CBSE CLASS 12 BUSINESS STUDIES

CHAPTER – I
NATURE AND SIGNIFICANCE OF MANAGEMENT
REVISION NOTES

1. DEFINITION OF MANAGEMENT:

“Management is the process of working with and through others to effectively achieve the
organizational objectives by efficiently using limited resources in the changing environment.”
Kreitner

2. MEANING/CONCEPT OF MANAGEMENT:
Management is the process of getting things done with the aim of achieving goals effectively and
efficiently.

a. Process: refers to the primary function like planning, organising, staffing, directing and
controlling performed by the management to get things done.

b. Effectiveness: means completing the right task to achieve the deputed goal within the time
frame.

c. Efficiency: means completion of task using minimum resources

3. EFFECTIVENESS VS EFFICIENCY

• Effectiveness is about doing the right task, completing the assigned job on time, no matter
whatever the cost.
• Efficiency is about doing the job in cost effective manner i.e. getting maximum output
with minimum input

Basis Effectiveness Efficiency

 It refers to the It refers to the completion of
Meaning completion of work work correctively with
on time. minimum cost and maximum
profit

It simply means doing things

In simple It simply means
correctly in a faster and cost
words doing right things
efficient manner.

Performing task with least

To achieve end
Objective wastage of time and
results on time
effort(cost)

Main
Is on time Is on cost
Focus

4. CHARACTERISTICS OF MANAGEMENT:
 I. Management is a goal-oriented process: An organisation has a set of simple and clearly
stated goals, which are the basic reason for its existence. Management unites the efforts of
the individuals in the organisation towards achieving these goals.

II. Management is all pervasive: Management is common to all organisations whether

economic, social or political. For e.g. management is applicable for a government
company, school, private company or a NGO.

III. Management is multidimensional:

Management is a complex activity that has three main dimensions:
(a) Management of work
(b) Management by people
(c) Management by operation

IV. Management is a continuous process: It is a series of continuous, composite, but separate

functions, performed by all managers all the time.

V. Management is a group activity: All the individuals in the organisation contributes

towards achieving the goals set by the organization.

VI. Management is a dynamic function: It has to adapt itself to its changing external
environment, which consists of various social, economic and political factors.

VII. Management is an intangible force: It cannot be seen but its presence can be felt from
the way organization functions.

5. MANAGEMENT OBJECTIVES:
 Organisational Objectives: Organizational Objectives can be divided into Survival (Earning
enough revenues to cover cost); Profit (To cover cost and risk); and Growth (To improve its
future prospects).

(a) Survival: Earning enough revenues to cover cost. Management by taking positive
decisions with regard to different business activities ensures survival of business for long
term.

(b) Profitability: Earning adequate profit in order to survive and grow. Profits provide a vital
incentive for the continued successful operation of the enterprise

(c) Growth: Growth indicates how well it exploits the potential opportunities. Growth of a
business can be measured in terms of sales volume increase, number of employees,
products etc.

Social Objectives:
Is to provide quality products at reasonable rates and generating employment opportunities for
disadvantaged sections of society. To provide basic amenities like schools and crèches to
employees and by using environmental friendly methods of production.

Personal Objectives:
Includes meeting the financial needs like competitive salaries and perks and Social and safety
needs of the employee like basic amenities, peer recognition etc.

6. IMPORTANCE OF MANAGEMENT
1. Management helps in achieving group goals: Management creates teams and coordinates
with individuals to achieve individual goals along with organizational goals
2. Increases efficiency: Management increases efficiency by using resources in the best possible
manner to reduce cost and increase productivity.
3. Creates dynamic organization: Management helps the employees overcome their resistance
to change and adapt as per changing situation to ensure its survival, growth and its competitive
edge.
4. Achieving personal objectives: Through motivation and leadership management helps the
individuals in achieving personal goals while working towards organizational objective.
5. Development of society: Management helps in the development of society by producing good
quality products, creating employment opportunities and adopting new technologies.

7. NATURE OF MANAGEMENT

1. Management as an Art
Art refers to skillful and personal application of existing knowledge acquired through study,
observation and experience. The features of art are as follows:

a. Existence of theoretical knowledge: In every art, Systematic and organized

study material is available to acquire theoretical knowledge and experts in the
respective fields apply these principles to their respective art forms.
b. Personalized application: The use of basic knowledge differs from person to
person and thus, art is a very personalized concept.
 c. Based on practice and creativity: Art involves creativity and practice of the
experts. For e.g. the music created by musicians are different though the musical
notes used are the same.

Every manager has his own unique style of managing things and people. He/she uses his
creativity in applying management techniques and his skills improve with regular application.
Since all the features of art are present in management. So it can called an art.

2. Management as a Science
Science is a systematized body of knowledge that is based on general truths, which can be tested
anywhere, anytime. The features of Science are as follows:

a. Systematized body of knowledge: Science has a systematized body of knowledge based

on cause and effect relationship.

b. Principles based on experiments and observation: Scientific principles are developed

through experiments and observation.

c. Universal validity: Scientific principles have universal validity and application.

