UNIT 2 - Planning

INTRODUCTION & CONCEPT

In business, planning is the preparatory step for action.

Before starting a business itself, the businessman must
decide what kind of business he will take up, whether
manufacturing selling.

If manufacturing, whether consumer or capital goods, if

selling, whether wholesale or retail; how he will secure
funds, where he will locate his business and so on. After
the business has commenced, he must determine
before-hand the day-to-day, month-to-month, year-to-year
activities of his undertaking. In case he wants to extend
his business, he must also decide in which direction to
extend, how to secure money and so on.

Planning is the basic managerial function. It helps in

determining the course of action to be followed for
achieving various organisational objectives. It is a decision
in advance; what to do when to do, how to do and who
will do a particular task. Planning is a process which
involves thinking before doing. It is concerned with a
mental state of the manager. He thinks before undertaking
a work. Other functions of management like organising,
staffing, controlling and directing are also undertaken after
proper planning.

"Planning is the selecting and relating of facts and the

making and using of assumptions regarding the future in
the visualization and formulation of proposed activities
believed necessary to achieve directed result." "The
determination in advance of line of action by which certain
results are to be achieved.

-George Terry

Planning is deciding in advance a course of action for

reaching organisational goals. The line of action is decided
in advance so that actual execution becomes easy later
on." -Hart "The selcetion from among alternatives for
future courses of action for the enterprise as a whole and
each department with it."

-Koontz and O'Donnell

"Management planning involves the development of

forecasts, objectives, policies, programs, procedures,
schedules and budgets."
-Louis A. Allen

"Planning means the determination of what is to be done,

how and where it is to be done, who is to do it and how
results are to be evaluated." "Planning is deciding in
advance what is to be done. It involves the selection of
objectives,

-James L. Lundy

policies, process of selecting and developing the best

course of action to accomplish an objective, policies,
procedures and programmes from among alternatives."
"Planning is the conscious process of selecting and
developing the best course of action to accomplish an
objective. It is the basis from which future management
decisions spring.”
-M.E. Hurley

ELEMENTS OF PLANNING

Planning is deciding in advance the future state of

business of an enterprise, and the means of attaining it. Its
elements are:

1. What will be done : What are the objectives of

business in the short and in the long run.
2. What resources will be required: This involves
estimation of the available and potential resources,
estimation of resources required for the achievement
of objectives and filling the gap between the two, if
any.
3. When it will be done: It involves determination of the
timing and sequence, if any, for the performance of
various activities and execution of various projects
and their parts.
4. How it will be done: This involves two things:(i)
Determination of tasks, activities, projects,
programmes etc. required for the attainment of
 objectives, and.. (ii) Formulation of strategies, policies,
procedures, methods, standards and budgets for the
above purpose.
5. Who will do it: It involves assignment of
responsibilities to various managers relating to
contributions they are expected to make for the
attainment of enterprise objectives. This is preceded
by the breaking down of the total enterprise objectives
into segmental objectives, resulting into divisional,
departmental sectional and individual objectives.

Features & characteristis of planning are:

1. Planning is mainly concerned with looking ahead in

the future. Forecasting provides the basic raw
material for correct planning.
2. Planning involves the selection of best alternative.
3. Planning is very closely related to goals or objectives
of the organisation. The goals may be expressed or
implied; however well defined goals lead to efficiency in
planning.
4. Planning is required at all levels of management.
However, its scope and importance increase at
successively higher levels.
5. Planning is flexible as it is based on future conditions
which too are dynamic. Planning is a continuous and
unending process.
6. Planning is an interdependent process
7. Planning governs the survival, growth and prosperity
of an organisation.
NEED/IMPORTANCE/ADVANTAGES/PURPOSE OF
PLANNING -
The fundamental purpose of all managerial planning is to
establish and help achieve organisational objectives. At
the very top level of organisation, managers set overall
objectives and strategies for achieving them. All lower
level managers formulate goals and plans in progressively
narrower areas to support the accomplishment, of the
overall goals.

In short, the benefits of having a proper planning can be

summarized as:

1. Planning helps the management to implement

future programs in a systematic manner so that the
management may get the maximum benefit out of the
programmes chalked out. It enables the activities to
be conducted in an orderly and co-ordinated manner
to achieve the common goals of the organisation.
2. Planning facilitates the process of decision
making.
3. Planning is the essence of all management
activities; once planning is done well other activities
automatically follow.
4. The business objectives can be easily secured
through plans because planning enables a purposeful
and orderly set of activities instead of random action.
It provides co-ordinated efforts and reduces risks
and uncertainties.
5. With the rapid growth of technological development it
is essential for a manager to be abreast of the latest
technology, otherwise the products are likely to get
obsolete. Planning helps in this process.
6. Planning indirectly leads to large scale economies by
avoiding wastage of men, money, material &
machinery.
7. A better utilization of resources and available
facilities can be made because of planning This
reduces costs and results in higher profitability.
8. Planning encourages the sense of involvement and
team spirit. Planned targets provide a basis upon
which good performances can be rewarded and poor
performances can be taken care of.

PLANNING PROCESS
Planning is one of the most basic and important functions
of management. It involves setting the goals of the
company and then managing the resources to achieve
such goals.

Planning process can involve upto seven steps.

1] Recognizing Need for Action

It is important to take a preliminary look at possible future
organizational needs and opportunities and see them
clearly and completely. Once such opportunities get
recognized the managers can recognize the actions that
need to be taken to realize them. A realistic look must be
taken at the prospect of these new opportunities and
SWOT analysis should be done.
2] Setting Objectives
This is the second step of the planning process. The
objectives are set for the whole organization and also
individual departments. Organizational objectives provide
a general direction, objectives of departments will be more
planned and detailed. Objectives can be long term and
short term as well. They indicate the end result the
company wishes to achieve. So objectives will percolate
down from the managers and will also guide and push the
employees in the correct direction.

3] Identifying Alternatives
This step of the planning process is to identify the
alternatives available to the managers. There is no one
way to achieve the objectives of the firm, there is a
multitude of choices. All of these alternative courses
should be identified. There must be options available to
the manager.
The problem with this step is not finding the exact
alternative but narrowing them down to a reasonable
amount of choices so all of them can be thoroughly
evaluated.
4] Examining Alternate Course of Action
The next step of the planning process is to evaluate and
closely examine each of the alternative plans. Every
option will go through an examination where all there pros
and cons will be weighed. The alternative plans need to be
evaluated in light of the organizational objectives.
5] Selecting the Alternative
In this stage, the best and most feasible plan will be
chosen to be implemented. The ideal plan is the most
profitable one with the least amount of negative
consequences and is also adaptable to dynamic
situations.
The choice is based on scientific analysis and
mathematical equations. But a manager's intuition and
experience also plays a big part in this decision.
Sometimes a few different aspects of different plans are
combined to come up with the one ideal plan.
6] Formulating Supporting Plan
Once an action plan to be implemented is chosen,
managers will have to come up with one or more
supporting plans. These secondary plans help with the
implementation of the main plan. For example plans to
hire more people, train personnel, expand the office etc
are supporting plans for business expansion. So all these
secondary plans are in fact part of the main plan.
7] Implementation of the Plan
The last step of the planning process is implementing the
plan. This is when all the other functions of management
come into play and the plan is put into action to achieve
the objectives of the organization. The tools required for
such implementation involve the types of plans-
procedures, policies, budgets, rules, standards etc.
Remember.......

“Failing to plan is planning to fail.” -Alan Lakein

Types of Planning
Planning is an essential part of every business, whether
that is in the form of laying out a strategic framework, or
making contingency plans for emergencies. Organizations
that are not well-planned may be faced with serious
consequences. The 3 main plans are strategic, tactical
and operational.

I. Strategic Plan

A strategic plan is a high-level overview of the entire

business, its vision, objectives, and value. This plan is the
foundational basis of the organization and will dictate
decisions in the long-term. The scope of the plan can be
two, three, five, or even ten years.

