeful. Objectives tell
about the future of the organization. They help to set down guide lines for group
activity. Objectives serve as standards for measuring the performance of various
people working in the organization & overall effectiveness & efficiency of the
organization.
Following are the features of objectives:1.
MAJOR & DERIVATIVE OBJECTIVES:- Big enterprises have both major
& derivative objectives. Major objectives are set for the whole organization. They
are broader in scope & used throughout the enterprises. They are also known as
PRIMARY OBJECTIVES of the enterprise. Derivative objectives are derived
from the major objectives of the enterprise. Every department has specific
objectives in order to contribute to the major goals of the enterprise. They are
also known as DEPARTMENTAL OBJECTIVES.
2.
TIME DIMENSION OF OBJECTIVES:- Objectives may be long term &
short term. Since a business enterprise is a continuous process it must have
both long term & short term objectives. Short term objectives are for a short
period of time like up to 1 year & long term objectives are to be followed in
long run.
3.
NETWORK OF OBJECTIVES:- The basic idea of network is that objectives
exists for every department & activity in the organization & they are
interconnected & mutually supportive. Managers have to pay special attention
to this characteristics otherwise the result would be that different people
would be found pursuing their individual objectives without bothering about
the impact of their actions on others. This is a difficult job because a network
of programs that is guided by specific goals require co-operation & coordination among managers so that the components can mesh together
properly.
CONCEPT OF MANAGEMENT BY OBJECTIVES (MBO):- The concept of
MBO was first used by Peter Drucker in 1954. Drucker suggested that the
manager should devote attention to the establishment of goals so that the
subordinates may exercise self-control in pursuing those goals. This technique is
known as GOAL SETTING APPROACH or MANAGING BY OBJECTIVES. It
was called “WORK PLANNING & REVIEW “ by General Electric Co. of USA.
MBO is a way of thinking about management. It is not a technique or principle of
management but a way of managing a system of goal oriented management. It
is a system of performing managerial functions in a logical & effective
manner. It is not a set of rules or a series of procedures, but a way of making
management effective. The MBO philosophy is built upon the assumptions of
goal clarity , role clarity, periodic feedback, participation & improvement.
FEATURES OF MBO:- Following are the features of MBO:1.
MBO represents a comprehensive management philosophy. It is not merely
tool of measuring performance, but an overall system of management.
2.
MBO emphasizes participative approach to management. The goals are
determined by managers in consultation with their subordinates. MBO is not
merely a meeting of minds, but joint authorship of goals & their joint
implementation.
3.
MBO focuses on goals at each level of the organization. The goals are tangible,
verifiable & measurable.
4.
MBO concentrates on key result areas. It translates the abstract philosophy of
management into concrete plans.
5. MBO is a system that allows management to attain maximum results from
available resources by focusing on goals. It allows the subordinate plenty of
room to take initiative & use creativity in decision making.
STEPS USED IN MBO:- Following are the steps which are used in MBO:1.
DEFINING OVERALL CORPORATE OBJECTIVES:- The first step in
MBO is to define the corporate objectives. These objectives are broad &
general. They involve such basic questions as what return should be aimed
for? How products are to be sold & in what markets? They are basically
concerned with survival, growth & profit. It should be carefully noted that it is
the specific objectives not general objectives which are of importance for
MBO. These objectives form the basis of long term planning & help to provide
a sense of unity, harmony & accomplishment that is essential for co-operative
efforts. The determination of overall objectives is the primary responsibility of
the top management.
2.
SETTING DEPARTMENTAL GOALS:- After the overall corporate
objectives have been established, the next step is to set sub-goals for each unit
or sub-unit so that each division or department knows what it has to achieve
& within what specified period. These sub-goals shall be performance targets
for each unit. They effectively contribute towards the accomplishment of overall
objectives. Care has to be taken to see that there is no inconsistency between
overall objectives of the organization & specific goals of its units.
THE PROCESS OF MBO
CORPORATE
OBJECTIVES
COUNSELLING OF
SUBORDINATES
3.
DEPARTMENTAL
OBJECTIVES
TARGETS FOR
INDIVIDUAL
SUBORDINATE
PERFORMANCE
REVIEW
ESTABLISHMENT OF
CHECK POINTS
SETTING OF TARGETS FOR INDIVIDUALS:- Targets must be set for each
organizational position by the superior in consultation with the subordinate
executives. MBO is a participate approach so the subordinate must play an
active part in determining targets for himself. Checkpoints or standards of
performance for evaluating the progress of subordinate must also be set. The
standards should be defined quantitatively, if possible & the subordinate must
understand them fully. This practice should be followed by every superior for
each of his subordinates & it should lead to key result analysis as targets or goals
are represented in terms of results.
4. ESTABLISHING CHECKPOINTS:- MBO ensure periodic meetings between
the superior & the subordinate to review the progress towards the
accomplishment of targets of the subordinate. For this the superior must
establish checkpoints or standards of performance for evaluating the
performance of the subordinate.
5.
REVIEW OF PERFORMANCE:- While informal performance appraisal of a
subordinate is immediate superior almost everyday, formal appraisal at
periodic intervals, usually once or twice a year, does ensure that through
evaluation of manager’s performance is being done at least once or twice a
year when the achievements are carefully analyzed against the background of
prevailing circumstances & given objectives. The design format of the
“Performance Review Form” will depend on the nature of the enterprise. The
performance of every subordinate is evaluated in terms of standards or endresults clearly agreed between the superior & subordinate. Under MBO, the
superior does not evaluate the individual concerned, but his performance.
Moreover the performance review is aimed at assisting the subordinate to
improve his performance in the future. It also helps in setting fresh goals for
the next period.
6.
EMPLOYEE COUNSELING:- Under MBO, performance appraisal is meant
to improve performance & not suggesting rewards or punishments. It is the
responsibility of the superior to suggest ways to remove deficiencies in the
performance of the subordinate & make plan for training of the subordinate.
At this stage, the superior offers counseling to the subordinate not only on the
work problems but also his personal problems. This will improve
understanding between the 2 & help in setting mutually agreed goals for the
future.
USE OF MBO:- The important benefits of MBO are as follows:1.
BETTER PLANNING:- MBO helps in setting the goals & targets of both
superiors & subordinates. Such mutual goal setting improves goal clarity &
results in realistic plans to which the people become committed.
2.
BETTER ORGANIZATION:- When the goals for each individuals are set by
MBO. The organization charts & manuals should be suitably amended to
depict the change brought by the introduction of MBO. The job descriptions
of various jobs must define their objectives, responsibility & authority. They
must clearly lay down the relationship with other job positions in the
organization.
3.
SELF-CONTROL:- MBO serves as a means of organization control. There is
a greater sense of identification by the enterprise wherein controls are
reckoned as tools of “Self Control” rather than devices to be used against
managers.
4. HIGHER PRODUCTIVITY:- There is an improvement in productivity as
management team concentrates on the important task of reducing costs on less
important matters.
5. BETTER APPRAISAL OF PERFORMANCE:- The process of defining the
results expected establishes accurate criteria for appraisal of performance.
Clear understanding of responsibilities or criteria of evaluation intensifies
accountability. MBO provides an objective measuring instrument for the
evaluation of actual performance. Appraisal is result-oriented & not traitoriented. An individual can evaluate himself the results of his own
performance.
6.
EXECUTIVE DEVELOPMENT:- MBO emphasizes long term viewpoint of
the executives. MBO is a tool of self development of the executives. That is the
individual acquires knowledge & skills on the job as a by-product of his
meeting performance requirements. Opportunities for learning &
experimenting are natural ingredients in the goal setting process.
DIFFICULTIES IN IMPLEMENTATION OF MBO:- Following are the
difficulties which are found in implementing of MBO:1.
HESITATION TO CHANGE:- MBO appears to be simple, but it requires a lot
of changes in traditional thinking & practices. The specialized functional
classification, hierarchical structure, goal setting, trait-oriented appraisals,
etc., are major impediments to the successful implementation of MBO, which
requires hard work & patience on the part of managers. It successful use
requires continuous education & training of supervisors & others in its
implications.
2.
LACK OF PARTICIPATION:- One of the major weakness often seen in MBO
is poor planning of program prior to its implementation. Those concerned
with the implementation of MBO must be well-trained. They must know how
to involve all levels of management & obtain their support.
3.
UNNECESSARY PAPER WORK:- MBO results in instruction
booklets,training manuals, performance reports, etc. Subordinates have to fill
in forms & submit detailed reports on their performance. This reduces the
effectiveness of MBO.
4.
LENGTHY PROCESS:- MBO needs a lot of time in setting measurable goals.
In the beginning several meetings may have to be held to create confidence in
the subordinates. The formal periodic reviews & final appraisal sessions also
take a lot of time. In this way the patience of those responsible for its
implementation is taxed.
5. NEGLECT GOALS OF INDIVIDUALS:- MBO is concerned with the objectives
of the organization & those of the individuals who work it out. But employees
are motivated most when they se prospects of their own goals advanced
through those of the organization.
HOW TO MAKE MBO EFFECTIVE?:- Following guidelines help to make
effective implementation of MBO:-
1.
TOP-LEVEL COMMITMENT:- Acceptance & enthusiasm among employees
for an MBO program may quickly disappear unless the top management
makes required efforts to keep the system alive & fully functioning. Managers
who find it difficult to set & review objectives may revert to more traditional
approaches. Top managers must be aware of those tendencies & provide
regular support to keep the program a vital point of organizations operating
procedures.
2.
TRAINING OF MANAGERS:- For MBO to succeed managers must
understand it & have the essential skills. They must be educated concerning
the procedures & advantages of the system & the skills required. If manager
remain resistant, MBO program will not succeed.
3. CLARITY OF PURPOSE:- MBO may be used for different purpose e.g., long
term planning, performance appraisal, productivity improvement, etc. The
details of MBO program vary with the purpose for which it is used. Therefore,
the purpose should be clearly defined before installing MBO program.
4. ENCOURAGEMENT OF PARTICIPATION:- Managers must understand that
participation by subordinates in goal setting may imply some reallocation of
power. They must be willing to take direct control over their subordinates &
encourage them to play more active role in defining & achieving their own
objectives.
5. DELEGATION OF AUTHORITY:- The subordinates who have accepted the
challenging assignments through discussion with the superior must be given
authority to accomplish their goals. MBO will not work if the manager is not
willing to delegate sufficient authority to the subordinates as the subordinates
will not be willing to accept new assignments & may even resist the setting of
clearly defined goals.
6. OVERALL INTEGRATION:- MBO should b e treated as an isolated program.
It must be integrated all the organization programs including human resource
planning, human resource development, production control & financial
planning.
MANAGEMENT BY EXCEPTION:- Management by exception is a useful
principle of managerial control. It has important deviations (Exceptions from
standards) of performance should be brought to the management’s attention. If
actual performance is according to the planned performance – standards already
laid down, it need to be brought to the attention of the concerned manager as no
follow-up action is necessary. But if performance is lower than the standard, it
should be reported to the manager. For example, if 15% defective units are
tolerable, any deviation beyond this must be reported to the higher executives.
The principle of management by exception must be practiced with the principle of
critical control. Management should select key areas on which the performance of
the whole organization depends & concentrates more on these areas. The
exception principle refers to the size of deviations from the standards only in the
critical control points or areas. Control by exception will consume managerial
time, effort & talent & apply these in important areas. It is a technique of
separating important information from the unimportant one. Only such
information which is critical for management control should be submitted to the
higher executives.
DECISION MAKING MODELS
DEFINITION OF DECISION MAKING:- It is a human process. When a
manager decides, he chooses a course which he thinks is the best. Decision
making is a mixture of thinking, deciding & acting. An important executive
decision is only one event in the process which requires a succession of
activities & routine decisions all along the way. Decisions have a time
duration. A manager takes time to collect facts & to weigh various
alternatives. Moreover, after he decides, it takes still more time to carry out a
decision & often it takes long before he can judge whether the decision was
good or bad. It is also difficult to find out the effects of any single decision.
Decision making, is the selection from alternatives of courses of action, is at
the core of planning. It is an important step in planning even when done
quickly & with little thought or when it influences action for only a few
minutes. Decision making involves establishing goals, defining tasks,
searching for alternatives & choice of the best alternative.
A decision involves the act of choice & the alternative chosen out of the
available alternatives. The process concerned with decisions is known as
“Decision Making”. Decision making is a process of selection from a set of
alternative courses of action which is thought to fulfill the objectives of the
decision problem more satisfactorily than others. Decision making is an act
of choice where a manager selects a particular course of action fro the available
alternatives in a given situation, the basic characteristics of decision making
process are as follows:1.
It is a human process involving to a great extent the application of intellectual
abilities.
2.
It is a process of choosing a course of action from among the alternative
courses of action.
3.
It is always related to situation. A manager my take one decision in a
particular set of circumstances & another in a different set of circumstances.
4.
Decision making involves a certain commitment of the organization for
adopting a specific course of action.
5.
Decision making in business is always related to its objectives.
6.
Decisions are made by managers for solving problems, resolving fights or
conflicts & tackling or handling various situations.
ORGANIZATIONAL CONTEXT OF DECISION MAKING:- Organizations are
made of individuals & groups. Both formal groups e.g., work teams,
committees & informal groups are supposed to take decisions to solve various
problems. Decision making in groups is a collective process which is based on
the olden concepts that 2 heads are better than one. In group decision making
the group members interact with each other, deliberately on the problem & arrive
at some collective decision. The decision may be arrived through either
consensus implies that all members must agree to the proposed decision,
where majority vote implies that it is enough for majority of the group
members to agree on the decision arrived at.
MERITS OF GROUP DECISION MAKING:- following are the advantages of
group decision making:1.
The knowledge base of the group is greater which can help in taking better
decisions.
2.
The group members have different specialties as in case of cross-functional
teams. This will allow group to analyze the problem from different aspects. In
such a situation, the decision is likely to be comprehensive in nature.
3.
The input from the members of the group can eliminate the biases that are
generally introduced in the process of individual decision making. It also
reduces the unreliability of individual’s decision.
4.
Group decision making helps the group members to take part in decision
making. This can lead to better decision besides providing satisfaction to the
participants.
5. Group decision making can be used as a training ground for new members to
learn decision making & communication skills. Thus, it can serve as an
instrument of human resources development.
DISADVANTAGES OF GROUP DECISION MAKING:- Following are the
disadvantages of group decision making:-
1.
Group decision making is a time consuming process. A group takes more time
in watching a decision since there are too many opinions to be taken into a
decision since there are too many opinions to be taken into consideration. The
greater is the time taken in decision making.
2.
Sometimes, the group leader or some member may dominate in the group
deliberations which might result in taking a biased decision.
3.
A group may make decisions that are simply a compromise between the
various views held by individual members. This is particularly true when a
group must make a decision on a controversial issues.
4.
When there is conflict between the group goals & the organizational goals, the
group decision is likely to be determine to the interests of the organization.
5.
Group decision making may prove to be more risky than individual decision
making. Since it is a collective decision, the group may be tempted to take
more risk. Such a tendency is known as “Risk Shift”.
PROCESS OF DECISION MAKING:- Managers at all levels have to take
decisions on various types of problems & matters in varying situations. Whatever
maybe the nature of the problem there are certain basic steps which have to be
involved in the process of decision making:DECISION MAKING PROCESS CHART
IDENTIFYING THE PROBLEM
ANALYSIS OF THE PROBLEM
F
E
E
SEARCH OF ALTERNATIVES
D
EVALUATION OF ALTERNATIVES
SELECTION OF BEST ALTERNATIVE
B
A
C
IMPLEMENTATION OF DECISION
K
1.
IDENTIFYING THE PROBLEM:- Understanding the situation that sets the
stage for making decision by a manger is the first stage in decision making.
Predetermined objectives, past acts & decisions, environmental considerations
provide the structure of current decisions. Once the structure is laid, the
decision makes can find out the real problem. Finding the real problem helps
to understand the gap between what is & what is expected to happen,
identifying the reasons for the gap & understanding the problem in relation to
the objectives of the organization. Defining the problem is not an easy job. It
takes a lot of time which indeed is worth spending. Care should be taken in
defining the real problem. If proper care is not taken, what may appear at first
sight to be the problem may ultimately turn out to be a mere symptom. Like a
doctor who has to take into account all the symptoms before deciding the
medicine to be given to the patient. A manger must also carefully find out the
problem. In business, situational factors are very important. In one case, the
cause of loosing money maybe high costs. Thus, there is not guarantee that
symptoms will always lead to the same problem. So the manager should try to
have an overall view of the situation to find the real problem.
2.
ANALYSING THE PROBLEM:- After finding the problem, the next step will
be to analysis the problem. Classification is necessary in order to know who
should take the decision & who should be consulted in taking it. Without
proper classification, the effectiveness of the decision maybe wrong. The
problem should be classified keeping in mind the following guidelines:
The nature of the decision – whether it is strategic or routine.