Management has systematic body of knowledge and its principles are developed over a period of
time based on repeated experiments & observations which are universally applicable but they
have to be modified according to given situation.
As the principles of management are not as exact as the principles of pure science, so it may
be called-an inexact science. The prominence of human factor in the management makes it a
Social Science.

3. Management as Profession
Profession means an occupation for which specialized knowledge and skills are required and
entry is restricted. The main features of profession are as follows:

a. Well-defined body of Knowledge: is complete set of principles, concepts, terms and

activities that make up a professional domain.
b. Restricted Entry: The entry in every profession is restricted through examination or
through educational degree.
c. Professional Associations: All professions are affiliated to a professional association,
which regulates entry and frames code of conduct relating to the profession. Eg. IMA, ICAI
d. Ethical Code of Conduct: All professions are bound by a code of conduct, which guides
the behavior of its members.
e. Service Motive: The main aim of a profession is to serve its clients.

Management does not fulfill all the features of a profession and thus it is not a full-fledged
profession like doctor, lawyer, etc.
8. LEVELS OF MANAGEMENT

Top Management: Designations and Functions

Comprises of CEO, Board of Directors, MD, GM, VP. Main task is conceptualizing of
organizational goal, policy and strategy formulation and organising, controlling and monitoring
activities and resources. Controlling the work performance of individuals and approving Budgets.

Middle Management : Designations and Functions

Comprises of Departmental, Sub‐Departmental and Divisional heads, its main task is execution of
plans, policies framed by the top level management and preparing organisational set up &
appointing employees and issuing instructions and motivating employees. Ensuring
interdepartmental cooperation as well.

Supervisory and operational Level : Designations and Functions

Consists of Foremen and supervisor etc. Main task is to ensure actual implementation of the
policies as per directions of top and middle level managers and also to Bring workers’ grievances
before the management & maintain discipline among the workers.

9. FUNCTIONS OF MANAGEMENT:
 I. Planning : Setting objectives and targets and formulating an action plan. It bridges the
gap between where we are and where we want to reach.

II. Organising: Involves assigning duties, grouping tasks, establishing authority and
responsibility relationships and allocating the resources required to perform a specific
plan.

III. Staffing: Finding and placing the right person for the right job at the right time. It
involves recruitment, selection, placement, induction and development of employees.

IV. Directing: Refers to leading, influencing, motivating the staff chosen to perform the
assigned task efficiently and effectively.

V. Controlling: Refers to monitoring organizational activities towards the attainment of

organizational goals. It involves setting standards measuring current performance,
comparing with the standards, and taking corrective action for any deviations.

10. COORDINATION
Coordination is the force which synchronizes all the functions of management and activities of
different departments. Lack of coordination results in overlapping, duplication, delays and chaos.
It is concerned with all the three levels of management as if all the levels of management are
looked together, they become a group and as in the case of every group, they also require
coordination among themselves. Coordination is implicit and inherent in all functions of an
organisation.
 PLANNING

CONTROLLING ORGANISING

COORDINATION

DIRECTING STAFFING

FEATURES OF COORDINATION:

I. Coordination Integrates Group Effort: It is an orderly arrangement of group effort to

ensure that performance is at par with the plans and schedules.

II. Coordination Ensures unity of action: It is a binding force between various departments
and ensures that all efforts are focused towards achieving the organizational goal.

III. Coordination is a Continuous Process: It is a never-ending process as its needs are felt
at all levels and in all activities in the organisations. It begins at the planning stage and
continues until controlling.

IV. Coordination is the responsibility of all managers: coordination is equally important at

all levels of management. It is the responsibility of all the individuals in an organisation to
carry out their work in a responsible manner and coordinate with each other to achieve
organizational goals.

V. Coordination is a deliberate function: A manager has to coordinate the efforts of

different people in a conscious and deliberate manner. In other words, coordination is never
established by itself rather it is a conscious effort on the part of every manager.

VI. Coordination is all pervasive function: It is needed in all departments and at all levels.
Lack of coordination can lead to overlapping of activities.
IMPORTANCE OF COORDINATION:
The reasons that bring out the importance or the necessity for coordination are

I. Growth in the Size: An organisations growth results in the increase in the number of
people employed with varied individual aspirations and culture. So it is important to
harmonize individual goal with the organizational goals through coordination.

II. Functional Differentiation: All the departments and divisions may have their own,
objective, policies and their own style of working. However all departments and
individuals are interdependent and cannot work in isolation. Thus, coordination is
necessary for linking the activities of various departments.

III. Specialization: Mostly specialists have a feeling of superiority and prioritize their zone of
activities. Coordination seeks to sequence and integrate all the specialists’ activities into a
wholesome effort.
 CBSE CLASS 12 BUSINESS STUDIES
CHAPTER – 2
PRINCIPLES OF MANAGEMENT
REVISION NOTES

PRINCIPLES OF MANAGEMENT

Principle

A principle is a fundamental truth or proposition that serves as the foundation for a system
of belief or behavior or for a chain of reasoning

Principles of Management

Principles of management are broad and general guidelines for managerial decision-making
and behavior. Management principles are not as rigid as principles of science as this deals
with human behavior and thus are to be applied creatively given the demands of the situation.