Managers at every level will turn to the strategic plan to

guide their decisions. It will also influence the culture
within an organization and how it interacts with customers
and the media. Thus, the strategic plan must be forward
looking, robust but flexible, with a keen focus on
accommodating future growth.

“Strategy Refers to the determination of purpose and

long term objectives of the enterprise and the
adoption of course of actions and allocation of
resources necessary to achieve these aims.” Koontz
 Nature and Characteristics of Strategy: Features &
characteristics of strategy are:
1. It is the right combination of different factors.
2. It relates the business organisation to its
environment.
3. It is an action to meet a particular challenge to
solve particular problems or to attain a desired objective.
4. Strategy is forward looking.
5. It is a means of coping with or managing the events and
changes in the external environment.
6. It is formulated at the top management level. It is
generally long range in nature but short range moves are
also specified in it.
7.It is flexible and dynamic.
8. It is generally meant to cope with a competitive
setting, in which the behaviour of competitors and other
adversaries of the enterprise affect its own functioning and
performance.

Types of Strategies:
Master strategy - Also called grand Strategy. Preparing
the action plan to achieve the objectives in the the strategy
implies the entire pattern of goals, policies and resource
deployment of an organisation.

Derivative strategy - It refers to departmental strategy. It

refers to the specific deployment of resources. It is
designed to support the master strategy for the
achievement of
organisational goals. It is also called programme
strategy.

Minor strategy - Also called as sub-strategy and is more

specific and detailed. It is prepared to execute a derivative
strategy.

Vision
Where does the organization want to be five years from
now? How does it want to influence the world?

These are some of the questions you must ask when you
delineate your organization’s vision.

“to be Earth’s most customer-centric company”

(Amazon).

Mission

The mission statement is a more realistic overview of the

company’s aim and ambitions. Why does the company
exist? What does it aim to achieve through its existence?
“serve consumers through online and physical stores
and focus on selection, price, and convenience.”
(Amazon)

Objectives -

Objectives are goals or perdetermined results towards

which all organized efforts are directed. They are the end
points. Objectives are multiple because an organisation
wants to achieve several economic & social objectives
simultaneously e.g., profit making, market standing,
executive development, social satisfaction etc.

Objectives may be defined as the goals which an

organisation tries to achieve. "Objective is a term
commonly used to indicate the end point of a
management programme."

-Koontz & O' Donnell

"Objectives are goals, aims or purposes that

organisations wish to achieve over varying periods of
time." "A managerial objective is intended goal which
prescribes definite
-Dalton E. McFarland

Nature, Characteristics and Features of Objectives:

Important characteristics or features of objectives are as
follow:

1. The objectives must be predetermined.

2.A clearly, defined the clear direction for managerial

efforts.

3. Objectives must be realistic, i.e., they must be within the

reach of the organisation.

4. Objectives must be measurable.

5. Objectives must have social sanction. Restrictions on

organisational objectives are put through social rules,
norms or customs.

Advantages of Objective Setting: Advantages & benefits

of specific objective setting are:

1. Clear definition of objectives encourages unified

planning. The unifying effect arises when the plans
prepared by different departmental heads are adjusted to
a common objective.

2. Objectives provide motivation to people in the

organisation. Objectives help in providing the sense of
unity, harmony and accomplishment to co-operative
efforts.

3. When the work is goal oriented, unproductive tasks can

be avoided.

4. Objectives provide standards which aid in the control of

human efforts in an organisation.

5. Objectives serve to identify the organisation and to link

it to the groups upon which its existence depends.

6. Objectives act as a sound basis for developing

administrative controls.

7. Objectives contribute to the management process; they

influence the purpose of the organisation, policies,
personnel, leadership as well as managerial control.
Hierarchy Of Objectives:
Company Objectives - Profit maximisation, Social
Responsibility
Divisional Objectives - Objectives of an operating
division or subsidiary
Departmental Onjectoves - Objectives of production ,
sales, finance
Employee Objectives - Individual Onjective of the people
working in the organisation

II. Tactical Plan

The tactical plan describes the tactics the organization

plans to use to achieve the ambitions outlined in the
strategic plan. It is a short range (i.e. with a scope of less
than one year), low-level document that breaks down the
broader mission statements into smaller, actionable
chunks. If the strategic plan is a response to “What?”,
the tactical plan responds to “How?”.

Creating tactical plans is usually handled by mid-level

managers.

The tactical plan is a very flexible document; it can hold

anything and everything required to achieve the
organization’s goals. That said, there are some
components shared by most tactical plans:
1.Budgets

The tactical plan should list budgetary requirements to

achieve the aims specified in the strategic plan. This
should include the budget for hiring personnel,
marketing, sourcing, manufacturing, and running the
day-to-day operations of the company. Listing the
revenue outflow/inflow is also a recommended practice.

2. Resources

The tactical plan should list all the resources you can
muster to achieve the organization’s aims. This should
include human resources, IP, cash resources, etc. Again,
being highly specific is encouraged.

3. Marketing, Funding, etc.

Finally, the tactical plan should list the organization’s

immediate marketing, sourcing, funding, manufacturing,
retailing, and PR strategy. Their scope should be aligned
with the goals outlined above.

III. Operational Plan

The operational plan describes the day to day running of

the company. The operational plan charts out a roadmap
to achieve the tactical goals within a realistic timeframe.
 This plan is highly specific with an emphasis on
short-term objectives. “Increase sales to 150 units/day”,
or “hire 50 new employees” are both examples of
operational plan objectives.

Creating the operational plan is the responsibility of

low-level managers and supervisors.

Operational plans align the company’s strategic plan with

the actual day to day running of the company. This is
where the macro meets the micro. Running a successful
company requires paying an equal attention to now just
the broad objectives, but also how the objectives are being
met on an everyday basis, hence the need for such
intricate planning.

Operational plans can be either single use, or ongoing, as

described below:

1. Single Use Plans

These plans are created for events/activities with a

single occurrence. This can be a one-time sales program,
a marketing campaign, a recruitment drive, etc. Single use
plans tend to be highly specific.

2. Ongoing Plans

These plans can be used in multiple settings on an

ongoing basis. Ongoing plans can be of different types,
such as:
 1. Policies
2. Procedures
3. Rules

1.Policies: Policies refer to guides to thinking and action

in repetitive situations According to Koontz and O'
Donnell, Policies are general statements or the
understandings which guide or channel thinking in
decision making of subordinates.
Policies lay down broad parameters within which
subordinates can exercise discretion and judgement. They
serve as a guide to decision making and provide a frame
work for executive operation. They define and confine
managerial actions. Policies provide ready made answers
to repeated questions. They save time and effort by
predicting problems. They guide managerial thinking and
action in the right direction, well defined policies enable a
manager to delegate authority to his subordinates. Policies
facilitate co-ordination by creating uniformity and
consistency in individual actions.

Features/Nature of (Sound) Policy: Features &

characteristies of sound policy are:
1. The policy tries to contribute to the organisational
objectives.
2. Policy is formulated through the various steps in the
decision making process.
3. Policy can be interpreted from the behaviour of the
top management.
4. Policy provides guidelines to the members of the
organisation for choosing a particular course of action. 5.
Policy making is the task of all managers; however, the
higher a manager is in the organisation, the more
important is his role in policy making.
6. A sound policy must be flexible in its implementation.
7. A policy should be uniform in its application; it must
be fair to all offering equity and justice to those who are
affected by it.

Importance of (Sound) Policy: Importance of policies

can be understood by the following points:

1. Policy leads to a uniform pattern of action in respect

of various matters relating to an organisation.
2. Policies speed up decision-making since they provide
a framework within which the decisions can be taken.
3.Policies helps both men and boss to work for a better
performance.
4. Policies help in securing effective co ordination of
efforts abd activities in the organisation.

