CLASS 12 BUSINESS STUDIES

CHAPTER-4
PLANNING

IMPORTANT QUESTIONS

VERY SHORT ANSWER QUESTIONS (1 or 2 Marks)

QUESTION 1.

Give the meaning of 'Method' as a type of plan.

(CBSE BOARD 2015)
Answer. Method is the prescribed way or manner in which a task has to be performed.

QUESTION 2.

What is planning?

Answer. Planning is deciding in advance what to do and how to do. It is one of the basic
managerial functions.

QUESTION 3.

What all qualities are required for doing planning?

Answer. Intelligence, Imagination, Foresight, Sound Judgment.

QUESTION 4.

Name and state the aspect of financial management that enables to foresee the fund
requirements both in terms of ‘the quantum’ and ‘in terms of the timings'.
(CBSE BOARD 2016)

Answer. The aspect of financial management that enables to foresee the fund requirements
both in terms of ‘the quantum’ and in terms of ‘the timings' is "Financial Planning". Financial
planning involves designing the blueprint of the overall financial operations of a company such
that right amount of funds are available for various operations at the right time.
QUESTION 5.

How does planning create rigidity?

Answer. Planning creates rigidity by putting adverse effect on initiative taken by the managers.

QUESTION 6.

What is the basis for creating future course of action?

Answer. Forecasting

QUESTION 7.

Give one limitation of planning function.

Answer. Planning does not guarantee success

QUESTION 8.

Which is the most crucial step in planning process?

Answer. Setting objectives for the organisation.

QUESTION 9.

Define 'Objective'?

Answer. Objectives are desired future position that the management would like to reach.

QUESTION 10.

Define 'Strategy'.

Answer. A strategy refers to future decisions and actions, defining the organisation's direction
and scope in the long run.
SHORT ANSWER QUESTIONS (3 or 4 Marks)

QUESTION 11:

It is deciding in advance what to do and how to do. It is one of the basic managerial functions.
It requires that before doing something, the manager must formulate an idea of how to work
on a particular task. This function is closely connected with creativity and innovation. It seeks
to bridge the gap between where we are and where we want to go and is performed at all
levels of management.

In spite of this, the function of management referred above has a number of limitations.

Explain any two such limitations.

(CBSE BOARD 2015)

or
State any three limitations of planning function of management.
(CBSE BOARD 2016)

Answer.
The following are the limitations of planning.

1. Planning leads to rigidity: In an organisation, a well-defined plan is drawn up with specific

goals to be achieved within a specific time but managers may not be in a position to change it.
As the business environment is, dynamic managers need to be given some flexibility to cope up
with the changed circumstances.

2. Planning may not work in dynamic environment: Planning is based on anticipation of future
happenings and since future is uncertain and dynamic, so the organisation needs to adapt itself
to changes. However planning cannot foresee the future events effectively.

3. Planning reduces creativity: Top management does planning and middle management does
implementation of plan but they are not allowed to deviate from the plan and thus creativity of
these managers are reduced.

QUESTION 12.

Enumerate six points of importance of planning.

Answer. Importance of planning is as under:

i. It provides direction for action.
 ii. It reduces the risk of uncertainty
iii. It facilitates decision making.
iv. It establishes standards for controlling.
v. It promotes innovative ideas.
vi. It reduces overlapping and wasteful activities.

QUESTION 13:

Explain the first three steps in the process of 'Planning'.

(CBSE BOARD 2016)

Answer: The following are the first three steps are involved in the planning process.

i. Setting the objectives: Any business enterprise needs to decide upon its objectives, and the
first step in the planning process is to set the objectives. Managers are required to define
objectives clearly, so that they can take the right action to achieve the goals.

ii. Developing the premises: Planning is based on certain assumptions regarding the future.
These assumptions are known as premises. The assumptions are regarding the predictions of
the future, which form the basis of the planning process. Accuracy of forecast is necessary for
successful plans.

iii. Identifying alternatives: The next step is to identify alternative courses of action. Managers
must identify all the alternative courses of action for achieving the objectives of the
organisation. This involves innovation and creativity.

QUESTION 14:

Explain any three features of 'Planning.'