Nature of Principles of Management

The nature of principles of management are as follows:

1. Universal applicability: Principles of management is applicable in all types of
organizations, business as well as non-business, small as well as large enterprises depending
on the nature of the organisation.

2. General Guidelines: They are general guidelines to action but do not provide straight
solution to all managerial problems, as the business situations are complex and dynamic.

3. Formed by practice and experimentation: They are formed from the knowledge,
experiences and experiments of the managers.

4. Flexible: These principles are not rigid and can be adapted and modified by the practicing
managers depending upon the situation.

5. Mainly Behavioral: Since the principles aim at influencing complex human behavior they
are behavioral in nature.

6. Cause and Effect relationship: They are intend to establish relationship between cause &
effect so that they can be used in various situations.

7. Contingent: Their applicability depends upon the prevailing situation at a particular point
of time. The application has to be changed as per the situation.

Significance of the Principles of Management

1. Providing managers with useful insights into reality: Principles of management guide
managers with useful insights into real world situations, adherence to these principles will
improve their knowledge, ability and understanding of various managerial situations and
circumstances.

2. Optimum utilization of resources and effective administration: The resources with the
company are limited. Management principles equip the managers to see the cause and
effect of their decisions and actions and thus reduce wastage. Optimum utilization of
resources means maximum benefit with minimum cost.

3. Scientific decisions: Decisions must be based on facts, thoughtful and justifiable in terms
of intended purpose. Management principles must be timely, realistic and subject to
measurement and evaluation. Principles are free from bias and prejudice.
 4. Meeting the changing environmental requirements: Management principles are
effective and dynamic and thus help the organization to meet the changing requirements of
the environment.

5. Fulfilling social responsibility: Due to the increased awareness of the public forces all
companies are required to fulfill social responsibilities. Principles of management not only
help in achieving organizational goals but also guide managers in performing social
responsibilities.

6. Management training, education and research: Management principles are the core of
management and are helpful in increasing knowledge, which forms the basis for
management training and research.

Taylor’s Scientific Management

Meaning: It implies conducting of business activities according to standardized tools, methods

and trained personal in order to increase output improve its quality and reduce costs and wastes
through effective and optimum utilization of resources. Hence, it stresses that there is always one
best method to maximize efficiency. This method can be developed through study and analysis.

Principles of Scientific Management

 Science, not rule
of Thumb

Development of
each and every
PRINCIPLES OF
person to his or
her greatest SCIENTIFIC Harmony, Not
discord
Efficiency and
Prosperity MANAGEMENT

Cooperation not
individualism

(1) Science, not rule of Thumb: There should be scientific study and analysis of each element of
a job in order to replace the old rule of thumb approach or hit and miss method. We should be
constantly experimenting to develop new techniques, which make the work much simpler, easier
and quicker. Scientific method involved investigation of traditional methods through work-study.

(2) Harmony, Not discord: There should be complete harmony between management and
workers I achieving organizational goals. It implies that there should be mental revolution on part
of managers and workers in order to respect each other’s role and eliminate any class conflict to
realize organizational objectives.

(3) Cooperation not individualism: It is an extension of the Principle of Harmony not discord,
there should be complete cooperation between the labour and management instead of
individualism. Constructive suggestions from employees must be encouraged and desist workers
from going on strike and making unreasonable demands.

(4) Development of each and every person to his or her greatest Efficiency and Prosperity:
It implies taking actions for the development of competencies of all persons of an organization
after their scientific selection and assigning work suited to their temperament and abilities. This
will increase the productivity by utilizing the skills of the workers fully.
Techniques of Scientific Management

Functional
Foreman-ship

Standardization
Differential piece and
wage system Simplification of
work

Techniques
of Scientific
Management

Fatigue study Method Study

Time study Motion Study

1. Functional Foreman-ship: Functional foreman-ship is a technique in which planning and

execution are separate.
• Supervision is divided into several specialized functions and each functions is to be
entrusted to a foreman.
• There are eight foreman in the related process or function of production.
• Four each under planning and execution who keep a watch on all workers performance.
2. Standardization and Simplification of work: Standardization refers to developing standards
for every business activities to maximize output. Whereas simplification refers to eliminating
unnecessary varieties, sizes and grades of products or services. It results in savings of cost of
labour, machines and tools. It leads to fuller utilization of equipment and increase in turnover.

3. Method Study: The objective of method study is to find out one best way of doing the job to
maximize efficiency in the use of resources and to reduce cost of production and to maximizing
quality and satisfaction of customers.

4. Motion Study: Refers to the study of productive movements. It is the science of identifying
and eliminating wasteful movements resulting from unnecessary, incidental and unproductive
motions of the workers so that it takes less time to complete the job efficiently.