Process of policy formulation - It consist of following

steps -
1.Defining the policy areas and priorities
2.Collecting and analysing the strategic information
3.Perception and generation of policy aternatives
4.Evaluation of policy alternatives
5.Choice of policy alternatives
6.Testing of policy
7.Communication of the Policy
8.Review of revision of chosen policy
Types of Policies: Policies are of several types according
to the nature. These are:
1. Organisation and Functional Policies
2. Written and implied Policies
3. Orginated,appealed and imposed policies

1. Organisational and Functional Policies: Policies

concerning the enterprise as a whole are known as
organisational policies, e.g., promotion policy. Such
policies are formulated by the top management.
On the other hand, policies relating to a particular function
or department of business are callled functional or
operating policies, e.g., production policy, price policy.
These are created by departemntal level managers.

2.Written and Implied Policies - Policies explicitly stated

in writing are written policies. They form a part of the
organisation manual or records. Implied policies are not in
print but they are understood from the functioning of the
management.

3. Originated, Appealed and Imposed Policies:

Originated policies are those laid down by the top
management to guide lower level executives.
Policies that are formulated on the appeal or request of
subordinate managers are called appealed policies.
Subordinates request for the formulation of policies to
meet exceptional problems not covered by prevailing
policies. Originated and appealed policies are two types of
internal policies.
Imposed policies or external policies are those thrust
upon the enterprise by out-side forces, such as
government, trade unions, competitors, trade associations,
etc. Such policies tend to restrict the freedom of the
management.

Strategies are
Policies are
unified, structured,
general statements
and integrated plans
that guide thinking
Meaning that are designed to
and channel
achieve specific
energy toward a
objectives of an
particular direction.
organization.

Its main aim is to

prepare
Its main aim is to organizations against
Aim deal with repetitive unforeseen events or
issues. challenges of the
business
environment.
 They remain valid
for situations or
They are useful for
Validity events which are
specific purposes.
recurring in nature.
xx

They are generally They are made after

Role of
not made on the considering the
competit
move of moves of the
ors
competitors. competitors.

They have a lower

They have a higher
place in the
Hierarch place in the hierarchy
hierarchy of plans
y of of plans and are
and are generally
plans generally considered
considered to be
to be superior.
supportive.

Mc Donald’s and
Example Organizations have Burger King are giant
policies for a fast food chains,
which make their
 proper code of strategies
conduct. considering each
other.
Examples of
Policies Growth
Strategy,reterenchme
● Recruitment nt strategy, mergers
policy and acquisitions
● Credit Policy
● Mark up policy
● Privacy policy
● Payment
policy

2. Procedures: A procedure is a chronological

sequence of steps required to implement a policy and
to achieve an objective. It describes the manner in which
work is to be done or a specific task is to be performed.
Procedures serve as a guide to action and it is less
flexible than a policy. A procedure should be
differentiated from the method that specifies how a
particular step of a procedure is to be performed.
Procedures are established for different activities of
an enterprise.
"A procedure is a series of related tasks that make up
the chronological sequence and -George R. Terry
Essential Characteristics of a Good Procedure: The
essential characteristics of a good procedure are as
follows:

1.It should be within the broad area of the policy laid

down by the top management.

2.It should lay down the chronological sequence of

performing a task.

3. It should be based on a careful study of the work

situation and relevant facts.

4.It should be consistent with the objectives and goals

of the enterprise.

5. It should be reviewed and revised periodically to

keep it workable and consistent with to become
redundant.

6. It should be expressed in simple and precise terms.

Example of Procedure - Suppose an order of materials
has to be placed then the following procedure needs
to be followed.

● Step 1: Stores Department will send a Purchase

Requisition to Purchase Department.
● Step 2: Purchase Department will analyse and
compare the Bill of Materials.
● Step 3: Sourcing and Advertising of Materials.
● Step 4: Receiving Quotations from various suppliers.
● Step 5: Evaluation of Quotation concerning price,
quality, quantity, etc.
● Step 6: Placement of order.
● Step 7: Receiving materials from suppliers.
● Step 8: Checking of materials.
● Step 9: Preparation of Material Received Note.
● Step 10: Making payment to suppliers.

3. Rules: A rule is a definite guide as to what is to be

done or not to be done in a given situation. It does not
provide scope for individual discretion or deviation. It is
always definite and rigidly enforced. For example, 'No
smoking' in the factory is a rule and all employees are
required. to follow it strictly. A rule
also lays down the penalty for its violation. It may or may
not be part of a procedure.
Decision Making
According to the Oxford Advanced Learner’s Dictionary
the term decision making means - the process of
deciding about something important, especially in a
group of people or in an organization.
One of the most important functions of a manager is to
take decisions in the organization. Success or failure of an
organization mainly depends upon the quality of decision
that the managers take at all levels.
Decision making is a continuous and a dynamic activity
that spreads across all other activities pertaining to the
organization. As it is an ongoing activity, decision making
process plays an important role in the functioning of an
organization. Decision making requires solid scientific
knowledge along with skills and experience in addition to
mental maturity.
Definition
Trewatha & Newport defines decision making process as
follows:, “Decision-making involves the selection of a
course of action from among two or more possible
alternatives in order to arrive at a solution for a given
problem”.
According to D. E. McFarland, “A decision is an act of
choice – wherein an executive forms a conclusion about
what must not be done in a given situation. A decision
represents a course of behavior chosen from a number of
possible alternatives”.
According to P. F. Drucker – “Whatever a manager does
he does through making decisions.”
George Terry defines decision-making “as the selection of
one behaviour alternative from two or more possible
alternatives.”

Following can be summarised from the above

mentioned definitions:
1. Decision–making is a selection process and is
concerned with selecting the best type of alternative.
2. The decision taken is aimed at achieving the
organisational goals.
3. It is concerned with the detailed study of the available
alternatives for finding the best possible alternative.
4. Decision making is a mental process. It is the outline
of constant thoughtful consideration.
5. It leads to commitment. The commitment depends
upon the nature of the decision whether short term or long
term.
6. It needs Experience, expertise and skills.
7. Decision making decides the future of an
organisation.
8. Decision making is done at all levels of the
organisation.

Features or Characteristics of Decision-Making:

1. Rational Thinking: It is invariably based on rational
thinking. Since the human brain with its ability to learn,
remember and relate many complex factors, makes
rationality possible.
2. Process: It is the process followed by deliberations and
reasoning.
3. Selective: It is selective, i.e. it is the choice of the best
course among alternatives. In other words, decision
involves selection of the best course from among the
available alternative courses that are identified by the
decision-maker.
4. Purposive: It is usually purposive i.e. it relates to the
end. The solution to a problem provides an effective
means to the desired goal or end.
5. Positive: Although every decision is usually taken with
a positive result in mind , however negative decisions are
also taken with the view that these decisions will benefit in
the long run.
6. Commitment: Every decision is based on the concept
of commitment. In other words, the Management is
committed to every decision it takes.
Decisions are usually so much inter-related to the
organisational life of an enterprise that any change in one
area of activity may change the other areas too. 7.
Evaluation: Decision-making involves evaluation in two
ways, viz., (i) the executive must evaluate the alternatives,
and (ii) he should evaluate the results of the decisions
taken by him.