(CBSE BOARD 2017)

Answer. The following points highlight the features of planning.

i) Planning focuses on achieving objectives: Organisations set up with general goals and
specific goals along with the plans and activities to be undertaken to achieve these goals. Any
management should formulate plans keeping in view the specific goals in mind. These plans
must ensure that the desired objective is attained. The managers must make sure that the
plans made are purposeful. For example, if sales target is to be achieved then the plans must be
made in sync with this objective.
ii) Stepping Stone: Planning lays down the base for other functions of management. That is,
planning precedes all other functions such as organising, directing, staffing and controlling. This
is because plans states the objectives and all other functions are in accordance with the said
objectives. Once the plans are determined, the role of other interrelated functions comes into
place. Thus, planning sets the basis for other functions of an organisation.

iii) Pervasiveness: : Planning is required at all levels of management as well as in all

departments of the organisation. The scope of planning is different at different levels and for
different departments.
For example, the top level managers have to chalk out the policies regarding the overall
management whereas the middle level managers plan out the authority to be assigned to the
subordinates. On the other hand, the lower level managers make out small targets for day-to-
day working.

QUESTION 15.

'Planning focuses on achieving objectives'. Explain.

Answer. Planning is a goal oriented process which helps in defining objectives, and preparation
of necessary plans of action to achieve goals. Thus, planning is focused on clarifying what is to
be done and how is that to be done. The planning holds no purpose if it does not focus on
achievement of preset organizational or corporate objectives.

QUESTION 16.

'Planning is the basic function on of management'. Comment.

Answer. Every management starts with planning. All other functions like organizing, staffing,
directing and controlling are based on planning. It precedes the execution of all other
managerial functions and allows mangers to organize the staff and direct and control the
activities in a better way to achieve organizational goals. All the activities are created in such a
way that plans are easily carried out. This is also referred to as primacy of planning.

QUESTION 17.

Somnath Ltd. is engaged in the business of export of garments. In the past, the performance
of the company had been up-to the expectations. In line with the latest technology, the
company decided to upgrade its machinery. For this, the Finance Manager, Dalmia estimated
the amount of funds required and the timings. This will help the company in linking the
investment and the financing decisions on a continuous basis. Dalmia therefore, began with
the preparation of a sales forecast for the next four years. He also collected the relevant data
about the profit estimates in the coming years. By doing this, he wanted to be sure about the
availability of funds from the internal sources of the business. For the remaining funds, he is
trying to find out alternative sources from outside. Justify the financial concept discussed in
the above para. Also, state the objectives to be achieved by the use of financial concept, so
identified.
(CBSE BOARD 2017)

Answer. The concept stated in the question is Financial Planning. It involves designing the
blueprint of the overall financial operations of a company such that right amount of funds are
available for various operations at the right time. That is, it tends to forecast what amount of
fund would be required at what time as per the growth and performance of the company.

Objectives of Financial Planning

Proper financial planning is a prerequisite for the successful growth of any organisation,
regardless of whether they are new or existing ones. The two main objectives of financial
planning are as given below:

1. Ensure timely availability of funds: Financial planning involves estimating the right amount
of funds required for various business operations and the time when these funds would be
required. It also involves identifying the probable sources of raising funds.

2. Proper utilization of funds: It implies ensuring that situations of both inadequate funds as
well as surplus funds are avoided. While on the one hand, inadequate funds hinder the smooth
operations of the firm; on the other hand, excess funds add to the cost of business and
encourage unnecessary and wasteful expenditure. Thus, financial planning ensures that the
funds are optimally utilised.

QUESTION 18.

What do you mean by planning premises?

Answer. Planning premises are assumptions relating to future conditions and events which are
likely to have an effect on achievement of goals. These are the bases upon which the entire
structure of planning is built. Every plan is drawn with certain assumptions. To make planning
effective, it is necessary that the premises should be based on accurate forecasts, existing plans
or any past information about policies etc.

For example, demand for a product, cost of raw materials, interest rates, state of technology,
intensity of competition, government policies etc.
QUESTION 19:

Give the meaning of 'procedure' and 'rule' as types of plans.