5. Time study: It determines the standard time taken to perform a well-defined job. The objective
of time study is to determine the number of workers to be employed, frame suitable incentive
schemes & determine labour costs.
6. Fatigue study: Fatigue study seeks to determine time and frequency of rest intervals in
completing a task. The rest interval will enable workers to regain their lost stamina thereby
avoiding accidents, rejections and industrial sickness.

7. Differential piece wage system: This differentiates efficient and inefficient workers and links
wages and productivity. The standard output per day is established and two-piece rates are used:
higher for those who achieve upto and more than standard output i.e. efficient workers and lower
for inefficient and slow workers. Thus, efficient workers will be rewarded & inefficient will be
motivated to improve their performance.

Fayol’s Principles of Management

According to Henri Fayol’s specialization promotes efficiency of the workforce and increases
productivity. In addition, the specialization of the workforce increases their accuracy and speed.
This 14 principles of management is applicable to both technical and managerial activities

Principles of Management developed by Fayol

1. Division of work: Work is divided in small tasks/job and a trained specialist who is
competent enough to perform that job does each work. Thus it leads to greater efficiency,
specialization, increased productivity.

2. Authority and Responsibility: Authority means power to take decisions and

responsibility means obligation to complete the job assigned on time. There should be a
balance between authority and responsibility. Mere responsibility without authority makes
an executive less interested in discharging duties. Similarly, giving authority without
assigning responsibility makes him arrogant and there is fear of misuse of power.

3. Discipline: Is the obedience to organizational rules and employment agreement, which are

necessary for the working of the organisation. Discipline requires good supervisors at all levels,

clear and fair agreements and judicious application of penalties.

4. Unity of Command: According to Fayol there should be one and only one boss for every
individual employee. It implies that every worker should receive orders from one superior
only, otherwise it will create confusion, conflict and duplication of work.

5. Unity of Direction: All the units of an organisation should move towards the same objectives
through coordinated and focused efforts. Each group of activities having the same objective must
have one head and one plan. This ensures unity of action and coordination.

Difference between Unity of Command and Unity of Direction

 BASIS FOR
UNITY OF COMMAND UNITY OF DIRECTION
COMPARISON

Meaning Unity of command refers to a Unity of direction is a management

principle of management that principle, which implies that all the
states that one should get orders activities with same objective must
from and report to only one boss. have one head and one plan.

Purpose To prevent dual subordination. To prevent duplication of activities.

Implications It effects an individual employee It effects the entire organization

Outcome The principle leads to effective The principle results in coordination

functioning of the subordinates. of work of various employees and
managers.

Relationship Represents relationship between Represents relationship of activities,

superior and subordinate. as per organizational plans and
goals.

Need To fix the responsibility of each For efficient functioning of

person in the organization. organizational activities.

6. Subordination of Individual Interest to general interest: The interest of an organization

should take priority over the interest of any individual employee. In simple words the
organisation interest to be prioritized over individual interest.

7. Remuneration of Employees: The overall pay and compensation should be, fair to both
employees and the organization. The employees should be given fair wages so that they can have
a reasonable standard of living. Wages should be within the paying capacity of the organisation.
8. Centralization and Decentralization: Centralization means concentration of decisions
making authority with some, whereas its dispersal among more than one person is
Decentralization. Both should be balanced, as no organization can be completely centralized
or completely decentralized.

9. Scalar Chain: The formal lines of authority and communication between superiors and
subordinates from the highest to the lowest ranks is known as scalar chain. This chain should not
be violated but in case of emergency employees at same level can contact through Gang Plank by
informing their immediate superiors.

10. Order: According to Fayol “ People and material should be in suitable places at
appropriate time for maximum efficiency”. A place for everything and everyone and
everything and everyone should be in its designated place

11. Equity: Good sense and experience are needed to ensure fairness to all employees who
should be treated as fairly as possible. The working environment of any organization should
be free from all forms of and principles of justice and fair play should be followed. No worker
should be unduly favoured or punished.

12. Stability of Personnel: Employee turnover should be minimized to maintain

organizational efficiency. A personnel should be selected and appointed after rigorous
procedure and the selected person should be kept at the post for a minimum tenure to show
results.
 13. Initiative: Workers should be encouraged to develop and carry out their plan for
improvements. Initiative means taking the first step with self-motivation. It is thinking out
and executing the plan.

14. Espirit De Corps: Management should promote team spirit, unity and harmony among
employees.

Fayol versus Taylor

Basis Henry Fayol F.W Taylor

Observations and
Basis of formation Personal Experience experimentation
Improvement in the overall Concentrates on improving the
Focus administration. productivity.
Applicable only to specialized
Applicability Universal applicability situations. Such as in factories

Perspective Top level management Lower level ‐ shop floor level

Researcher and practioner and
was called as ‘father of general Scientist and was called as ‘father
Personality management. of scientific management.
More importance is attached to More importance is given to
increase the production rather human element e.g., principle of
Human element than to the human element. equity, stability of tenure.
 CBSE CLASS 12 BUSINESS STUDIES
CHAPTER – 3
BUSINESS ENVIRONMENT
REVISION NOTES

MEANING OF BUSINESS ENVIRONMENT:

The term business environment means the sum total of all individuals, institutions and other
forces that are outside the control of a business enterprise but that may effect its performance.
• The economic, social, political, technological and other forces, which operate outside a
business enterprise, also form part of the business environment.
• The organisation must be aware of the external forces and institutions and must be
dynamic to adapt itself to the changing external environment.
• The organisation must set goals and formulate plans and procedures based on the
changing external business environment.