Types of Decisions
Based on the different scenarios, levels of management,
roles of managers , organizational functions etc. There
could be a variety of decisions that may be taken. Major
ones are listed below.
● Programmed and non-programmed decisions:
Programmed decisions are day to day decisions
generally taken by managers keeping into mind
organizations rules, policies and procedures. Non
programmed decisions on the other hand are made to
handle uncommon and infrequent issues. Top level
management generally handles non programmed
decisions.
● Routine and strategic decisions :
Routine decisions are day to day decisions generally
taken by managers or supervisors at junior level. The
scope of these decisions is limited to a department of a
specific domain these decisions have a small impact.
Strategic decisions on the contrary are crucial
decisions taken at top level, these decisions have a
much larger impact on the organizations business.
● Tactical (Policy) and operational decisions.
Policy decisions are those which relate to the basic
policies of the organization and these are taken by the
top management or board of directors.
Operational decisions are made in respect of decisions
relating to the general affairs of the institution or
enterprise and is of mechanical nature. Such decisions
making is also known as executive or current decision
making because they are helpful in the execution of policy
decisions
● Personal and Organisational decisions.
The decisions which are taken by any person in his
personal capacity, and not as a member of the
organization are known as a personal decision, for
example, decisions for leave, dress, resigning the
organization and accepting or rejecting promotions, etc.
The organizational or institutional decisions are the ones
which are taken by the executives or officers in their
formal capacity and which may be delegated to other
persons.
● Major and minor decisions.
Decision pertaining to purchase of new factory premises is
a major decision. Major decisions are taken by top
management. Purchase of office stationery is a minor
decision which can be taken by office superintendent
● Individual and group decisions.
Individual Decisions are taken by decision makers in an
individual capacity (on their own). Generally seen in very
small organizations or family run business. Group
decisions are decisions made by a group of managers.
These decisions are done when a problem is complex or
needs attention from different departments or functions of
the organization.

Decision making Process

The decision making process follows these steps
Step 1: Identify the decision. You realize that you need
to make a decision. Here decision to be made is identified.
Questions like What type of decision is to be taken? What
outcomes are desired?
Step 2: Gather relevant information. Collection of
information from various sources is gathered from primary
and secondary sources. Data is collected.
Step 3: Identify the alternatives. Possible course of
actions/decisions are identifies.
Step 4: Weigh the evidence. Keeping objective into mind
the alternatives are weighted
Step 5: Choose among alternatives. A choice among
available alternatives is made. Step 6: Take action.
Necessary actions are taken to implement the decision
made.
Step 7: Review your decision & its consequences. In
order to evaluate the decision and its impact, the decision
made is then reviewed so that necessary steps can be
taken.

Problems in decision making -

“Whenever you see a successful business, someone once
made a courageous decision.”
― Peter F. Drucker
Effective decision making is an art which obviously cannot
be earned overnight, hence, needs to be nurtured in time.
However, even an effective leader cannot remain oblivious
to certain hurdles which chronicle his decision-making
capacity. An effective decision has positive effects on all
the departments, and equal damage is caused by an
ineffective decision. Hence, he has to remain vigilant
about the repercussions caused by his decisions.
Sometimes, taking a decision can equal to cracking a hard
nut. As a professional as well as an individual, we face
many situations in our professional as well as personal
lives, wherein it is quite tough to take a decision. A careful
study of various hurdles faced will lead you to take
effective and better decisions in future.
Following are typical barriers faced by a manager
while developing strategies.
Level of Decision Making Not Clear
Sometimes, there is ambiguity in the level of power a
manager holds, whether he holds the right to make
modifications in the existing system. This often leads to
confusion in the minds of the manager, especially at a
middle-level manager.
Lack of Time
Hasty decisions often lead to disastrous effects. However,
businesses are subject to emergencies and often, as a
decision making authority, you need to take a call in the
limited time available. This can pose a most difficult hurdle
for most leaders, however, an effective leader has to go
through these testing times.
Lack of reliable data
Lack of reliable data can be a major hindrance in making
apt decisions. Ambiguous and incomplete data often
makes it difficult for them to make an appropriate decision,
which may not be the best suited for any organization.
Risk-Taking Ability
Any decision attracts a fair deal of risk of resulting into
negative outcome. However, it is necessary to take
calculated risks for an effective decision. Also, at the same
time, casual attitude and completely ignoring risks will not
result in taking appropriate decisions.
Too Many Options
A manager can be in a dilemma if there are too many
options for an effective solution. Finding the appropriate
one can be very difficult, especially if a particular decision
favours a department over the other.
Inadequate Support
A manager, however good he may be, cannot work
without an adequate support level from his subordinates.
Lack of adequate support either from top level or grass
root level employees may result in a great jeopardy for the
manager.
Lack of Resources
A manager may find it difficult to implement his decisions
due to lack of resources- time, staff, equipment. In these
cases, he should look out for alternative approaches which
fit in the available resources. However, appropriate steps
must be taken in case he feels that lack of resources may
stop the growth of the organization.
Inability to Change
Every organization has its own unique culture which
describes its working policies. However, some policies are
not conducive to managers who are looking out for a
change. The rigid mentality of top-level management and
the subordinates are the biggest hurdle, wherein a
manager cannot make positive amendments even if he
wishes to do so.
Every experience is a big teacher, and managers should
take a cue from their previous experiences, and learn to
boost their decision-making capacity. Big businesses have
benefited greatly from positive changes and results, which
implies that a manager should first and foremost improve
his ability to deal with risks to take a good decision.

Organisational Behaviour -

Unit 2 - TEAM & GROUP

What is a Team - A team 'is a small number of

employees with complementary competencies (abilities,
skills and knowledge) who are committed to common
performance goals and working relationships for which
they hold themselves mutually accountable'.
Teams are more flexible and responsive to changing
events than traditional department's or other forms of
permanent groupings. They can quickly assemble,
deploye, refocus and disband. They are an effective
means to democratize organisations and increase
employee involvement.
Difference Between Groups and Team-
● Work group : a group that interacts primarily to share
information, make decisions and help each group member
perform within his or her area of responsibility.
● Work team : a team whose individual efforts result in
performance that is greater than the sum of the individual
inputs.

Types of teams
● Problemsolving teams
● Self managed work teams
● Cross functional teams
● Virtual teams
Team building process- Bruce Tuckman’s Model of
Team Stages
The Bruce Tuckman theory was created in 1965, and has
been applied in countless organizations and scenarios.
With four main stages titled forming, storming, norming,
and performing; this theory is commonly referred to as
the origin for successful team building.
Later Bruce Tuckman refined his theory in 1975 and
added a fifth stage to the 'Forming, Storming, Norming,
Performing' model: Adjourning. This is also referred to as
Deforming and Mourning.
Organizing-
“The only difference between a mob and a
trained army is organization.” –
Calvin Coolidge

Organizing is the process of bringing

together physical, financial, and human
resources and developing productive
relationships amongst them for the
achievement of organizational goals.

Where planning focuses on deciding what to

do, organizing focuses on how to do it.
Definitions of organizing -

Organizing as defined by various management

theorists
According to Henry Fayol, “To organize a
business is to provide it with everything useful
or its functioning i.e. raw material, tools, capital
and personnel‟s”.

According to Stephen P. Robbins and Mary

Coulter, „organizing‟ is determining what
tasks are to be done, who is to do them,
how the tasks are to be grouped, who
reports to whom, and where decisions are to
be made.

L A Allen defined organizing as the process of

identifying and grouping the work to be
performed, defining and delegating
responsibility and authority, and establishing
relationships for the purpose of enabling people
to work most effectively together in
accomplishing objectives.

According to Chester Barnard, “Organizing is a

function by which the concern is able to define
the role positions, the jobs related and the
co-ordination between authority and
responsibility. Hence, a manager always has to
organize in order to get results.

The process of Organizing

To organize a business involves determining
& providing human and non-human
resources to the organizational structure.
Organizing as a process involves:
1. Identification of activities: All the activities
that have to be performed are identified first.
For example, bookkeeping, making sales,
training, quality control, inventory control, etc.
All these activities have to be grouped and
classified into units.

2. Classification & grouping of activities

(Departmentalizing) : Top Management people
combine and group similar and related activities
into units or departments. This organization of
dividing the whole concern into independent
units and departments is called
departmentalization.

3. Assignment of duties (classifying

authority) : Once the departments are made,
powers are classified and extended to
managers.This activity of giving a rank
/designation in order to the managerial
positions is called hierarchy.
The top management is into the formulation of
policies, the middle-level management into
departmental supervision, and lower-level
management into the supervision of foremen.
The clarification of authority helps in bringing
efficiency to the running of a concern.

4. Coordinating authority and responsibility

(reporting) relationships : Relationships are
established among various groups to enable
smooth interaction toward the achievement of
the organizational goal.