(CBSE BOARD 2017 )

Answer.
(i) Procedure: A procedure is a set of routine steps defined in a chronological order to be
followed for the enforcement of a policy. It include a detailed description of the exact manner
in which a task is to be performed. Generally, procedures are developed for the insiders, i.e. the
employees of the organisation. They consist of steps in a sequential manner, which are
undertaken to implement a policy or a particular work. In short, we can say that procedures are
the steps that require to be carried out within a broad policy framework.

(ii) Rule: A rule refers to a standard or specific statement that gives information about what is
to be done and what is not to be done. Rules are the simplest type of plans that do not allow
any kind of flexibility. They signify the managerial decision that a particular task or action has to
be performed or not. Such rules do not allow any scope for compromise or change unless the
managers take a policy decision.

QUESTION 20:

Ramnath Ltd. is dealing in import of organic food items in bulk. The company sells the items
in smaller quantities in attractive packages. Performance of the company has been up to the
expectations in the past. Keeping up with the latest packaging technology, the company
decided to upgrade its machinery. For this, the Finance Manager of the company, Mr. Vikrant
Dhull, estimated the amount of funds required and the timings. This will help the company in
linking the investment and the financing decisions on a continuous basis.

Therefore, Mr. Vikrant Dhull began with the preparation of a sales forecast for the next four
years. He also collected the relevant data about the profit estimates in the coming years. By
doing this, he wanted to be sure about the availability of funds from the internal sources. For
the remaining funds he is trying to find out alternative sources. Identify the financial concept
discussed in the above paragraph. Also, state any two points of importance of the financial
concept, so identified.
(CBSE BOARD 2017)

Answer. The financial concept discussed in the paragraph is Financial Planning. Its importance
can be highlighted from the following factors:

a. Helps in facing eventual situations: Financial planning helps in forecasting the future
situations. In this way, it prepares an organisation to cope with the adverse situations in a
better manner.
b. Helps in avoiding surprises and shocks: Through financial planning, an organisation can
detect situations of shortage or surplus of funds that may arise in future. Therefore, it prepares
the managers in advance for such situations.

QUESTION 21.

Give the meaning of ‘Strategy’ and ‘Rule’ as types of plans.

(CBSE BOARD 2017)

Answer.

a. Strategy: Strategy refers to future decisions defining the organisations direction and scope in
the long run. Objectives, adopting the required course of action and allocating the necessary
resources. They are often defined as the future decisions, which display the direction and scope
of the organisation in the end. While formulating a strategy, a manager must consider all the
different aspects of the business environment and based upon all factors, should finally take up
the strategic decisions.

b. Rule: Rules are specific statement that inform what is to be done and what not to be done in
various circumstances. They signify the managerial decision that a particular task or action has
to be performed or not. Such rules do not allow any scope for compromise or change.

QUESTION 22.

'Planning reduces creativity'. How?

Answer. Usually in an organisation, the top management performs planning function and the
rest of the members are required to implement these plans. As a result, middle management
and other members are not allowed to deviate from plans nor they are granted authority to act
on their own. Hence, most of the initiative and creativity in them is reduced.

QUESTION 23.

What is meant by budget?

Answer. Budget is a plan in numerical terms, which quantifies desired data. A budget is a
statement of expected results expressed in numerical terms for a definite period in the future.
For example, a sales budget helps in forecasting the sales of a particular product in different
areas during a particular month.
QUESTION 24.

How can (i) Political climate and (ii) Policies of competitors obstruct planning?

Answer.
(i) Obstruction in planning due to political climate

When the government regulates the business practices or introduces new trade policies, the
plans of business enterprises may get upset. In addition, political instability affects business
plans. For example, change in the taxation policy.

(ii) Obstruction in planning due to policies of competitors

The policies of competitors may lead to change in business policies. . For example, discounting
policies of the competitors may lead to change in pricing policy of a business enterprise.

LONG ANSWER TYPE QUESTIONS (5 OR 6 MARKS)

QUESTION 25:
Two years ago Nishant, completed his degree in Textile Engineering. He worked for sometime
in a company manufacturing readymade garments. He was not happy in the company and
decided to have his own readymade garments manufacturing unit. He set the objectives and
the targets and formulate action plan to achieve the same. One of his objectives was to earn
80% profit on the amount invested in the first year. It was decided that raw materials like
cloth, thread, buttons etc, will be purchased on two months credit. He also decided to follow
the steps required for marketing the products through his own outlets.