FEATURES OF BUSINESS ENVIRONMENT

1. Totality of external forces: Business environment is the sum total of all the forces and
factors external to a business firm.
2. Specific and general forces: Business environment includes both specific and general
forces. Specific forces include investors, competitors, customers etc. who influence
business firm directly while general forces include social, political, economic, legal and
technological conditions, which affect a business, firm indirectly.

3. Inter-relatedness: Different elements or parts of a business environment are closely

interrelated. For example, increased awareness for health care has raised the demand for
healthy oil free food and healthy lifestyle.

4. Dynamic: Business environment is dynamic in which it keeps on changing with the

change in technology, shift in consumer preferences etc.

5. Uncertainty: Business environment is largely uncertain, as it is difficult to predict the

future happenings. Such as, frequent environmental changes in the field of technology
and fashion industry.

6. Complexity: Business environment is complex phenomenon, which is easier to

understand in parts, but it is difficult to understand in totality. Since the business
environment consists of various interrelated and dynamic forces, it is difficult to
understand the constituents of a given environment.

7. Relativity: Business environment is a relative concept whose impact differs from country
to country, region to region and firm to firm.
IMPORTANCE OF BUSINESS ENVIRONMENT

Identification of
opportunities to
get first mover
advantage

Assistance in
planning and Identification of
policy threats
formulation
IMPORTANCE
OF BUSINESS
ENVIRONMENT

Coping with Tapping useful

Rapid changes: resources

1. Business environment enables the firm to Identify opportunities to get the first
mover advantage: Environment provide various opportunities for business success.
Understanding it helps an organization in identifying advantageous opportunities and
exploiting benefits prior to competitors.

2. It helps the firm to Identify threats and early warning signal: Environmental
awareness can help managers of an organization to identify various threats on time and
serve as an early warning signal. For example, Bajaj Auto made considerable
improvements in its two wheelers when other companies entered the auto industry.

3. It helps in tapping useful resources: Business Environment is a source of various

resources such as man, machine, money, raw material, power etc. to a business firm. By
understanding the business environment an enterprise can design policies to acquire the
required resources and convert them into output that environment desires.
 4. It helps in coping with rapid changes: Business environment is very dynamic were
changes are taking place at a fast pace. Changes such as turbulent market conditions, less
brand loyalty etc. In order to cope with significant changes managers must understand,
examine, and develop a suitable course of action.

5. It helps in assisting in planning and policy formulation: Understanding and analysis

of business environment can be the basis for planning & policy formulation in an
organisation.

6. It helps in improving performance: The enterprise that continuously monitor the

environment and adopt suitable business practices are the ones, which not only improve
their performance but also continue to succeed in the market for a long period.

DIMENSIONS OF BUSINESS ENVIRONMENT

1. Economic Environment: It has immediate and direct impact on a business. Rate of

interest, inflation rate, change in disposable income of people, monetary policy, stock
market indices etc. are some economic factors, which could affect business firms.
 Increase or decrease of the economic factors result in opportunities or constraints on a
business enterprise.

2. Social Environment: Business environment includes various social forces such as

customs, beliefs, literacy rate, educational levels, lifestyle, values etc. Social trends
present various opportunities and threats to business enterprise.

Example the celebration of Diwali, Eid and Christmas in India provide financial
opportunities for confectionery manufacturers, garments businesses and many other
related businesses.

3. Technological Environment: It includes forces relating to scientific improvements and

innovations, which provide new ways of producing goods and services and new methods
and techniques of operating business. A businessman must closely monitor the
technological changes taking place in the industry as it helps in facing competition and
improving quality of the product.
Example, demand for LED smart HD tv’s instead of LCD tv’s, Use of artificial
intelligence in various companies etc.

4. Political Environment: It includes political conditions such as general stability and

peace in the country and the attitude of the elected government representatives hold
towards businesses. Political stability builds confidence among business community
while political instability and bad law & order situation may bring uncertainty in business
activities.
Example: Bangalore is called as the silicon valley of India due to the favorable political
conditions provided by the state government to the IT industries.

5. Legal Environment: It includes various laws and legislations passed by the Government,
administrative orders, court judgements, decisions of various commissions and agencies
at every level of the government center, state or local. Businessmen have to act according
to various legislations and their knowledge is very necessary.
Example: Advertisement of Alcoholic beverages is prohibited.