The impact of decision on various business factors.

The future of the decision.

The time duration of the decision.

The limiting or strategic factor relevant to the decision.
3.
SEARCH OF ALTERNATIVES:- The next stage is to search the alternatives.
But the number of forces acting upon a given situation is so large & varied
that it is better to follow the principle of limiting factor. In other words,
management should limit itself to the discovery of those key factors which are
critical or strategic to the decision involved. For example, while planning for
expansion of the enterprise, availability of finance or trained staff during a
short period of time might be the limiting factors. Discovery of limited factors
plays a very important part in the process of decision making. But searching
limited factors is not easy & decision makers have to use judicial wisdom &
analytical ability in this matter. However, in any attempt to discover the
strategic factors, management should not lose sight of the overall objectives of
the enterprise. The limiting factors should be analyzed in the terms of their
contribution to the accomplishment of organization objectives.
4.
EVALUATION OF ALTERNATIVES:- After the alternatives are discovered,
the next stage is to analyze & compare their importance. The decision maker
should consider the element of risk involved in each of these & also the
resources available for their use. He should weigh each of them from the view
point of accomplishment of some common goals. Both tangible & intangible
factors should be considered while evaluating different alternatives. Tangible
factors like profits, time, money & rate of return on capital investment can be
expressed numerically. Such factors maybe evaluated & compared by telling
about their effects on income, expenses & cost structure of the enterprise.
Management can afford to overlook intangible factors in situations where
their effect on course of action is likely to be negligible. However factors like
public relations are important & cannot be ignored. The analyst should,
therefore, identify the relevant intangible factors. Sometimes, the decision
maker is faced with a situation where 2 or more alternatives appear equally
good. In that case, actual difference will be the deciding factor.
5.
SELECTION OF BEST ALTERNATIVES:- Defining the problem, identifying
the alternatives & their analysis help the decision maker to determine the best
solutions. In this matter the decision maker is guided by his knowledge & past
experience. The criteria which maybe used for selecting the best alternatives
are as follows:-

RISK:- A manager should weigh the risks of each course of action against the
expected gains. As a matter of fact, risks are involved in all the alternatives.
What matters the most is different types of risks in various alternatives.