Each individual is made aware of his authority

and he/she knows whom they have to take
orders from to whom they are accountable and
to whom they have to report. A clear
organizational structure is drawn and all the
employees are made aware of it.
Benefits of Organizing

● Organizing supports planning and control

activities by establishing accountability and an
appropriate line of authority.
● Organizing helps an individual develop a
clear picture of the tasks a manager is expected
to accomplish.

● Organizing creates channels of

communication and thus supports decision-
making and control.

● Organizing helps maintain the logical flow of

work activities. By so doing, it helps individuals
and work groups to easily accomplish their
tasks.
● Organizing helps an organization make
efficient use of its resources and avoid conflict
and duplication of effort.

● Organizing coordinates activities that are

diverse in nature and helps build harmonious
relationships among members involved in those
activities.
● Organizing helps managers in time
management.

ORGANISATION STRUCTURE

The organizational structure depicts the

authority and responsibility relationships
between the various positions in the
organization by showing who reports to whom.

● It is a set of planned relationships between

groups of related functions and between
physical factors and personnel required for the
achievement of organizational goals.
● Organisation involves establishing an
appropriate structure for the goal-seeking
activities.
● The structure of an organization is generally
shown on an organization chart or a job task
pyramid.
● It shows the authority and responsibility
relationships between various positions in the
organization.
● A good organizational structure should not
be static but dynamic.
● It should be subject to change from time to
time in light of the changes in the business
environment.
● While designing the organization structure,
due attention should also be given to the
principles of sound organization.

Importance & Significance of Organisation

Structure -
 ● Organizational structure is a skeleton for
organizational functioning.
● It provides a framework for the
authority-responsibility relationship.
● A well-defined organizational structure leads
to the effective & efficient utilization of
resources.
The importance of an organizational
structure can be summarized by the
following points:

1. Organisation structure provides pattern of

communication and co-ordination by
grouping activities and people, structure
facilitates communication between people
centered on their job activities. People, who
have joint problems to solve, often need to
share information.
2. Organisation structure helps in proper
balance and emphasis on activities. Those
more critical to the success of the enterprise
might be placed higher in the organization.
Research in a pharmaceutical company
might be singled out for reporting to the
General Manager or to the Managing Director
of the company. Activities of comparable
importance might be given roughly equal levels
in the structure to give them equal levels and
thereby equal emphasis.

3. An organization structure provides the

framework within which an enterprise
functions. It will help in meeting changes and
creating opportunities for growth. A sound
organizational structure facilitates the growth of
an enterprise increasing its capacity to handle
the increased level of activity.
4. Organisation structure determines the
location of decision-making in the
organization. A departmental store, for
instance, may follow a structure that leaves
pricing, sales promotion, and other matters
largely up to individual departments to ensure
that varied departmental conditions are
considered. In contrast, an oil refinery may
concentrate on production scheduling and
maintenance decisions at top levels to ensure
that interdependencies along the flow of work
are considered

5. Organisation structure allocates authority

and responsibility. It specifies who is to direct
whom and who is accountable for what results.
The structure helps each organization member
to know what his role is and how it relates to
other roles.
6. A sound organizational structure that is
adaptable to changes can make the best
possible use of the latest technology. It will
modify the existing pattern of
authority/responsibility relationships in the wake
of technological improvements.

The features & characteristics of a good

organization structure:

Adequate delegation of authority -

Delegation of authority must be commensurate
with the responsibility assigned. If the authority
is not sufficient for getting the assigned task
then the work will not be completed.
Sometimes, managers assign work to
subordinates without giving them proper
authority, which shows a lack of
decision-making on their part. Inadequate
authority will create problems for the
subordinates because they may not be able to
accomplish the task.
Simple and flexible: Organisation should be
very simple. There should not be unnecessary
levels of management. A good structure should
avoid ambiguity and confusion. The system
should also be flexible to adjust according to
the changing needs. There may be an
expansion or diversification which requires the
classification of duties and responsibilities. The
organization structure should be able to
incorporate new changes without altering the
basic elements.
Span of control: Span of control refers to the
number of people that a manager can directly
supervise. A person should supervise only that
number of subordinates whom he can directly
keep in contact. The number of people to be
supervised may not be universally fixed
because it will be influenced by the nature of
work. Efforts should be made to keep a
well-managed group under a supervisor
otherwise there will be inefficiency and low
performance.

A clear line of authority: There should be a

clear line of authority from top to bottom. The
delegation of authority should be step-by-step
and according to the nature of the work
assigned. Everybody in the organization should
be clear about his work and the authority
delegated to him. In the absence of this clarity,
there will be confusion, friction, and conflict.
Less managerial levels: As far as possible
minimum levels of management should be
created. The more the number of these levels,
the more the delay in communication. It will
take more time to convey the decisions from the
top to the bottom. Similarly, information from
lower levels will take much time to reach at the
top.
The number of managerial levels depends upon
the nature and scale of operations. No specific
number of levels may be specified for each and
every concern but efforts should be made to
keep them at the minimum.

Types of Organisation Structure:

1. Line organization
2. Functional organisation
3. Line & staff organization
4. Project organisation
5. Matrix organisation
6. Committee organisation.

Line Organisation:

Key points -
● Line, Scalar or military organisation.
● Authority flows from top to bottom and
responsibility flows from bottom to top.
● Unity of command and scalar chain
principles are followed.
● Pure line - all works the same type of work
● Departmental line - specialised departments
are made

● Suitable for routine work org., where

machinery is automatic or small-scale industry.
Like - sugar, weaving, oil refinery.
Line Organisational Structure-
● It is the basic framework for the whole
organization.
● It represents a direct vertical relationship
through which authority flows.
● This is the simplest and oldest form of
internal organization.
This organization is also known as a
scalar organization.
● The authority flows from the top to the lower
levels.
Every person is in charge of all the persons
under him and he himself is accountable to
his superior only.
The organization is a vertical structure
where one person delegates authority to his
subordinate who in turn delegates to his
subordinates and so on.
● Authority flows vertically & from top
persons to all the persons responsible
 for the execution of work. Responsibility
on the other hand flows upward.
● Everybody is responsible for his work and is
accountable to his superior. Since
authority and responsibility flow in an
unbroken straight line, it is called the
line organization.
This form of organization is followed in
military establishments.

Features & characteristics of line

organization are:

1. A-line organization is governed by the

principle of scalar chain or line of command,
the principle of unity of command, and the
principle of span of management.
2. In a line organization, there is no scope for
managerial specialization whatsoever. Each
manager, located at a particular point in the
management hierarchy, is supposed to
undertake all functions pertaining to his area of
functioning i.e., each manager would look after
production, finance, marketing, and other
functions within his area of authority. Hence,
such a type of organization is suited only where
the routine type of business is conducted
not requiring much specialization.
3. Under line organization each manager has
full freedom of action but is subject to the
limits of his authority. For example, in the
departmental line organization, each
departmental manager is just independent and
is free to act for all functions pertaining to his
department.

Types of Line Organisation: Line

organizations are of the following two types:
(a) Pure line organization
(b) Departmental line organization

(a) Pure line organization: Here all persons at

a given level perform the same type of work.
The divisions are solely for the purpose of
control and direction. The departmental
divisions are made only for the sake of
convenience and control. All workers perform
the same type of work.

(b) Departmental line organisation: Here the

enterprise is divided into different de-
departments that are convenient for control
purposes.
● There is a unity of control and the line of
authority flows from top to bottom.
● The whole organization is put under the
control of the chief executive.
● Different departments are put under the
control of departmental managers.
 ● Depart mental managers receive orders
from the chief executive.
● The managers are not dependent on each
other.
● Every department has its own line of
organization.
● Various departmental managers are equal
in status and authority.
● They do not exchange instructions with
each other.
● Any communication between them is routed
through their immediate superior.