ECONOMIC ENVIRONMENT IN INDIA

 As per the economic planning the government gave lead role to the public sector for
infrastructure industries whereas the private sector was broadly given the responsibility of
developing consumer goods industry. At the same time, the government imposed several
restrictions, regulations and controls on the working of private sector enterprises. India’s
experience with economic planning has delivered mixed results. In 1991 the economy faced a
serious foreign exchange crisis, high government deficit and a rising trend of prices despite
bumper crops.
As a part of economic reforms, the Government of India announced New Economic Policy in
July 1991 for taking out the country out of economic difficulty and for the development of the
country.

The features of economic policy 1991 are as follows:

1. Reduced number of industries to six, under compulsory licensing scheme.

2. The role of public sector was limited to four industries of strategic importance.

3. Disinvestment was carried out in case of many public sector enterprises.

4. Policy towards foreign capital was liberalized and in many sectors, 100% direct foreign
investment was allowed.

5. Automatic permission was granted for signing technology agreements with foreign
companies.

6. Foreign investment promotion board (FIPB) was setup to promote & channelize foreign
investment in India.

The main strategies of new economic policy of 1991:

1. LIBERALISATION:

The economic reforms that were introduced aimed at liberalizing the Indian business and
industry from all unnecessary controls and restrictions. It relaxed the rules and regulations which
restricted the growth of the private sector and also allowed the private sector to take part in the
economic activities that were exclusively reserved for the government sector.

Liberalisation of the Indian industry has taken place with respect to:

a. Abolishing licensing requirement in most of the industries except a short list,

b. Freedom in deciding the scale of business activities i.e., no restrictions on expansion or

contraction of business activities,

c. Removal of restrictions on the movement of goods and services

d. Freedom in fixing the prices of goods services

e. Reduction in tax rates and lifting of unnecessary controls over the economy,

f. Simplifying procedures for imports and experts, and

 g. Making it easier to attract foreign capital and technology to India.

2. PRIVATISATION:
The new set of economic reforms aimed at giving greater role to the private sector in the nation
building process and a reduced role to the public sector. The government adopted the policy of
divestment and transfer of ownership.
• To achieve privatization in India, the government redefined the role of the public sector
in the new industrial policy of 1991, adopted the policy of planned disinvestments of the
public sector, and decided to refer the loss making and sick enterprises to the Board of
Industrial and Financial Reconstruction.

• Divestment means transfer of ownership of a public sector enterprise to a private

enterprise.

• If there were dilution of Government ownership beyond 51 percent, it would result in

transfer of ownership and management of the enterprise to the private sector.

3. GLOBALISATION:
Integration of the various economies of the world leading towards the emergence of a cohesive
global economy. In simple words globalization means interaction and interdependence of a
country with the economies of other countries to facilitate free flow of goods and services,
capital and technology across borders.
Till 1991, the Government of India had followed a policy of strictly regulating imports in value
and volume terms. These regulations were with respect to (a) licensing of imports, (b) tariff
restrictions and (c) quantitative restrictions.
A truly global economy implies a boundary less world where there is:
a. Free flow of goods and services across nations;
b. Free flow of capital across nations;
c. Free flow of information and technology;
d. Free movement of people across borders;
e. A common acceptable mechanism for the settlement of disputes;
f. A global governance perspective.
DEMONETISATION:
The Government of India, made an announcement on November 8, 2016 with profound
implications for the Indian economy. The two largest denomination notes, `500 `1,000, were
‘demonetised’ with immediate effect, ceasing to be legal tender except for a few specified
purposes such as paying utility bills. This led to eighty six per cent of the money in circulation
invalid. The people of India had to deposit the invalid currency in the banks, which came along
with the restrictions placed on cash withdrawals. In other words, restrictions were placed on the
convertibility of domestic money and bank deposits. The main aim was to curb corruption, black
money and illegal activities.

FEATURES OF DEMONETISATION:
1. Demonetisation is viewed as a tax administration measure. Cash holdings arising from
declared income was readily deposited in banks and exchanged for new notes. But those
with black money had to declare unaccounted income and pay tax penalty was imposed.

2. Demonetisation is also interpreted as a shift on the part of the government indicating that
tax evasion will no longer be tolerated or accepted.

3. Demonetisation also led to tax administration channelizing savings into the formal
financial system.

4. Another feature of demonetization is to create a less-cash or cash-lite economy, i.e.,

channeling more savings through the formal financial system and improving tax
compliance.

IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND INDUSTRY

 IMPACT OF GOVERNMENT
POLICY CHANGES ON BUSINESS
AND INDUSTRY
• Increasing Competition
• More Demanding Customers:
• Rapidly Changing Technological
Environment:
• Necessity for Change:
• Need for Developing Human Resources:
• Market Orientation:
• Loss of budgetary Support to the Public
Sector:

1. Increasing Competition: Changes in the rules of industrial licensing and entry of foreign
firm’s Indian market has increased market competition in India.

2. More Demanding Customers: Well-informed customers are more demanding.

Increased competition in the market gives customer wider choice of quality products at
reasonable price.

3. Rapidly Changing Technological Environment: Increased competition forces the firms

to develop new ways to survive and grow in the market.