ECONOMY OF EFFORT:- The best manager is one who can use the
resources for the achievement of results with the minimum efforts. The
decision to be taken should ensure the maximum possible economy of efforts,
money & time.

SITUATION OR TIMING:- The choice of alternative depends upon the
situation present at that particular time. If the situation has great
requirement, the preferable alternative is one that saves the organization that
something important is happening. If a long & regular effort is needed a slow
start gathers appreciation approach.

LIMITATION OF RESOURCES:- In choosing the alternatives attention must
be given to those factors that are limiting or strategic to the decision involved.
The search for such is a never ending process. Discovery of the limiting factors
lies on the basis of selection from the alternatives & planning & decision
making.
6.
IMPLEMENTATION OF DECISION:- Once the decision is made it has to be
implemented. The decision maker needs to take into account variables like
beliefs, attitudes & values of people in the organization. It helps to encourage
the subordinates to take part in decision making process so, that they feel
committed & motivated to use the decision effectively. A t the same time, the
decision maker should establish effective controls so that major deviations can
be seen, analyzed & prevented.
PARTICIPATION IN DECISION MAKING:- To make the subordinates
committed to the decision, it is important that they are allowed to take part in
the decision making process. The managers who discuss the problems with
their subordinates & give them chance to ask questions & give suggestions,
find more support for their decisions than the managers who don’t let the
subordinates to take part. Now the question arises at what levels of the
decision making process should the subordinates participate? The
subordinates should not participate at the stage of finding the problem
because the manager himself is not sure to whom the decision will affect. The
stage where the subordinates should take part is the development of
alternatives. They should be encouraged to suggest alternatives. The
subordinates will feel committed to the decision.
MODELS OF DECISION MAKING:- Following are the 2 main models of decision
making:1.
NORMATIVE MODEL (RATIONAL ECONOMIC MAN):- In normative
model study is done on rational economic man. A rational business decision is
one which effectively & efficiently assures the attainment of aims for which the
means are selected. It means that the decision maker as an economic being
who tries to maximize the advantage by selecting the best solution to a
problem. It is called “NORMATIVE APPROACH” because it is idealistic &
scientific decision. It is based on following assumptions:-

The decision maker is systematic & logical in his thinking.

He is also scientific in his thinking because he tries to discover reality, never
takes things for granted & accepts things after verification.

He is very objective; never allows himself to be pulled or pushed; controls his
emotions carefully.

He is knowledgeable; he is in position to get full information on matters in
which he is interested.

He is able to analyze his information intelligently.