Merits of Line Organisation: Benefits of line

organization are:
(1) It is simple to establish and can be easily
understood by the employees. There is no
complexity in this organization because every
person is accountable to only one superior.

(2) Line organization helps in fixing authority

and responsibility of each and every person in
the organisation. The authority is given with
reference to the assignment of task.

(3) The heirarchy in management helps in

achieving effective co-ordination.
(4) There is effective communication. The
chain of command goes from top to bottom.
(5) Line organisation is easy to operate and
less expensive.
(6) As only one person. is in charge of a
department or division, the decisions are
quick.
(7) Unity of command principle is followed.
(8) As the number of subordinates is limited
under line organization there is an effective
control and supervision.
 9) It is flexible. Since the manager has to
make all important decisions, he can make
changes if a new situation warrants.

Demerits of Line organisation:

(1) There is excessive work. Too much is
expected from the executives.
(2) The lack of managerial specialization.
(3) There is lack of co-ordination among various
departments.
(4) The ultimate authority for taking all decisions
lies with line officers.
(5) There is a scope of favoritism in line
organisation.
(6) The business is dependent on some key
persons and the sudden disappearance of
such persons from the scene may create
instability.

Suitability of Line Organisation: Though

there are many drawbacks in line organization,
its importance can not be minimized. This form
of organization can be successfully followed:

(i) Where it is not difficult to manage labour

or handle labour problems.
(ii) Where continuous processes are followed,
for example, sugar industry, oil refinery,
textile industry.
(iii) Where automatic machines are used so that
there is less demand on the expertise of the
foreman.
(iv) Where the business is carried on small
scale; and the subordinates and operatives are
not many.
(v) Where the methods of operation are straight
and simple and the work is largely of routine
nature.
2. Functional Organisation:

In this type of organisation there are number of

specialists each having authority over a
particular function or a group of related
functions throughout the organisation.
Each specialist has control over the function
under his charge, no matter where that function
is performed in the organisation.
He controls all the individuals working in that
functional area.
For instance, a human resource department
would recruit, train & develop people required
for all other departments of the organisation.
Every employee gets orders and is accountable
to several specialists.
Functional organisation can be used at higher
as well as at lower levels of management.
At higher levels it involves grouping of all
functions into major functional departments and
placing each department under an expert
executive.
Each functional head issues orders. throughout
the organisation with respect to function in
question.
Features & characteristics of functional
organisation are as follows:

(1) The specialist of a department has the

authority to give orders relating to specific
function to the subordinates in his department.
(2) Consultation of the functional authority is a
must before any decision is taken on any matter
pertaining to his specialised area as the
functional foreman, according to Taylor, is "king"
over his particular function.

(3) The whole task of the enterprise is divided

according to specified functions.
(4) Specialists often operate with considerable
independence.
(5) Identical functions of various departments in
the organisation are performed by specialists.

Merits of Functional Organisation:

(1) There is complete specialisation of work and

every worker receives expert guidance of
-several specialists.

(2) Functions are performed more effectively as

each manager is responsible for one function
rather than multiplicity of functions.
(3) As each supervisor is an expert in his area
of work, supervision and control are likely to be
better.
(4) There is a democratic control. One man
control is replaced by joint control.
(5) The growth and expansion of the enterprise
is not limited to the capabilities of a few line
managers.

Demerits of Functional Organisation:

Limitations of functional organisation are:
(1) It violates the principle of unity of command
as a person receives orders from several
specialists. It leads to conflict and poor
discipline.

(2) Because of violation of unity of command,

there is lack of co-ordination.
(3) There is delay in decision making.
Decisions can not be taken quickly as
consultation of all functional managers is
required.

(5) It is very complex and uneconomical.

Line and Staff Organisation:

Because of the inherent drawbacks of line

organisation and functional organisation, they
are rarely used in pure forms.
The line organization centralizes too much and
the functional organization diffuses too much.
To eliminate the drawbacks of both types of
organisation, a new organisation structure - the
line and staff organisation is evolved.
In this type of organisation structure, there are
two types of relationships: Line relationship and
the staff relationship.
Line relationship is a decision making
relationship and staff relationship is an
advisory relationship.
According to Henry Fayol, Staff is a group of
men who have the strength, knowledge and
time which the line manager may lack".

According to Allen, line refers to those

positions and elements of organisation
which have the responsibility and authority
and are accountable for the accomplishment
of primary objectives.

Staff elements are those which have

responsibility and authority for providing
advice and service to the line in the
attainment of objectives.

Line & staff organisation structure represents a

modification of and improvement upon the basic
line structure.
In this, the basic line activity units, line
managerial positions, and the flow of line
authority along the vertical chain of command
are left undisturbed.

But certain secondary auxiliary, specialized, and

service activities which were either non-existent
earlier or scattered as integeral activities of line
units, are carved out into separate activity units
and identified as staff activity units.
Thus, in this structure, line and staff activity
units and authority streams co-exist. The staff
units render various types of services to the line
units. The heads of some staff units like
personnel, R&D etc. are placed directly under
the chief executive, and are vested with staff
authority. Some staff units like marketing
research and Quality Control, for example, are
attached to their respective user departments,
namely the marketing department and
production department.

Merits of line & Staff Organisation:

The benefits of line & staff organization are:
(1) There is a planned specialization.
(2) The line of command is maintained.
(3) The staff with its expert knowledge provides
opportunities to the line officers for adopting a
rational multi-dimensional view towards a
problem.

Demerits of Line & Staff Organisation:

Limitations of line & staff organisation are:

(1) There are bound to be occasions when line
and staff may differ in opinion. This may result
in conflict of interests & may prevent a
harmonious relationship.
(2) There is a misinterpretation of expert advice
by incompetent line executives.
(3) The staff people feel themselves status less
without authority.
(4) Staff becomes ineffective in the absence of
authority.

Line and Staff Conflict: Line & staff structure

is based on the assumption that both will help &
support each other. But often there are conflicts
between the two & both accuse each other.

There is a lack of understanding and both try to

dominate each other. Some of the reasons of
conflict between the two are:

Line managers have the following

complaints against staff:
(a) Staff officers claim credit for programs
that are successful but do not want to share
responsibility for their failure. The blame for
the unsuccessful task is placed on line
managers even though they act on the
advice of the staff.
(b) Staff officers are more theoretical than
practical. They tend to give advice which has
not been tested earlier. They emphasize their
field of specialization without giving much
thought to the overall interest of the
company.

(c) Though the staff officers are well qualified

and have good knowledge of their field but they
try to dominate the line officers. This type of
tendency creates conflict and friction between
line & staff officials.
(d) Staff officers do not remain contended by
giving advice only. They try to persuade the
line officers to implement whatever they
have suggested. They trespass their field of
activity and enter the area meant for line
people.

Staff personnel have the following

complaints against line managers:
 (a) Line officers do not make proper use of
expert knowledge of the staff. They do not
consult staff personnel at the planning level
where they can make practical suggestions.
Staff people are consulted only as a last
resort.

(b) Staff people feel that their advice is not

properly implemented by the line personnel.
Line officers do not consult staff while
implementing the advice. When staff officers try
to guide line persons in implementing the
programmes then they are accused of
interference.
(c) Line officers are not generally enthusiastic
about the new ideas suggested by the staff.
They resist new things and insist on
following the traditional course.
(d) Staff officers do not have authority to
implement their ideas. They should be given
authority like line officers in supervising &
implementation of their suggestions.

All the complaints of both line & staff personnel

are based on lack of understanding. These
conflicts are not based on ideologies. Proper
demarcation of their fields and mutual trust can
help in improving the efficiency of both line &
staff personnel.
Project Organisation:
The project structure consists of a number
of horizontal organizational units to
complete projects of long duration.
● Each project is vitally important to the
organization.
Therefore, a team of specialists from
different areas is created for each project.
● The size of the project team varies from one
project to another.
● The activities of a project team are
coordinated by the project manager who
has the authority to obtain advice and
assistance from experts both inside and
outside the organization.
● The core concept of project organization is
to gather a team of specialists to work on
and complete a particular project.
The project staff is separate from and
independent of the functional
departments. Project organization is
 employed in aerospace, construction,
aircraft manufacture and professional
areas like management consultancy etc.
● A project team is a temporary set up. Once
the project is complete, the team is
disbanded and the functioning specialists
are assigned some other projects.