4. Necessity for Change: After 1991, the market forces have become turbulent, as a result
of which the enterprises have to continuously modify their operations.

5. Need for Developing Human Resources: The changing market conditions of today
requires people with higher competence and greater commitment, hence there is a need
for developing human resources.
6. Market Orientation: Earlier firms followed production oriented marketing operations.
Today firms produce those goods & services as per the requirements of the customers.

7. Loss of budgetary Support to the Public Sector: The budgetary support given by the
central government to the public sector had declined to a considerable extend. Thus in
order to survive, the public sector have to be more efficient generate their resources and
profits.
 CBSE CLASS 12 BUSINESS STUDIES
CHAPTER – 4
PLANNING
REVISION NOTES

DEFINITION
“Planning is an intellectual process, conscious determination of course of action, the basing of
decision on purpose, facts and considered estimates.”.
Koontz and O‘Donnell

MEANING
• Planning is deciding in advance what to do and how to do. It is one of the basic
managerial functions.
• It involves setting objectives and developing appropriate courses of action to achieve
these objectives.
• The plan that is developed has to have a given time frame but time is a limited resource.
It needs to be utilised judiciously.

IMPORTANCE OF PLANNING
1. Planning provides directions: By stating in advance, how the work is to be done planning
provides direction for action. Planning ensures that objectives are clearly stated in order to
develop appropriate course of action. If the plans are set, the department and individuals can
work in coordination.
2. Planning reduces the risk of uncertainty: Planning is an activity, which enables a manager
to look ahead and anticipate changes. Changes or events cannot be eliminated but by deciding
the plans and course of action in advance managers can anticipate it and adjust the plans
according to the situation.
3. Planning reduces overlapping and wasteful activities: Planning serves as the basis of
coordinating the activities and efforts of different divisions departments and individuals. It
reduces useless and redundant activities, avoids confusion and misunderstanding, and ensures
clarity in thought and action.
4. Planning promotes innovative ideas: Planning is the first function of management.
Managers get the opportunity to develop new ideas and new ideas can take the shape of concrete
plans. It guides all future action leading to growth and prosperity of the business.
5. Planning facilitates decision making: Planning involves setting targets and predicting future
conditions, thus helping in taking rational decisions from alternative courses of action.

6. Planning establishes standards for controlling: Planning provides the standards against
which the actual performance is measured. Therefore planning is a prerequisite for controlling.

FEATURES OF PLANNING

Planning
focuses on
achieving
objectives:
Planning is a
Planning is a
primary
mental
function of
exercise:
management:

FEATURES
OF
Planning PLANNING
involves Planning is
decision pervasive:
making:

Planning is Planning is
futuristic: continuous:

1. 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.

2. Planning is a primary function of management: Planning lays down the base for other
functions of management.

3. Planning is pervasive: 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.

4. Planning is continuous: Continuity of planning is related with the planning cycle. It

means that a plan is framed, it is implemented, and is followed by another plan, and so
on.
 5. Planning is futuristic: The purpose of planning is to meet future events effectively to the
best advantage of an organisation. Planning involves forecasting future events and
conditions and drafting the plans accordingly.

6. Planning involves decision making: Planning essentially involves choice from among
various alternatives and activities. If there is only one possible goal or a possible course
of action, there is no need for planning because there is no choice.

7. Planning is a mental exercise: Planning requires application of the mind involving

foresight. Planning is an intellectual activity, which requires logical and systematic
thinking rather than guess work.

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 plan and thus creativity of these
managers get reduced.
4. Planning involves huge costs: Huge costs are involved in the formulation of the plan.
Detailed plans require scientific calculations to a ascertain data. Sometimes costs incurred on
planning doesn’t justify the benefits derived
5. Planning is a time consuming: Many aspects need to be considered while formulating a plan,
hence it is a very time consuming process.
6. Planning does not guarantee success: The success of an enterprise is possible only when
plans are properly drawn and implemented. Managers tend to apply the previously tried and
tested plans but a plan successful before may not be successful for all situations.

PLANNING PROCESS

Follow Up Setting
Action Objectives

Implementing Developing
The Plan Premises
PLANNING
PROCESS

Identifying
Selecting The
Alternative
Best
Courses Of
Alternative
Action

Evaluating
Alternative
Courses Of
Action

1. Setting Objectives:

• Specify the objectives that the organization wants to achieve.

 • Set objectives for the entire organisation and each departments, units and employees.
State the objectives of the organisation very clearly, and determine how all departments
would contribute towards overall objectives.
• Objectives have to percolate down to each unit and employees at all levels so that they
understand how their actions would contribute towards achieving objectives.
• Managers must contribute ideas and participate in the objective setting process.
• E.g. Setting sales target, new product launch, business expansion to new territories.

2. Developing Premises:

• Planning is a future oriented activity and the future is uncertain therefore the managers
are required to make certain assumptions while drafting plans for the organisation.
• These assumptions about the future are called premises, these are the base material upon
which plans are drawn.
• All managers involved in planning should be familiar with the same assumption and they
all must agree to it.
• For e.g. forecasting is a technique used for gathering information to develop premises. An
organisation uses various forecasts such as policy changes, new markets, demand of a
product etc. for various purposes.
• Accuracy of forecast is necessary for successful plans.