He can clear & define goals to maximize his gains or minimize his pains or
losses. He knows his priorities very well.
He moves purposefully to reach his goals. Thus, he chooses appropriate means &
relates them clearly to his goals, because he is definite about his ends & means.
Economic man model is normative, it describes how person should make a
decision. In reality, people do not behave in an ideal manner. People seldom
achieve complete rationality. Therefore, it describes prescriptive manner how a
decision maker should behave. Complete rationality is not possible. In other
words, rationality is bounded by several limitations.
2. ADMINISTRATIVE OR BEHAVIOURAL MODEL:- Administrative man is
who takes decisions based as intuition & rational thinking. A person who depends
much upon intuition is more subjective & a person who depends much upon
logical thinking is more objective. The concept of bounded rationality explains the
behavior of people, in practice. It recognizes that a person cannot be expected to
have full knowledge & information & his capacity to perceive, retain & retrieve
information is not unlimited. Human goals are multiple & conflicting. The
traditional theory of completely rational & economic man cannot work in practice.
Thus, in practice, managerial decision making is a sub-rational, fragmented &
pragmatic activity. Absolute rationality is a super human & rare faculty. It is an
ideal worthy to be aimed at but seldom reached. Managers can at best be rational.
They are ordinary humans, though endowed with moderate intelligence &
initiative. They are not all-knowing & all powerful. They have their own share of
limitations – intellectual, emotional & physiological. Even if they can make very
objective decisions, several situational factors are likely to come in the way. The
“real life” decision maker who makes decisions within bounded rationality is
called “ADMINISTRATIVE MAN” as against the “economic man” representative
of rational decision making. The administrative man seeks satisfying decisions
which are satisfactory & sufficient for his practical purposes. He has a mixture of
rational & emotional sentiments, economic & non-economic values. He is neither
completely rational nor completely emotional. He no doubt likes to reach best
decisions. He knows about desirability. He also about his limitations & the
limitations imposed on him by the environment. He defines his problems in
practical terms, collects as much information as possible, considers a feasible &
familiar set of alternatives & chooses one of them. He may not engage in an
exhaustive search process for information & for alternative courses. He may not
follow a pre-determined, systematic, sequential decision making process. He is
very flexible in his approach. He does not hesitate to adjust his goals & the means
of attaining them in tune with the ground realities.
CONCEPT & NATURE OF CONTROL:- According to Henry Fayol ,”Control
consists in verifying whether everything occurs in conformity with the plan
adopted, the instructions issued & principles established”. Control helps to point
out weaknesses & errors in order to rectify or to correct them & to prevent
recurrence. It works on everything – things, people, actions. Control is a
systematic effort by management to compare the performance with predetermined
standards in order to determine whether the performance is in line with those
standards & presumably in order to take any remedial action required to see that
human & other resources are being used in most effective & efficient way possible
in achieving corporate objectives.
The modern concept of control system helps in providing historical record of what
has happened to the business as a whole, but also pinpoints the reasons why it has
happened & provides data that enable the chief executive or the department head
to take corrective steps if he finds he is on the wrong track. Thus, managerial
function of control uses measurement of actual performance, comparing it with
the standards set by plans & correction of deviations to ensure attainment of
objectives according to plans.
FEATURES OF CONTROL:- Managerial control has the following
characteristics:1.
MANGERIAL FUNCTIONS:- Control is an important function of every
manager who is performing other managerial functions like planning,
organizing, staffing & directing. It is, in fact, a follow-up action to other
functions of management. Managers at all levels have to perform this function
to contribute to the achievement of organizational objectives.
2.
FORWARD LOOKING:- Control is linked with future & so is forward
looking. A manager can take corrective action only in regard to future
operations. Control is usually preventive as presence of controls tend to
minimize wastages, losses & deviations from standards.
3.
CONTINUOUS PROCESS:- Just like other functions of management, control
is also a continuous activity. It involves constant analysis of standards, policies,
procedures, etc. It also suggests corrective actions in various processes. It does
not stop anywhere. A manager has to perform this function continuously along
with other functions. In continuous process control is a never ending process.
4.
DYNAMIC PROCESS:- Control is a dynamic process. It is flexible & not
rigid. Control results in corrective actions which may lead to change in the
performance of other functions of management. Since management is
handling a business entity or unit which keeps on changing, managerial
control is also dynamic. Management will be failing in its duty if its approach
is not dynamic.
5.
CORRECTIVE ACTION:- The purpose of control is achieved only when
corrective action is taken on the basis of feedback information. It is the action
which adjusts performance to predetermined standards whenever deviations
occur. A good system of control facilitates timely action so that there is
minimum waste of time & energy.
RELATIONSHIP BETWEEN CONTORL & PLANNING
1. PLANNING & CONTROL ARE CLOSELY RELATED:- Once a plan becomes
functioning & operational, control is necessary to measure progress, to
uncover deviations from plans & to indicate corrective action. Planning may
involve simple measures such as minor changes in techniques of leading. In
other cases, control may result in setting new goals, forming new plans,
changing the organization structure, improving staffing & making major
changes in the techniques of directing & leading. The control cycle is an
endless sequence or never ending sequence of establishing standards,
observing performance with standards & taking correct action to ensure the
achievement of objectives.
Control is always based on planning. It is also true that in a running enterprise
planning depends upon controlling. Every manager uses certain standards for
measuring & appraising performance which are laid down by planning. The
control process, in turn may reveal or tell about the deficiency of plans & may lead
to re-study the plan. It may also lead to setting new goals, improving staffing &
making changes in the techniques of supervision, motivation & leadership.
PLANNING
PERFORMANCE
CONTROL
RELATIONSHIP BETWEEN PLANNING & CONTROL
2. PLANNING WITHOUT CONTROL IS MENAINGLESS & CONTROL
WITHOUT PLANNING IS BLIND:- Planning is an empty exercise without
controlling. A good plan will not bring any concrete result if the management
is lacking in controlling. Planning finds the goals & determines the ways of
achieving them. It is control which ensures attainment of goals by evaluating
performance & taking corrective action. Control presupposes the existence of
standards with which the actual performance is compared. If the standards with
which actual performance are not set in advance, the manager will have no
idea of “what is control”. Thus, planning must be done before the actual
operation. The experience gained in controlling will help to improve the
process of planning.
CONTROL Vs CONTROLS:- Controls refer to measurements, information &
other means of control whereas control is a process that guides activity
towards some predetermined goals. Thus, control pertains to end whereas
controls pertain to means. Peter Drucker has identified the following 4 points
of distinction between controls & control:1.
Controls refer to measurements & information & control refer to goals or
direction.
2.
Controls pertains to means & control to an end.
3.
Controls deal with facts & past events, but control deals with expectations or
future.
4.
Controls are analytical in the sense that they are concerned with what was &
what is. But control, on the other hand, is normative & concerned with what
ought to be.
KINDS OF CONTROL:- Following are the kinds of control:1.
HISTORICAL CONTROL:- It measures results after the happening of an
event. It tells management to what extent objectives are actually
accomplished. Financial & budgetary controls are examples of historical
controls. Financial ratios measure efficiency of the firm in many areas.
2.
PREDICTIVE CONTROL:- Also known as “FEED FORWARD
CONTROL”, predictive control attempts to anticipate problems before they
actually occur. For e.g., the policy on absenteeism maybe communicated to the
new employees to check potential problems caused by absenteeism among new
employees. To take another example, the cash budget for the coming year can
predict inflow & outflow of cash relating to a firm . If shortage of cash is
anticipated say, in July, a bank loan can be arranged well in advance.
3.
CONCURRENT CONTROL:- It is also know as “REAL TIME” or
“STEERING CONTROL”. It is concerned with the adjustment of
performance before any major damage is done. For e.g., the navigator of a
ship adjusts its movements continuously or the driver of a car adjusts its
steering continuously depending upon the direction of destination, obstacles &
other factors. In enables the production supervisor to take immediate
corrective action before additional products of inferior quality are produced.
IMPORTANCE OF CONTROL:- Control is an important function of
management. Without control, a manager cannot complete his job of
managing. All other functions are the preparatory steps for getting the work
done & controlling is concerned with making sure that there is proper
execution of these functions. Control is necessary whenever a manager assigns
duties & delegates authority to the subordinates. He must exercise control
over the actions of his subordinates so as to ensure that the delegated
authority is used properly. The advantages of control are as follows:1.
Control brings order in the organization. Absence of control is dangerous for
the organization. Control ensure business operations in the desired direction.
2.
It helps in improving the performance of subordinates.
3.
It helps in process of delegation. Authority can be safely transferred if
effective controls exist in the organization.
4.
It brings about better utilization of resources – human & material, & thus
increases productivity & profit, & contributes to the progress of business.
5.
Control increases the effectiveness of planning. In fact, controlling & planning
go hand in hand. Control is the only means to ensure that the plans are being
implemented. Control points out the shortcomings of not only planning, but
also other functions of management such as organizing, staffing & directing.
6. Control provides the basis for future action. It will reduce the chances of
mistakes being repeated in future by suggesting preventive steps.
LIMITATIONS OF CONTROL:- Following are the limitations of control process:1.
Measurable standards are essential to control; but many aspects of business,
e.g., employee morale & public relations cannot be expressed in quantitative
terms.
2.
Control may stifle the initiative of subordinates & dampen their spirit.
3.
The success of control depends on personal responsibility. But this cannot be
fixed in all cases.
4.
Control is an expensive process because sufficient attention has to be paid to
observe the performance of the subordinates. This requires an expenditure of
a lot of time & effort.
5.
The effectiveness of controls depends on their acceptance by the subordinates.
They may resist controls if they feel that these will reduce their freedom.
Control also loses its importance when it is not possible to fix the
accountability of the subordinates.
6.
An enterprise cannot control the external factors such as government policy,
technological changes, fashion changes, etc.
BUDGETARY CONTROL:- Budgetary control is the oldest technique of control
which is still used by business enterprises. According to Walter W. Bigg , “the
term budgetary control is applied to a system of management & accounting
control by which all the operations & output are forecast as far ahead as
possible & the actual results, when known, are compared with the budget
estimates”. Budgetary control involves the use of budgets to plan, co-ordinate
& control day-to-day operations of business in accordance with the overall
objectives of business.
WHAT IS A BUDGET?
A budget is a kind of plan for a certain period of time. It is expressed in in physical
& financial terms. Preparation of budget needs the same process as is required
to make any other type of plan. A budget is made in advance & is based on
scientific forecasts. Without efficient budgeting, it may not be possible to keep
control over the expenditures. As a plan shows clearly the targets to be
achieved in financial & physical terms. Budget constitutes a statement of
expected or planned results (of any proposed course of action) in quantitative
terms of specified future period (usually one accounting year). It may be
expressed either financial or physical terms like machine-hours, man-hours,
units of products or in any other numerical measurable term. There can be
budgets of sales, production, materials, labor, manufacturing expenses, cash
flows, capital expenditure, etc.
BUDGET AS A TOOL OF PLANNING & CONTROL:- Budgeting is a key to
managerial process because it functions like planning, control & co-ordination
of organized activity. One of the important virtues of framing a budget is that
it forces the manager to plan the future operations of his unit. Budgets inject a
sense of clarity, direction & purpose in the activities of various operating units
within the organization. Budgets specify “what” is to be achieved, control
involves action to monitor whether & how it is being achieved. Budgetary
control is one of the most widely adopted conventional control tools to impart
a measure of discipline & direction to enterprise activities & managerial
performance. Budgetary control has implications not only on the goals of the
organization but also on the motivation & behavior of the organizational
members. Budgetary control provides a concrete frame of reference to the
decision maker in his choice of activity.
KINDS OF BUDGETS:- Following are the kinds of budgets:1.
SALES BUDGET:- The sales budget includes the forecast of total sales during
a period. It can be in terms of money & quantities. The forecast not only
relates to the to the total volume of sales but also its break-up product wise &
area wise. The responsibility for making sales budget lies with the sales
manager, who takes into account various factors like past sales figures &
trend, salesmen’s estimates, general economic conditions, seasonal
fluctuations, competition & government’s control.
2. PRODUCTION BUDGET:- The production or operation budget includes a
forecast of the output for a period analyzed according to products,
manufacturing departments & periods of production. It is based on sales
budget as it is the responsibility of the production department to schedule its
production according to the sales forecast. It is prepared by the production
manager by keeping the following things in mind:•
The sales budget.
•
Plan capacity.
•
Inventory Policy.
•
Availability of raw materials, labor, power, etc.
3.
MATERIALS PROCUREMENT BUDGET:- Materials can be direct &
indirect. The material procurement budget deals with direct materials for
budgeted output. It is based on production budget. Materials required for a
unit of production is determined & is multiplied by the budgeted output to get
total quantity of direct materials required. Materials budget helps in the
purchase of materials to produce a given volume of output during a particular
period to meet the requirements of the customers during the period.
4.
LABOR BUDGET:- It contains the estimates of direct labor requirements
needed for carrying out the budgeted output. Labor of different grades
required for a job or process is determined in terms of labor hours & is
multiplied by wage rate per hour to determine the total expenses on direct
labor for budgeted production.
5.
FACTORY OVERHEAD BUDGET:- It contains the details of the fixed &
variable overhead costs for the budget period. Fixed costs generally remain
fixed. They do not change with the change in volume of production. Variable
costs, change with the changes in the volume of production. Fixed costs can be
determined on the basis of past data & likely changes in future. Variable costs
for the budget period are determined on the basis of the volumes of
production included in the production budget.
6.
DISTRIBUTION OVERHEAD BUDGET:- It includes the estimates of all
items of expenditure on production & distribution of finished goods. The costs
are divided into fixed, variable & semi-variable categories. The various items
of expenditure include sales, office rent, salaries, depreciation & miscellaneous
expenses like advertising, commission, bad debts, traveling expenses, etc.
7. ADMINISTRATIVE OVERHEAD BUDGET:- It contains the estimates of
administration expenses like expenses on office operations including salaries to
office personnel. Such expenses form an important part of the total cost of a
product. Preparation of this budget helps in keeping the administrative costs
in control.
8. CASH BUDGET:- The cash budget gives detailed estimates of cash receipts &
cash disbursements for the budgeted period. It is prepared to ensure cash is
available in time for meeting the financial commitments & to use cash
available in the best possible manner.
9.
MASTER BUDGET:- The master budget is the summary budget
incorporating its functional budgets. It is finally, approved, adopted &
employed. Thus, master budget incorporates all functional budgets. It gives a
picture of the proposed activities & anticipated results during the budget
period. It is approved by the top management of the enterprise.
10. FIXED & FLEXIBLE BUDGETS:- A fixed budget is remains unchanged
irrespective of the level of activity actually attained. The main purpose of fixed
budget is to co-ordinate sectional activities to attain the objectives of the
enterprise. It is prepared for a given level of production & does not take into
account the changes in production. A flexible budget is prepared in a manner
that it gives the budgeted cost for any level of activity . The flexible budget is