Merits of Project Organisation: Benefits of

project organization are:
(1) It provides the concentrated attention that a
complex project demands.
(2) It permits the timely completion of the
project without disturbing the normal routine of
the rest of the organization.
(3) It provides a logical approach to any
challenge in the form of a large project with a
definite beginning and end, and a clearly
defined result.

Demerits of Project Organisation: Limitations

of project organization are:
(1) There is organizational uncertainty as a
project manager has to deal with professionals
drawn from diverse fields.
(2) Organisational uncertainties may lead to
inter-departmental conflicts.
(3) There is considerable fear among personnel
that the completion of the project may result in
the loss of jobs. This feeling of insecurity may
create considerable worry about career
progress.

Matrix Organisation:

Matrix organization or grid organization is a

hybrid structure combining two
complementary structures-functional
departmentations with pure project
structure.
Functional structure is a permanent feature of
the matrix organization and retains authority for
the overall operation of the functional units.
Project departments are created whenever
specific projects require a high degree of
technical skill and other resources for a
temporary period. Functional departments
create a vertical chain of command while the
project team forms the horizontal lines,
thereby forming a matrix.

● The Search for better and faster ways to

develop products and respond to customer
needs has led some companies to choose a
matrix structure.

● An organizational design that groups

people and resources in 2 ways
 simultaneously - by function and by-product.

● In the context of organizational design. A

matrix is a rectangular grid that shows - A
vertical flow of functional responsibility and
a horizontal flow of product responsibility.
A matrix organisation is a two dimensional
structure, a combination of pure project
structure and the traditional functional
departments.

● Matrix organisation has been developed to

meet the need of large and complex
organisations which require a structure
more flexible and technically oriented rather
than the functional structures. Temporary
project teams are tailored for the successful
completion of particular projects. Project
manager's authority flows horizontally while
functional manager's authority flows
vertically.
Characteristics -

● The organization is very flat, having

minimal hierarchical levels within each
function and decentralized authority.

● Functional employees report to the heads

of their respective functions but do not work
under their direct supervision.

● The members of the team are called 2

boss employees because they report to 2
superiors the project team and the
functional team.
● Role and authority are deliberately left vague
because the underlying assumption of the
matrix structure is that when team members are
given more responsibility than they have formal
authority, they are forced to cooperate to get the
job done.

Different types of Matrix organizations.

Strong Matrix
A Strong Matrix structure is closer to a Projectized
organization. The project manager tends to get more
power than the functional managers in this type of
structure.
In these types of organizations, functional managers are
mainly responsible for deciding which resources will be
allocated to the project, but after that, the project manager
takes over. Team members report to the project manager
for the duration they are allocated to the project and the
project manager is free to assign tasks to them. Functional
managers typically have no say in how the project is
managed.

Weak Matrix
This Weak Matrix structure is closer to a Functional
organization. The functional managers have more power
than the project manager(s).
In this type of structure, a project manager can be thought
of as a project coordinator or project expeditor. They do
not have any real power and just concentrate on
coordination and administration. All major decisions are
made by the functional managers.

Balanced Matrix
Balanced matrix organizations provide similar kind of
power to both project managers and functional managers.
In a balanced matrix, communication problems can arise
when there is not enough clarity about team members’
reporting.

An organization’s structure is what links and aligns

different parts of an organization so that it can perform
smoothly. An organization’s success in achieving its goals
is invariably linked to the structure it chooses.
Organizational structure influences how projects are
managed within a company. To aid the strategic alignment,
leadership should understand the benefits and limitations
of different types of organizational structures.
Project managers should understand the type of
organization in which they are working and manage their
projects accordingly by considering the following
factors before starting a project:
1. Degree of project/functional orientation
2. Extent of the project manager’s (office) authority
3. Collocation and management of project members
4. Allocation of resources
5. Control/authorization
6. Reporting procedures and systems

Merits of Matrix Organisation: Benefits of

matrix organization are:
(1) It helps to focus attention, talent, and
resources on a simple project which facilitates
better planning and control.
(3) It provides an environment where
professionals can test their competence and
make maximum contributions.
(4) It provides motivation to the project staff as
they can focus directly on the completion of a
particular project.
(5) In a matrix organization, employees work
across multiple projects and with various
departments within the company. This
increases employee interaction and promotes a
better sense of teamwork.
(6) This type of structure allows resources to be
maximized because of how equipment and
employees are shared across projects.

Demerits of Matrix Organisation: Limitations

of matrix organization are:
(1) It violates the principle of unity of command.
Each employee has two superiors - one
functional superior and the other project
superior.
(2) The scalar principle is also violated as there
is no determinate hierarchy.
(3) Conflicts may arise because of the
heterogeneity of team members.
(4) Here, organizational relationships are more
complex. Apart from the formal relationship,
informal ones also arise creating problems of
coordination.

Committee Organisation:

According to R.C. Davis, A committee is a

group of individuals who meet for the purpose
of effecting an integration of ideas concerning a
solution for some problems.

According to W.H. Newman, A committee

consists of a group of specifically designated
persons to perform some administrative acts.
​

● It functions only as a group and requires

the free interchange of ideas among its
members.

● A committee is not a separate type of

organization.

● It is a group of people, usually on the

same authoritative level, specially designed
to perform managerial tasks and a
committee meeting is a gathering of these
people for the purpose of thrashing out a
given problem.

● The function of a committee is the

assignment of a task to a group rather than
to one or more individuals.
 ​

● Committees become necessary where

collective wisdom is especially valuable and
where voluntary coordination needs
encouragement.

Types of Committees: Different

organisations can form different types of
committees depending upon the need of the
hour. These may be permanent committees
or adhoc committees. There may be formal
or informal committees. Committees are

constituted at different levels and with varied

terms of reference and diversified functions.
(a) Advisory committee or Problem solving
committee
(b) Executive committee or Action committee
(c) Fact finding committee.

(a) Advisory committee: These are the staff

committees and play the advisory role of
assisting the line executives. Advisory
committees probe a given problem or issue for
the line executive(s). The committee collects all
the necessary information, analyses it and after
scrutinising the problem from all possible
angles, arrives at conclusion on the basis of
which it sends a report to line executive(s), with
recommendation(s) for a course of action.

(b) Executive committee: It has the executive

power of decision making, policy framing,
organising, directing and controlling the
activities. Such committees are set up at the
top level of the organisation.
(c) Fact finding committee: This type of
committee is formed only for the purpose of
collecting information on a particular subject. A
detailed report is submitted with
recommendations to the management. This is
the most common committee formed in any
organisation.

Functions of a Committee: Committee

perform the following functions:

1. To Collect the necessary information from

different sources and arrange the information
Orderly.
2. The collected information is critically
analysed. 3. To draft a detailed report
containing the recommondations for the
purpose of
4.To formulate the standard of performance for
the purpose of evaluation of actual

5. To take a decision if the committee is

requested to do so.
6.Framing the policies of the organisation.
7.The committee can select personnel to
carryout the business operations.

8.Directing and controlling the officers at regular

intervals to achieve the goals said above.
Merits of Committee Organisation: Strengths
of the Committee Organisation are:

(1) A committee allows the discussion of the

issue from diverse angles and it leads to a more
realistic and effective decision. Group decision
is always a balanced decision.

(2) Decisions are not left to a single individual.

Decisions are of democratic nature.

(3) As the committee represents different

departments, co-ordination among different
departments in the organisation can be easily
secured. It fosters the spirit of mutual
understanding and appreciation through
ventilation of views and ideas at the forum
provided by the committee.
(4) A committee is the best medium for
soliciting co-operation of various parts of the
organisation in the execution of plans.
(5) The discussions and deliberations in the
committee meetings give scope for an
innovative

approach towards problems & issues.