3. Identifying Alternative Courses Of Action:

• Once objectives are set, assumptions are made and then alternative courses of action is
determined.
• Managers must identify all the alternative courses of action for achieving the objectives
of the organisation.
• The course of action may be routine or innovative. Innovative course can be adopted by
involving more people and sharing their ideas.

4. Evaluating Alternative Courses Of Action

• The next step is to evaluate the pros and cons of each and every alternative course of
action.
• Positive & negative aspects of each proposal is to be evaluated keeping in view the
objectives to be achieved
 • E.g. In financial decisions, risk-return trade-off are important. Riskier the investment,
higher the returns. To evaluate such proposals, detailed calculation of earnings, taxes,
earnings per share, dividends are made and then decision is taken.

5. Selecting The Best Alternative

• The best plan from all the alternatives is selected and implemented.
• The ideal plan is the most feasible, profitable and with least negative consequences.

• In most plan drawing a mathematical analysis is not possible hence manager‘s

experience, judgment and intuition plays an important role in selecting the most viable
alternative.
• Sometimes a combination of plans may be selected instead of one best course.

6. Implementing The Plan

• In this step the selected best plan is implemented ie putting plan into action.
• Managers start organizing & assembling resources for implementing the plans.
• E.g. If there is a plan to increase production, then more labour, more machinery will be
required. This step would also involve organizing more labour and purchase of
machinery.

7. Follow Up Action

• Involves monitoring the implemented plans and ensuring that the activities are being
performed according to the schedule.
• Continuous monitoring is required to find out deviations from plans and corrective action
has to be taken to achieve organizational objectives

TYPES OF PLAN

A plan is a commitment to a particular course of action for achieving specific results. Plans can
be classified into several types depending on the use and the length of the planning period. These
plans can be classified into single-use plans and standing plans.

1. SINGLE USE PLAN

• A single use plans are specific plans which are meant to solve a nonrecurring particular
problem. It was developed for a one-time project or event that has one specific objective.

• Such plan is developed to meet the needs of a unique situation in hand.

• The duration of a single use plan differs depending upon the type of project, as a single
event plan may last for one day while a single project may last for one week or months.
 • For example, an outline for an advertising campaign. After the campaign runs its course,
the short term plan will lose its relevance except as a guide for creating future plans.

2. STANDING PLANS
• Standing plans are used for those activities, which occur regularly over a period of time.
• It is designed once and retain their value over a period of time while undergoing revisions
and updates.
• It is developed once but modified from time to time to meet business needs.
• Standing plans include policies, procedures methods and rules

Based on what the plans seek to achieve, plans can be classified as

I. Objectives:
• Objectives are the end results, which the management seeks to achieve, by its
operations.

• They may be designed as the desired future position that the management would
like to reach. The first and foremost step of the planning process is setting
organizational objectives.

• Objectives need 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.

• E.g. Getting 20% return on Investment, increase sales target by 10% etc.
Objectives should be clear and achievable.

II. Strategy:
• Strategy refers to future decisions defining the organisations direction and scope
in the long run.
• Are those plans which an organization prepares to face various situations, threats
and opportunities.
• When the managers of an organization prepare a new strategy for the business it is
called internal strategy and when some strategies are prepared to respond to the
strategies of the competitors, then such strategies are called external strategies.
• E.g. selection of the medium of advertisement, selection of the channels of
distribution etc.

III. Policy:
• Policies are general statements that guide thinking or channelize energies towards
a particular direction. It provides a basis for interpreting strategy.
• There are policies for all the levels and departments in an organisation, such a s
major policies and minor policies.
• Policies define the parameters within which a manager can function.
 • They are flexible as they may be changed as per requirement.
• E.g. selling goods on cash basis only, purchasing decisions etc.

IV. Procedure:
• Procedures are routine steps, detailing the exact manner in which a work is to be
performed.
• They indicate which work is to be done in which sequence.
• The sequence of actions to be taken are generally to enforce a policy and to attain
pre-determined objectives.
• E.g. Recruitment process of a company.

V. Rule:
• Rules are specific statement that inform what is to be done and what not to be
done in various circumstances.
• Rules are rigid and doesn’t allow flexibility and thus ensures discipline in the
organization.
• E.g. ‘No smoking in the office premises’

VI. Method:
• Methods provide the prescribed ways or manner in which a task can be performed
considering the objective.
• Selection of proper method saves time, money, efforts and increases efficiency.
• Methods are flexible.
• E.g. various methods of training adopted by an organization to train its employees
like apprenticeship training, induction programmes etc.

VII. Programme:
• A programme may consist detailed list of project outlining, the objectives,
policies, procedures, rules, tasks, physical and human resources required to
implement any course of action.

VIII. Budget:
• A budget is a statement of expected results expressed in numerical terms for a
definite period in the future.
• E.g. sales budget, production budget