prepared after considering the fixed & variable elements of cost & the changes
that maybe expected for each item at various levels of operations.
11. PERFORMANCE BUDGETING:- It relates to greater efficiency
specially in government work. Performance budgeting is therefore, looked
upon as a budget based on functions, activities & projects& is linked to
budgetary system based on objective classification of expenditure. It helps to
focus attention on the work to be done, services to be rendered rather than
resources to be spent. The main purpose of performance budgeting are:(i). To review at every stage & at every level of the organization to measure
progress towards the short-term & long-term.
(ii). To inter-relate physical & financial aspects of every program, project or
activity.
(iii). To facilitate effective performance audit.
(iv). To help assess the effects of decision making by the lower level, middle
level & top managers.
(v). To bring annual plans & budgets in line with the short & long-term plan
objectives.
A performance budget presents estimates of expenditure & earnings in terms
of functions, programs, activities & projects. For e.g., in case of health
ministry, the classification is for salaries, stationery, rent, transport, etc. But
performance budgeting is introduced, the may in terms be in terms of family
welfare (various schemes, targets, expenditure to be incurred), malaria
eradication, etc.
BENEFITS OF BUDGETARY CONTROL:- Following are the benefits of
budgetary control:1.
Budgets serve as standards against which actual performance can be
measured. They help in taking corrective action which is an important part of
controlling.
2.
Budgets are important tool of co-ordination. In preparation of various budgets
knowledge, skill & experience of many executives are used. This leads to
proper co-ordination of the efforts of various departments of the enterprise.
3.
Budgeting helps in reducing unproductive operations by minimizing wastage
of resources. Budgets are prepared after considerable thought & are directed
towards certain aims & objectives.
4.
Budgeting makes financial control & planning easy. The effect of budgeting is
through examination & scrutiny of financial aspects of the business. This helps
in optimum use of financial resources of the enterprise.
5.
Budgeting is an important device for fixing the responsibility of various
positions. The persons occupying various positions can be made to understand
their responsibilities with the help of budget.
6. Any expenditure in excess of what is provided for in the budget cannot be incurred
without prior sanction of appropriate authorities. It thus, acts as an instrument of
financial control.
DISADVANTAGES OF BUDGETARY CONTROL:- Following are the disadvantages of
budgetary control:-
1.
Over emphasis on budgeting may bring about rigidity in the enterprise. It may deprive
the managers of the flexibility they require in managing their departments.
2.
Budgeted estimates are generally based on the price level at a particular period of time.
These estimates may become useless when there is either inflation or depreciation in
the market.Thus, the whole purpose of budgetary control may be lost.
3.
Budgetary control in itself does not prevent deviations from appearing. It neither
ensures satisfactory results nor controls automatically. A delibrate effort has to be
made in this direction. Poor implementation of budgets maybe defeat the very pupose
of budgetary control.
4.
Sometimes budgets are treated as an end in themselves. Some people maybe extra
cautious to function within the boundaries of budget figures rather than achieving the
enterprise objectives.
5.
A budget which allows liberal expenditure maybe used to hide inefficiencies. For e.g., a
department maybe inefficient even though its expenses are within the budget limits.
ZERO-BASED BUDGETING:- ZBB is based on the premise that every rupee of
expenditure requires justification. The traditional budgeting approach
includes expenditure of previous year which are automatically incorporated
into new budget proposals & only increments are subjected to debate. ZBB
assumes that a responsibility center has no pervious expenditure. Important
features of ZBB:-
1.
Concentration of efforts is not simply on “how much” a unit will spend, but
“why” it needs to spend.
2.
Choices are made on the basis of what each unit can offer for a specific cost.
3.
Individual unit objectives are linked to corporate objectives.
4.
Quick budget adjustments can be made during the operating year costs are
required to maintain expenditure level.
ADVANTAGES OF ZERO BASED BUDGETING:- Following are the advantages
of ZBB:1.
ZBB requires participation of all mangers in preparation of budgets & hence,
responsibility of all levels of management in successful execution of budgetary
system can be ensured.
2.
ZBB is relatively elastic because budgets are prepared every year a fresh on a
zero base. This makes it obligatory to develop financial planning &
management information system.
3.
ZBB cuts wastage & reduces the cost of production because every budget
proposal is evaluated on the basis of cost benefit analysis.
ORGANIZATION STRUCTURE:- An organization structure shows the authority
& responsibility relationships between the various positions in the
organization by showing who reports to whom. It is a set planned relationships
between groups of related functions & between physical factors & personnel
required for the achievement of organizational goals.
TYPES OF ORGANIZATIONAL STRUCTURES:- Following are the types of
organizational structures:1.
FUNCTIONAL STRUCTURE:- In a functional structure activities are
grouped & departments are created on the basis of specified functions to be
performed. Activities related to a function are grouped in a single unit with a
view to give a well defined direction to the whole group. For e.g., in an
industrial enterprise , the major functions like production, finance, marketing
& personnel maybe grouped into different departments.
ADVAVTAGES OF FUNCTIONAL STRUCTURE:- Following are the advantages
of functional structure:1.
It is easier to organize departments based on functions & sub-functions.
2.
It allows giving balanced weight age to the basic functions on which the
survival of the firm depends.
3.
It introduces specialization leading to higher productivity & economical
operations.
4.
It ensures effective utilization of personnel in different departments.
5.
It helps in training of specialist managers rather than generalist managers.
6.
It facilities better co-ordination of activities within each department.
7.
It allows delegation of authority by the chief executive to the various
functional heads.
DISADVANTAGES OF FUNCTIONAL STRUCTURE:- Following are the
disadvantages of functional structure:1.
Each department concentrates on a narrow range of activities relating to its
function only.
2.
It maybe difficult to achieve co-ordination between different departments
because of their different orientations.
3.
There maybe lack of understanding between departments. The atmosphere of
mistrust may lead to inter-departmental conflicts.
4.
Decisions are delayed where decision making involves 2 or more departments.
5.
Excessive specialization may destroy teamwork in the organization.
6.
Functional organization may prove unsatisfactory in handling diversified
product lines & specialized projects.
7.
Functional specialization restricts development of generalists or managers
with all round capabilities.
MANAGING DIRECTOR
PRODUCTION
MANAGER
FINANCE
MANAGER
ADVERTISING
SALES
MARKETING
MANAGER
CUSTOMER
SERVICE
FUNCTIONAL ORGANIZATION STRUCTURE
PERSONNEL
MANAGER
MARKETING
RESEARCH
2. PRODUCT BASED STRUCTURE:- Product based structure is followed by
giant organizations having multiple product line. Under this each major
product or product line is organized as a separate division. It is used where
unique characters of the product are of great importance & they require
specialized machines, equipments & trained personnel. It is appropriates
when each product is relatively complex & a great deal of capital is required
for each product. For e.g., Century Mills has a separate division for textiles,
cement & shipping.
ADVANTAGES OF PRODUCT BASED STRUCTURE:- Following are the
advantages of product based structure:1.
Production department can reduce the co-ordination problems which are
created under functional department. There is integration of activities relating
to a particular line of product. It facilitates product expansion &
diversification.
2.
It focuses on individual attention on each product line.
3.
It leads to specialization of physical facilities on the basis of products which
results in economy.
4.
It is easier to evaluate & compare the performance of various product
divisions.
5.
It keeps problems of production separate from those of others.
6.
Since each product manager is required to supervise the diverse functions of
production, sales & finance with respect to a particular product line, there is a
wide scope for training & development of all round executives.
DISADVANTAGES OF PRODUCT BASED STRUCTURE:- Following are the
disadvantages of product based structure:1.
It results in the duplication of personnel & physical facilities. Each product
division maintains its separate facilities & personnel. It may become
uneconomical where full use cannot be made of the specialized skills &
equipment of each department. High cost of operations & large investment
make it unsuitable for small firms.
2.
It may be difficult for an enterprise to adapt itself to changes in technology,
demand, etc., though product lines can be added & dropped easily without
dislocating the existing operations.
3.
Product department may sometimes lead to difficulties in co-ordination of
certain specialized activities like marketing, financing & accounting.
PRODUCT BASED STRUCTURE
COMPANY HEADQUARTERS
CORPORATE
PLANNING
FINANCE
LEGAL
TEXTILE DIVISION
P
R
O
D
U
C
T
I
O
N
M
A
R
K
E
T
I
N
G
RESEARCH &
DEVELOPMENT
SHIPPING DIVISION
F
I
N
A
N
C
I
N
G
P
E
R
D
O
N
N
E
L
P
R
O
D
U
C
T
I
O
N
CEMENTDIVISION
M
A
R
K
R
T
I
N
G
F
I
N
A
N
C
I
N
G
P
E
R
S
O
N
N
E
L
3.
GEOGRAPHICAL OR TERRITORY BASED STRUCTURE:- Geographical
structure is followed in case of service organizations which have offices in
different regions or geographical areas. Each regional office has independent
functional departments to realize its objectives. For e.g., Life Insurance
Corporation Of India (LIC) has semi-autonomous divisions in different
regions of the country. Each division regulates LIC branches in its territory &
each branch has separate departments for operations such as new policies,
collection of premiums, adjustments of claims & administration.
ADVANTAGES OF GEOGRAPHICAL OR TERRITORY BASED
STRUCTURE:- Following are the advantages of geographical or territory
based structure:1.
It leads to the benefits of local operations. The local managers are conversant
with their needs & those of their customers. They adapt & respond to the local
situations with speed & accuracy.
2.
The company can meet the demands of various regions more effectively.