(6) A committee trains members to look at a

given problem from various angles and so
promotes a broader outlook.
Demerits of Committee Organisation :
Drawback of Committee Organisation are:

(1) As it involves many persons, there may be

delay in taking the decisions because of
(2) A committee decision is a group decision
and a majority decision. No individual member
can be held responsible for anything .

(3) Formation of committee is a costly affair.

A series of meetings, procastination, etc.,
contribute to high overhead cost.

Span of Control

Span of Control can be defined as the total number of

direct subordinates that a manager can control or manage.
The number of subordinates managed by a manager
varies depending on the complexity of the work.
For example, a manager can manage 4-6 subordinates
when the nature of work is complex, whereas, the number
can go up to 15-20 subordinates for repetitive or fixed
work.

Meaning and Explanation

The term “Span of Control” is popularly used in business

management and human resource management. Because
this term is related to the management and controlling of
employees, the meaning of the word is the total number of
subordinates that a manager or supervisor can manage.

In the past, one manager was capable of managing 1-4

subordinates. Because of that, there were many levels of
management in one organization. In 1980, with the
introduction of information technology in business, many
organizations flattened their management by reducing the
number of managers in an organization. After that, the
span of one manager increased from 1-4 to 1-10
subordinates.

This was possible because of inexpensive information

technology. Technology helped in easing out several
middle managers’ tasks such as collection and
manipulation of operation information. Because of this, a
manager became capable of managing more subordinates
at one time.

Several factors affect the span of control of a manager,

such as the nature of work, capabilities of the
manager, capabilities of employees to be managed,
and the responsibilities of a manager. It can be of two
types, such as a narrow and a wide span of control. It is
considered to be narrow when a manager manages 2 to 4
subordinates.

Advantages of a narrow span of control.

● The manager can supervisor each of his

subordinates intimately.
● The nature of work is usually complicated.
● Effective communication between the
subordinates and their manager.
● More layers in the hierarchy of management.

Disadvantages of a narrow span of control

1. Too much control over employees might hamper their

original talent and creativity.
2. Extended hierarchy of control results in a long time in
decision-making.

On the other hand, a span of control is wide when a

manager manages or controls up to 20 subordinates.

Advantages of a wide span of control.

1.In a wide span of control, subordinates are more

independent.

2.Fewer layers in the hierarchy of management.

3.The nature of work is repetitive. 4.Less direct

communication between

subordinates and managers.

Disadvantages of a wide span of control.

1.Ineffective management. 2.Increased workload
on managers. 3.The roles of team members are
not

clearly defined.

4.Less communication between managers and

subordinates reduces the control of the manager.

Formal Organisation - Formal organisation

refers to the structure of well defined jobs, each
bearing a definite measure of authority,
responsibility and accountability.

● The structure isconsciously designed to

enable the people of the organisation to work
 together for accomplishing common
objectives.

● Thus, formal organisation, is more or less,

well defined structure to which the individual
must adjust.

● It tells him to do certain things in a specified

manner, to obey orders from designated
individuals and to co-operate with others.

● Co-ordination also proceeds according to a

prescribed pattern in the formal organisation
structure.

● The formal organisation facilitates the

determination of objectives and policies.
​

● The degree of success of these objectives

will be determined by the capacities and
attitudes of the people within the organisation.

● Fomal organisation is the official hierarchy

as it appears on paper. It is the basic and
official version of the organisation.

(i) It is deliberately impersonal;

(ii) It is based on ideal relationship;

These characteristics have also been the

main points of criticism of formal
organisations.
● Firstly, as it is deliberately impersonal, emotions
and sentiments of individuals are ignored in
determining the interactions, communication and
accountability. But human beings cannot live
without social interaction and that is why they
develop informal relations.

● Human beings are thought to be rational

and economic beings. Further, it is assumed
that there should be no unofficial channel of
communication, but it is very difficult to find
such ideal relationship in actual life.

● Lastly, it is based on the rabble hypothesis

of the nature of man. It is assumed that there
will be some kind of reaction if human beings
 are punished or rewarded. But the individuals
are not always motivated by the rewards and
punishments in the same manner.

● Formal organisation is deliberately

constructed to achieve certain goals. They are
not changeable with the passage of time. This
is another point of criticism put forward by its
critics.

● The rules and regulations of this form may

be too rigid so that it becomes too difficult to
achieve the goals.

● Moreover, formal organisation does not

consider the goals of the individuals. Because
of these reasons formal organisation usually
gives birth to informal organisations which
cannot be separated from it. As a matter of
 fact there is a close

relationship between the formal and informal

organisations.

(b) Informal organisation: Informal organisation

refers to the relationship between people in the
organisation, based on personal attitudes,
emotions, prejudices, likes, dislikes, etc.
These relations are not developed according to
the procedures and regulations laid down in the
formal organisation structure.

● Generally, large formal groups give rise to

small informal or social groups. These groups
may be based on same taste, language,
 culture or any other factor.

● These groups are not preplanned, but they

develop automatically within the organisation.

● Informal organisations are small groups

and these groups can overlap because a
person may be a member of more than one
group.

● A manager cannot eliminate the informal

organisations because he does not create
them. Many a time, informal organisations come
into being to support and supplement the formal
organisation.

● For instance, informal communication is

very fast and it can break the barriers in the
formal communication.

● Informal organisation may also create

problems for the management by spreading
rumours and resisting the introduction of
change. That is why, some people do not
favour the recognition of informal groups by
the management.

● Both formal and informal relations are

indispensible components of any organisation.
It is true that while laying out the
organisational plan, management can only
 develop the formal structure of relationships.
But it does not imply that informal relations
can not work alongside, the formal ones.
Infact, informal organisations are a valuable
component of the formal organisation and fill
the gaps in formal organisation.

● Therefore, management should not

consider informal organisation hostile to
formal organisation. Every manager should try
to

gain an intelligent insight into the informal group

interactions to be able to influence the
organisational behaviour.
​

● Management can use informal organisation

for communicating its programmes and
policies to the workers and know their
reactions.

● It can also make their use for introducing

change in the organisation without much
resistance on the part of the workers.

● In short, it can be concluded that

management should encourage the informal
organisations for keeping harmonious
relations in the organisation and for achieving
the organisational objectives.
FORMAL ORGANIZATION

INFORMAL
ORGANIZATION

A formal organization is On the other hand, an informal

defined as an organization that organization is defined as an
has set rules and regulations to organization that focuses on
be followed by the employees. building social relationships
and networks.
1.
 The main aim of a formal The main purpose of the
organization is to achieve the informal organization is to
long-term and short-term goals build social networks and
of the organization. create a positive work
environment.
2.

The formal organization has a An informal organization does

hierarchical structure. not have a hierarchical
structure.
3.

The formal organization is Informal organization is

created by the management. created spontaneously by the
members. The organization is

4.
 made based on personal
interactions.

Achievement of goal is the Fulfilling the psychological and

priority of a formal social needs of the employees
organization. is the priority of the informal
organization.

5.
 A formal organization is stable, An informal organization is
i.e., it continues for a long time. spontaneously made and is
not stable.

6.
 Formal organization follows An informal organization has a
official communication. grapevine communication.

7.

The employees are controlled The employees are controlled

by rules, regulations, and by values, morals, norms, and
protocols. beliefs.

8.
 In a formal organization, the In an informal organization,
main focus is on work the main focus is on building
performance. interpersonal relationships.

9.
 There are different levels of All the members in the
authority in a formal informal organization are
organization. The employees equal.
are bounded by the hierarchical
structure.

10.

The size of the formal The size of an informal

organization is large. organization is small.

11.
 The group leadership of a The group leadership of an
formal organization is explicit. informal organization is
implicit.

12.
 Vertical hierarchy is seen in a Lateral hierarchy is seen in an
formal organization. informal organization.

13.