He appointed Ritesh as a production manager, who decides the exact manner in which the
production activities are to be carried out. Ritesh also prepared a statement showing the
requirement of workers in the factory throughout the year. Nishant informed Ritesh about
his sales target for different products area wise for the forthcoming quarter.

A penalty of Rs 200 per day was announced for the workers who found smoking in the factory
premises.

Quoting lines from the above para identify and explain the different types of plans discussed.

Answer. The different types of plans discussed in the paragraph are listed below.

1. Objective- "One of her objective was to earn 80 % profit on the amount invested in the first
year"
Objectives are the end results, which the management seeks to achieve, by its operations. It is
to be expressed in specific terms i.e., they should be measurable in quantitative terms, in the
form of a written statement of desired results to be achieve within a given time period.

2. Policy- "It was decided that raw materials like cloth, thread, buttons etc. will be purchased
on two months credit."

Policies are general statements that guide thinking or channelize energies towards a particular
direction. It provides a basis for interpreting strategy. It forms the general response or a course
of action to be followed in a particular situation.

3. Procedure- "Decided to follow the steps required for marketing of the products through her
own outlets"

A procedure is a set of routine steps defined in a chronological order that are to be followed for
the enforcement of a policy.

4. Method- "The exact manner in which the production activities are to be carried out"

Methods provide the prescribed ways or manner in which a task can be performed considering
the objective. It considers one step of an entire procedure and defines the step to be taken for
the completion of the given task.

5. Rule- "A Penalty of Rs 200 per day was announced for the workers who found smoking in the
factory premises"

A rule refers to a standard or specific statement that gives information about what is to be
done and what is not to be done. Rules are the simplest type of plans.

6. Budget- "Ritesh also prepared a statement showing the requirement of workers in the
factory throughout the year"

A budget is a statement of expected results expressed in numerical terms for a definite period
in the future.

QUESTION 26:

Is planning actually worth the huge costs involved? Explain.

Answer :
Planning involves huge costs in terms of time and money. It involves analysis, research and
 scientific calculations that involve huge cost. However, despite being an expensive function it
is a very basic and essential function of an organisation. Following are some of the
highlighted factors due to which we can say that planning is a very significant action despite
of the gigantic costs.
(i) Renders Direction: Planning clearly states the goals and objectives to be achieved. Thus, it
acts as a guide for the actions to be taken. It provides a direction to the actions of different
departments of the organisation. They guide the managers about things to be done, what
route to take and how the objectives are to be achieved. It ensures that the path taken for
accomplishment of goals is righteously chosen. Planning also ensures that various
departments of the organisation work in a coordinated manner towards the achievement of
the desired objectives.
(ii) Subdued Risk: By guiding an organisation in the right direction, it accredits its managers
to analyse and anticipate changes. This leads to a reduction in uncertainty of the foreseen
events. Planning shows how to deal with situations, which may arise in the due course of
management, though it does not fully eliminate the problems.
(iii) Minimized Overlapping: As the managers are well comprehended with the policies
and plans of the organisation, they coordinate the activities together to reach the
objectives. Thus, overlapping of the work is reduced. In addition, any wastage of
resources that takes place due to overlapping is reduced. Proper planning ensures that
there is no confusion and misunderstanding and the work proceeds smoothly.
(iv) Encourages Creativity: Planning serves as the stepping-stone of any organization’s
success. It includes formulating policies and plans which requires innovation. It is a crucial
activity, which demands the best of managers thinking capabilities and creativity. It calls out
for new ideas by the management to attain the goals.
(v) Helps in Decision Making: Planning serves as the basis for decision making. Planning
involves analysing the future, evaluating the various courses of action and choosing best
alternative as per the objective. Thus, following a proper planning process helps the
managers in taking rational decisions.
(vi) Essential for Controlling: Planning states the objectives that are to be achieved. Thus, it
sets the standards against which the performance is evaluated. It also helps in determining
whether there is any deviation from the said objectives and thereby, facilitates the corrective
measures.
Hence, we can infer that despite the costs involved, planning is a very important function in
management and worth the costs incurred.