3.
Better attention can be paid to local customer groups thereby raising the
image & goodwill of the company. It ensures quick delivery of products to
customers in different areas, & intensive exploitation of local markets.
4.
A regional division can achieve better co-ordination & supervision of activities
in a particular area. It also help in reducing transportation & distribution
costs.
5.
The departments based on territories can function as an autonomous unit.
6.
It facilitates the expansion of business in various regions.
7.
It is also beneficial from the point of view of country’s economic development.
DISADVANTAGES OF GEOGRAPHICAL OR TERRITORY BASED
STRUCTURE:- Following are the disadvantages of geographical or territory
based structure:-
1.
There is multiplication of physical facilities. It leads to uneconomical
operations.
2.
They maybe problems of integration between various regional offices. They
may compete with each other in certain areas.
3.
There maybe lack of talented personnel to take charge of regional
departments.
4.
There will also be problems in providing centralized services to various
departments which are located in different regions.
GEOGRAPHICAL OR TERRITORY BASED STRUCTURE
LIC HEAD OFFICE (MUMBAI)
EASTERN
(CALCUTTA)
CENTRAL
(KANPUR)
NEW DELHI
(DIVISION)
JALANDHAR
BRANCH
UNIT 1
BRANCH
UNIT 2
NORTHERN
(NEW DELHI)
SOUTHERN
(CHENNAI)
CHANDIGARH
BRANCH
UNIT 3
WESTERN
(MUMBAI)
AJMER
BRANCH
UNIT 4
4. CUSTOMER BASED STRUCTURE:- Departments by customer maybe
followed in enterprise engaged in providing specialized services to different
classes of customers. Under this, customers are the guide for grouping the
activities. The management groups the activities on this basis to cater to the
requirements of clearly defined customer groups. For e.g., a big automobile
servicing enterprise may organize its department as follows: heavy vehicle
servicing division, car servicing division & scooter & bikes servicing division.
Many educational institutions usually follow this type of departments. They
offer day courses, evening courses & correspondence courses to meet the
requirements of different types of students. Similarly a commercial
organization maybe divided into wholesale, retail & export departments.
ADVANTAGES OF CUSTOMER BASED STRUCTUREL:- Following are the
advantages of customer based structure:1.
Customer departments can focus on the special needs of different kinds of
customers.
2.
It employ’s personnel with special abilities for meeting different customer
requirements.
3.
It leads to greater satisfaction of customers which enhances the reputation of
the enterprise among the public.
DISADVANTAGES OF CUSTOMER BASED STRUCTURE:- Customer based
structure is not free from drawbacks. Following are the disadvantages of
customer based structure:1.
It creates difficulty in co-ordination between the departments organized on
this basis & those organized on other bases.
2. Greater emphasis to the need of the customers may lead to less than optimum
use of space, equipment & specialized personnel.
CUSTOMER BASED STRUCTURE
COMPANY
HEADQUARTERS
CORPORATE
PLANNING
WHOLESALE
DIVISION
FINANCE
MARKETING
RETAIL
DIVISION
RESEARCH &
DEVELOPMENT
EXPORT
DIVISION
5. PROJECT ORGANIZATION STRUCTURE:- The term “project” may defines
as a complex set of activities which are diverse, specialized & technical to be
performed within the given time frame & cost structure. The project structure
is designed to handle such activities along with the already existing
organizational structure. It is a temporary structure designed under the
following situations:(i). The assignment presents a unique, infrequent & unfamiliar challenges to the
business firm
(ii). Successful completion of the project is critical for the firm.
(iii). The project must be completed within the prescribed time.
(iv). The assignment is critical to the firm because of the threat of loss or some
other reason.
The project structure consists of a team of specialists to work on & complete a
particular project. The project staff is separate from & independent of the
functional departments. It maybe noted that generally project teams are
created along with the existing functional organization.
ADVANTAGES OF PROJECT ORGANIZATION STRUCTURE:- Following are
the advantages of project organization structure:1.
Project organization concentrate on completion of a complex project or
assignment. It can be tailored to meet the requirements of the particular
project.
2.
Project organization provides greater flexibility in organization; greater check
over the project work, provision of determining exact responsibility & better
co-ordination of organizational resources.
3.
Project organization requires specialists in various fields. Specialists get higher
satisfaction while working on complex projects.
4.
It facilitates the timely completion of a project without disturbing the normal
activities of the organization.
5.
It has been found to fit a number of widely-varying situations such as product
development, installation of a new plant, etc.
DISADVANTAGES OF PROJECT ORGANIZATION STRUCTURE:- Following
are the disadvantages of project organization structure:1.
Uncertainty in the project structure arises because the project manager has to
deal with specialists from a number of diverse fields. The specialists often have
different types of approaches & perspectives.
2.
Lack of prescribed organizational processes, lack of clearly defined
responsibility, lack of communication lines & measurement yardsticks make
the job of the project manager more challenging.
3.
The project manager has to face a very usual decision pressure that results
from severe penalties to be imposed because of the delay in completion of the
project.
4.
Motivation of specialists may cause another problem for the project manager.
Moreover, there maybe conflicts among the specialists quite often because of
their different orientations.
PROJECT ORGANIZATION STRUCTURE
CHIEF EXECUTIVE
MARKETRING
ENGINEERING
R&D
FINANCE
PERSONNEL
EXISTING ORGANIZATIONS
PROJECT B
PROJECT A
ENGINEER
R&D
MANAGER
PERSONNEL
OFFICER
FINANCE
OFFICER
6.
MATRIX STRUCTURE:- Matrix organization is also called “GRID
ORGANIZATION”. Functional structure is a permanent feature of the matrix
organization & retains authority for the overall operation of the functional
units. Project teams are created whenever specific projects require a high
degree of technical skills & other resource for a temporary period. Functional
departments are create a vertical chain of command while the project teams
form the horizontal chain. The functional or vertical line of authority
intersects product or horizontal lines, thereby forming a matrix or grid.
Matrix organization is a two dimensional structure, a combination of pure
project structure & the traditional functional departments. The salient feature
of matrix organization are as follows:-
1.
Matrix organization focuses attention on specific projects. The charge of this
project is given to the project manager who is given the necessary authority to
complete the project in accordance with the time, cost, quality & other
conditions communicated to him by the top management.
2.
The project manager draws groups of personnel from various functional
departments. He assigns work to the various functional groups. Upon
completion of the project, the functional groups return to their respective
departments for reassignment of other projects. The project manager himself
is also available for reassignment by the divisional manager.
3.
Both the project & the functional managers have different roles. The project
manager exerts a general management viewpoint with regard to his project.
Each functional manager is responsible for maintaining the integrity of his
function.
4.
Management by project objectives is paramount to the way of thinking &
working in a matrix organization.
ADVANTAGES OF MATRIX ORGANIZATION STRUCTURE:- Following are
the advantages of matrix organization structure:1.
The matrix structure is an efficient means for bringing together the diverse
specialized skills required to complete a complex assignment.
2.
It is flexible in nature. It can be applied more usefully to an organization
involved in projects ranging from small to large. It can better respond to the
changes in technology, market conditions, etc.
3.
It motivates personnel engaged in the project. They can use their competence
& make maximum contribution for the project. It also improves
communication & co-ordination between the project manager & functional
groups.
4.
It provides balance between time, cost & performance. The balance can be
achieved through built-in checks & balances continuous negotiations between
the project & functional personnel.
5.
It helps in improving flow of communication around the organization as
required information is communicated both vertically as well as horizontally.
DISADVANTAGES OF MATRIX ORGANIZATION STRUCTURE:- Following
are the disadvantages of matrix organization structure:1.
In matrix organization the problem of co-ordination is more complicated
because neither functional head has an authority over project unit in a direct
manner nor the project manager has full authority over project activities. The
project manager works as co-coordinator & facilitator but without required
authority.
2.
Apart from formal relationships, informal ones also operate in the matrix
organization. Thus, organizational relationships become more complex & they
create the problem of co-ordination.
3.
Dual reporting relationship in matrix organization can contribute to
indiscipline, ambiguity & role conflict. The functional representative who is
subject to dual command cannot satisfy the priorities of both the bosses.
7.
DIVISIONAL STRUCTURE:- Divisional structure is formed by creating a set
of autonomous units or divisions which are co-coordinated by the central head
quarters. For e.g., a company may have 3 divisions to manage textiles, cement
& shipping. But to co-ordinate their functioning certain essential services such
as corporate planning, finance, legal & research & development are organized
at the headquarters. This structure is popular with giant firms dealing in
multiple products & operating in different geographical regions.
In a divisional structure each division is semi-autonomous & has its own resources
& facilities. Thus, there is duplication of activities, personnel & equipments.
For e.g., 2 divisions may have their separate marketing wings or public
relations departments. Let us assume that a typical company has 2 divisions
for metal products & cement respectively. Each division may have further
organization based on functional departments.
In India, several companies like DCM, Gwalior Rayon, Century Mills & Voltas
follow divisional structure to organize their operations. The divisional
structure maybe based on product or geographical territory.
8. MECHANISTIC & ORGANIC STRUCTURE:- According to theorists, the
structure of an organization has generally falls into one of two designs,
namely:(i). Mechanistic Structure.
(ii). Organic Structure.
1.
MECHANISTIC STRUCTURE:- Mechanistic structure is one that is highly
centralized & has the common elements of bureaucracy. It lays emphasis on
formal authority & communication patterns. In a mechanistic organization
structure, there are rigid authority responsibility relationships, formal chain
of command & fixed patterns of communication. Thus, the members cannot
communicate across all levels of the organization to obtain information.
Mechanistic structure is characterized by a greater degree of horizontal
differentiation, high formulation (formal relations & communication), mostly
downward communication, & little participation by low-level members in
decision making. It represents traditional pyramid shaped organization which
is rigid in nature. For e.g., line organization is a kind of mechanistic structure.
2.
ORGANIC STRUCTURE:- Organic structure is one that is characterized by
high degree of decentralization & flexibility & under which individuals are
more likely to work in a group setting rather than alone. In an organic
structure, the organizational members communicate across all levels of the
organization to obtain information. Organic structure represents low horizontal
differentiation, low formulization, free communication & participation by lowlevel members in decision making. This structure serves the needs of the situation
faced & is flexible in nature. It uses downward, upward & lateral communication
networks for efficiency & quick decision making. The examples of organic
structures include project structure, matrix structure & network structure.
DIFFERENCE BETWEEN MECHANISTIC STRUCTURE & ORGANIC
STRUCTURE:- Following is the difference between mechanistic structure &
organic structure:MECHANISTIC STRUCTURE
ORGANIC STRUCTURE
1. Rights & obligations of each position
1. Responsibility & obligation are
are precisely defined & assigned.
loosely defined; problems cannot be
passed up, down or laterally.
2. There are rigid hierarchical
2. The relationships are not rigid;
relationships in the organization.
they are collaborative & redefined
through interaction.
3. Vertical communication between
3. In additional to vertical
superior & subordinate is the tendency
communication, lateral & in
mechanistic structure. Thus,
horizontal communication are quite
communication is highly formalized.
common. Informal communication
plays a bigger role.
4. Decision making is centralized.
4. Decision making is centralized.
5. Co-ordination & control processes
5. Co-ordination & control take
tend to be tightly structured.
place through reciprocal
adjustments among the members.
6. Loyalty to the concern & obedience
6. Commitment to the organization
to the superiors is highly insisted upon.
goals is more valued than loyalty &
obedience.
7. There is high degree of differentiation
7. Special knowledge & experience
of functional tasks.
contribute to the common goals of
the concern.
8. It is suitable where environment is
certain & more or less stable.
8. It is suitable where environment
is uncertain & generally dynamic or
unstable.
MANAGERIAL COMMUNICATIONS:- The success of any business depends on
the system of communication. Communication failures have been responsible for
disruption, frustration & even bankruptcy. Every manager requires
communication skills to get results from the subordinates. It should be noted that
majority of problems which a manager faces everyday are people-centered. These
have lack of understanding causing negative or even hostile attitudes among the
subordinates. Such situations, can however, be avoided through effective
communication. The modern concept of leadership exercised largely by persuasion
rather than command places a great premium on communication.
NATURE & ROLE OF COMMUNICATION:MEANING OF COMMUNICATION:- Communication is the act of influencing &
inducting others to interpret an idea in manner intended by the speaker or writer.
The term communication is derived from the Latin word “COMMUNIS” which
means “COMMON”. Thus, communication stands for sharing of ideas in
common. Communication of ideas establishes a common ground for
understanding. Since management is concerned with getting things done through
others, it implies that a manager must communicate with other people. In fact,
everything a manager does involves communication. For e.g., to take a decision, a
manager needs information. The information has to be communicated to the
manager. Once a decision is taken, again communication
takes place, as the decision has to reach to the concerned people. Communication
maybe defined as inter-change of thought or information between 2 or more
persons to bring about mutual understanding. It is the informational
intercourse by words or symbols. It is the exchange of facts, ideas &
viewpoints which bring about commonness of interest, purpose & efforts.
Communication is an integral element of interpersonal behavior in
organizations. Human beings interact with one another through
communication. It is the ability to communicate effectively that has enabled
people to build organizations & societies for survival & better living.
NATURE OF COMMUNICATION:- The characteristics of communication are as
follows:1. Communication is possible only when there are at least 2 persons, one sender
& the other receiver. This means that one man alone possibly cannot
communicate.
2. Communication involves both transfer of information as well as of
understanding between 2 or more persons. This means that communication
does not take place simply because information has been transferred or
conveyed to the person concerned. What is equally important is that the
receiver of communication should understand the information transferred to
him as it was intended to be. Thus, understanding is an indispensable feature
of communication.
3. Communication is not restricted to transfer of information & understanding
through words alone, nor it is confined to formal channels only. A manager
can communicate through symbols, gestures & actions & also use informal
channels.
4. The end result of communication is understanding. Its main purpose is to
obtain response.
5. The flow of communication is circular, that is, the process of communication
starts when the sender transmits a message to the receiver & is completed
when the receiver sends the feedback to the sender.
PROCESS OF COMMUNICTION:- Following components are used in process of
communication:1. SENDER OR COMMUNICATOR:- The person who conveys the message is
known as “Communicator or Sender”. By initiating the message, the
communicator attempts to achieve understanding & change in the behavior of
the receiver.
2. MESSAGE:- It is the subject matter of any communication. It may involve any
fact, idea or information. It must exist in the mind of the communicator if
communication is to take place.
3. ENCODING:- The sender of information organizes his idea into a series of
symbols (words, signs, etc) which e feels, will communicate to the intended
receiver or receivers. Communication may also take place through physical
gestures.
4.
COMMUNICATION CHANNEL:- The communicator has to choose the
channel for sending the information. Communication channel is the media
through which the message passes. It maybe either formal or informal.
5. RECEIVER:- The person who receives the message is called a “Receiver”.
The communication process is incomplete without the existence of receiver of
the message. It is the receiver who receives & tries to understand the message.
6. DECODING:- The receiver translates the messages into words for the purpose
of understanding. Decoding helps the receiver to derive meaning form the
message.
7. FEEDBACK:- A communication often leads to other communications. A
message sent is followed by a reaction or response from the receiver, which
requires another message to be communicated by the sender. The reaction or
response of the receiver is known as “Feedback”. The process of
communication then becomes a circular process. Feedback is the receiver’s
response to the message sent by the sender. Feedback confirms the receipt of
message by the receiver. The feedback maybe as simple as a phone call from
the prospective client expressing interest in the business proposal or as
complex as a written brief on a complicated point of law sent from an attorney
to a judge. An employee can respond to the manager’s directions by a verbal
or written response indicating that he or she does or does not understand the
message. Feedback could also be non-verbal.
ELEMENTS IN THE COMMUNICATION PROCESS
SENDER
MESSAGE
ENCODING
CHANNEL
RECEIVER
DECODING
ROLE OF COMMUNICATION IN MODERN ORGANIZATIONS:- Following is
the role of communication in modern organizations:1.
FACILITATES PLANNING:- Communication facilitates planning in a
number of ways. Participation of executives in planning is a pre-condition for
getting the task done. This can be secured only through interaction &
communication. Planning is based on accurate information. Such information
can be available only when there is systematic communication. The whole plan
will fail if the information regarding latest market developments is not
available to the planners.
2.
BRINGS CO-ORDINATION:- Communication helps in lessening the
activities of different individuals & groups. Liaison men who are employed to
co-ordinate work of different individuals in the organization need to evolve
communication between different parts of the organization. Group meetings
as a means of co-ordination must involve exchange of ideas & knowledge, &
transfer of information & understanding.
3.
HELPS IN DECISION MAKING:- Communication helps the management in
arriving at important decisions. If the right type of information is not
available at the proper time due to lack of communication, it may not be
possible for the management to consider all the pros & cons before taking a
decision. Moreover, it is through communication that management comes
closer to the subordinates & is able to identify real problems & take the right
decisions. Thus, communication is necessary & important for decision making.
4.
FACILITATES MANAGEMENT:- Communication is important in the
performance of all managerial functions. Planning which is one of the primary
functions of management requires detailed communication among the
managerial & other personnel. Moreover, effective communication is
important in executing the plans & then controlling the activities with the help
of feedback information. Information about subordinates performance is
necessary to determine whether planned objectives are being realized or not.
Communication is an important aid in directing & motivating the employees
in the organization. Thus, communication is an important part of the
management process.
5.
RAPPORT WITH EMPLOYEES:- An effective communication system helps
the manager to convey his ideas, views, decisions, suggestions & feeling to the
employees. On the other hand, the employees also get the opportunity to
express their feelings & communicate their ideas & reactions. This builds an
atmosphere of mutual trust & confidence & the management is able to lead &
guide the employees effectively.
COMMUNICATION NETWORK:- Following are the types of communication
network:1.
SINGLE STRAND OR CHAIN NETWORK:- In this one person
communicates with one person only. This network is very slow.
A
B
C
D
E
2. WHEEL COMMUNICATION NETWORK:- The wheel communication
network represents the communication pattern under which the subordinates can
communicate with & through one manager. It is called a “Wheel Network” since
all communications pass through the manager who acts as a central authority like
the wheel. All the workers receive instructions & guidance from one person.
E
D
A
B
C
3. CIRCULAR COMMUNICATION NETWORK:- In case of circular network,
the message moves in a circle. Each person can communicate with his 2
neighborhood colleagues only. A disadvantage of circular network is that
communication is very slow.
4. FREE FLOW COMMUNICATION NETWORK:- Under such an
organizational design, there is no restriction on the flow of communication.
Everyone is free to communicate with anyone & everyone in the organization.
However, this network is rarely followed in formal organizations.
5. Y COMMUNICATION NETWORK:- This network is centralized with
information flows along the predetermined paths. Such network might be
appropriate for simple operations, requiring little interaction among the members
of the group.
CHANNELS OF COMMUNICATION:- A channel of communication is the path
through which information is transmitted throughout the organization. It
represents various contacts or linking points which exist between different
individuals or departments in the organization. Channels of communication
maybe either formal or informal.]
1.
FORMAL COMMUNICATION:- The paths of communication which are
institutionally determined by the organization are called “Formal Channels Of
Communication”. They are associated or linked with the status & position of
the communicator & the receiver. Formal communication enforces
relationship between different positions.
Formal communication is established by the management in a well-planned
manner or way indicating clearly the authorities involved. It is meant for
transmission of official messages & information within or outside an
organization. Such communications are usually associated with the formal
structural relationship of the enterprise. They follow the chain of command of
the formal organization. Such communications are usually in writing &
include transmission of orders, instructions or decisions.
2. INFORMAL COMMUNICATION:- Informal communication represents
communication among people through informal contacts. Informal
communication co-exists with the formal communication system in the
organization. Workers report to informal communication when there are barriers
in the formal channels. Managers also use informal communication when they find
it difficult to collect information from the workers. Informal communication is
also called “GRAPEVINE”. Grapevine because of the desire of the people to
communicate without following the formal channels of communication.
Some people think grapevine is generally inaccurate which is not true.
However, grapevine information is usually incomplete. It maybe misinterpreted
even though the details are accurate. Grapevine helps to fill the gap existing in
formal communication system. In the absence of informal communication, the
ability of a manager is to build teamwork & motivate the people.
TYPES OF GRAPEVINE OR INFORMAL COMMUNICATION:- There are 4 types of
grapevine or informal communication. Namely:(i). SINGLE STRAND NETWORK:- In a single strand network an individual
communicates with another individual through the intervening persons.
A
SINGLE STRAIND CHAIN
(A communicates with B through,
intervening persons in a strand).
B
(ii). GOSSIP NETWORK:- In gossip network the individual communicates with everyone
non-selectively.
A
GOSSIP CHAIN
(A non- selectively communicates
with everyone).
(iii). PROBABILITY NETWORK:- In probability network the individual
communicates randomly with others according to the law of probability.
PROBABILITY CHAIN
A
(A communicates randomly with others
according to the law of probability)
(iv). CLUSTER NETWORK:- In cluster network the individual communicates
with only those individuals whom he can trust. Out of these informal network the
cluster network is the most popular.
A
CLUSTER CHAIN
(A selectively communicates with
those he can trust)
ADVANTAGES OF INFORMAL COMMUNICATION OR GRAPEVINE:Following are the advantages of informal communication or grapevine:1.
Informal communication consists of the network of informal man-to-man
personal relations. It gives opportunity to people to form social groups &
communicate with each other.
2.
Informal communication satisfies an important urge of people to know what is
happening in other parts of the organization & first to know the latest
information.
3. Informal communication is very useful when information is required to be
communicated very quickly. The grapevine works faster than the formal
communication.
4. During periods of uncertainty, people can express their fears & apprehensions
more freely through the grapevine.
5. Informal communication is very fast. It can be used by managers to get quick
results.
DISADVANTAGES OF INFORMAL COMMUNICATION OR GRAPEVINE:Following are the disadvantages of informal communication or grapevine:1. There are occasions when the grapevine does not carry complete information.
Information relating to dismissal of an employee is disseminated throughout
the organization very quickly. But why dismissal took place will usually
remain uncommunicated.
2. Information communicated through the grapevine may get distorted. People
add their personal interpretations & thus distort the facts. Personal motives
are often dominant in transmitting information through grapevine.
3. Informal communication is unreliable. There is no guarantee of the informal
channels being always active. So it cannot be depended upon for sending
urgent messages.
4. Confidential information often leaks out through informal communication.
Thus, the network of informal communication can be used by management
only with due precaution.
DIFFERENCE BETWEEN FORMAL COMMUNICATION & INFORMAL
COMMUNICATION:- Following is the difference between formal
communication & informal communication:FORMAL COMMUNICATION:1.
Formal communication follows the officially established chain of command &
lines of communication.
2.
It is a slow moving process.
3.
It is easy to pinpoint the responsibility with respect to formal communications.
4.
It consists mainly of work related matters.
5.
It is orderly & systematic as regards direction of flow.
6.
It serves organizational needs.
INFORMAL COMMUNICATION:-
1.
Informal communication is independent of the authority relations in the
organization.
2.
It carries messages at a fast speed.
3.
It is not possible to fix the responsibility of informal communication
4. It may consist of work related as well as social messages.
5. It is unsystematic & erratic as regards direction of flow.
6. It serves not only organizational needs but also social needs of the organization.
BARRIERS TO EFFECTIVE COMMUNICATION:- Following are the barriers
to effective communication:1.
STRUCTURAL BARRIERS:- These maybe due to a faulty designing of
various jobs or the existence of inadequate policies, procedures & rules. If
there are no prescribed channels for the persons working in the organization
to communicate with one another, or if there are no opportunities for people to
interact with one another, there are bound to be barriers to effective
communication.
2.
STATUS BARRIERS:- Status of an organizational member is determined by
the position he holds in the organization. This fact is quiet apparent as
subordinate is communicating with his superior. Obstacle in communication
occurs when the distance between the 2 is created because of status symbols of
the superior. Status symbols include high quality furniture, separate room,
facilities, etc. A sense of inferiority complex in the mind of the subordinate
does not allow him to seek clarifications from the superior.
3. LANGUAGE BARRIERS:- Language is the carrier of all information & ideas.
People of different levels understand, write & speak different languages. A
statement given in English may not be understood by many of the employees
working in a factory. The language having mathematical symbols & abbreviations,
may not be understood by the recipients.
4. UNCLARIFIED ASSUMPTIONS:- The information contained in
communication or message is generally backed up by certain assumptions. The
sender may have been quiet clear about the assumptions but unless they are
shared with the receiver, there is likely to be a case of incomplete communication,
leading to different interpretations. Hence, it is necessary for the communicator to
clarify the assumptions of his message.
5. RESISTANCE TO CHANGE:- People find it convenient & safe to do things
according to old & customary or traditional patterns & methods. For reasons of
convenience & safety they have a tendency to resist change. The result is that any
information & communication that needs to introduce change is likely to be
opposed & overlooked & hence, become ineffective.
6. CLOSED MIND:- One of the assumptions in communication process is that
both receiver & sender have open minds, which enable them to process
information in an effective & efficient manner or way. If people limit their
“agenda” to their own narrow goals & views, no effective communication is
possible because closed minds regard all information as unnecessary “overload”.
7. INATTENTION:- Communication has no effect on those who are unable or
unwilling to listen. This maybe a matter of motivation. If people do not pay
required attention to listening & understanding the messages they are supposed to
receive, communication will lose its purpose. Also some people are quick in
commenting on information as it is received from the sender, without waiting for
full information. This frustrate the sender. Then the sender may learn to be
different & effective in transmitting messages to such pre-mature evaluators.
8. PRESSURE OF TIME:- Executives, particularly at higher levels, work under
great pressure of time. They cannot afford to interact & communicate frequently
with their subordinates. This causes communication gap between the higher &
lower levels of management.
9. MISCELLANEOUS BARRIERS:- The sender may fear that the consequences
of transmitting a particular message may spoil his position or the position of the
receiver, even though it is the largest interest of the organization to communicate.
Some managers also lose credibility if they are indecisive, inconsistent & indiscrete
in transmitting & receiving information. People who receive fro & transmit
information to them seldom attach much importance to the content. Also,
personality clashes among individuals cause ineffective communication channels.
Emotions, jealousy, hatred, conflicting values & interests also interfere with the
communication process.