PLANNING

DEFINITION
According to Koontz O'Donnel - "Planning is an intellectual process, the conscious
determination of courses of action, the basing of decisions on purpose, acts and considered
estimates".

NATURE AND PURPOSE OF PLANNING

 Nature of Planning

1. Planning is goal-oriented: Every plan must contribute in some positive way towards the
accomplishment of group objectives. Planning has no meaning without being related to goals.
2. Primacy of Planning: Planning is the first of the managerial functions. It precedes all other
management functions.
3. Pervasiveness of Planning: Planning is found at all levels of management. Top management
looks after strategic planning. Middle management is in charge of administrative planning.
Lower management has to concentrate on operational planning.
4. Efficiency, Economy and Accuracy: Efficiency of plan is measured by its contribution to the
objectives as economically as possible. Planning also focuses on accurate forecasts.
5. Co-ordination: Planning co-ordinates the what, who, how, where and why of planning.
Without co-ordination of all activities, we cannot have united efforts.
6. Limiting Factors: A planner must recognize the limiting factors (money, manpower etc) and
formulate plans in the light of these critical factors.
7. Flexibility: The process of planning should be adaptable to changing environmental
conditions.
8. Planning is an intellectual process: The quality of planning will vary according to the
quality of the mind of the manager.
  Purpose of Planning

As a managerial function planning is important due to the following reasons:-

1. To manage by objectives: All the activities of an organization are designed to achieve certain
specified objectives. However, planning makes the objectives more concrete by focusing
attention on them.
2. To offset uncertainty and change: Future is always full of uncertainties and changes.
Planning foresees the future and makes the necessary provisions for it.
3. To secure economy in operation: Planning involves, the selection of most profitable course
of action that would lead to the best result at the minimum costs.
4. To help in co-ordination: Co-ordination is, indeed, the essence of management, the planning
is the base of it. Without planning it is not possible to co-ordinate the different activities of an
organization.
5. To make control effective: The controlling function of management relates to the
comparison of the planned performance with the actual performance. In the absence of plans, a
management will have no standards for controlling other's performance.
6. To increase organizational effectiveness: Mere efficiency in the organization is not
important; it should also lead to productivity and effectiveness. Planning enables the manager to
measure the organizational effectiveness in the context of the stated objectives and take further
actions in this direction.

• Features of Planning
1. It is primary function of management.
2. It is an intellectual process
3. Focuses on determining the objectives
4. Involves choice and decision making
5. It is a continuous process
6. It is a pervasive function

 Classification of Planning
1. On the basis of content
• Strategic Planning
– It is the process of deciding on Long-term objectives of the organization.
– It encompasses all the functional areas of business
 • Tactical Planning

– It involves conversion of detailed and specific plans into detailed and specific
action plans.
– It is the blue print for current action and it supports the strategic plans.

2. On the basis of time period

• Long term planning
– Time frame beyond five years.
– It specifies what the organization wants to become in long run.
– It involves great deal of uncertainty.
• Intermediate term planning
– Time frame between two and five years.
– It is designed to implement long term plans.
• Short term planning
– Time frame of one year or less.
– It provide basis for day to day operations.

PLANNING PROCESS
The various steps involved in planning are given below
a) Perception of Opportunities:
Although preceding actual planning and therefore not strictly a part of the planning
process, awareness of an opportunity is the real starting point for planning. It includes a
preliminary look at possible future opportunities and the ability to see them clearly and
completely, knowledge of where we stand in the light of our strengths and weaknesses, an
understanding of why we wish to solve uncertainties, and a vision of what we expect to gain.
Setting realistic objectives depends on this awareness. Planning requires realistic diagnosis of the
opportunity situation.

b) Establishing Objectives:
The first step in planning itself is to establish objectives for the entire enterprise and then
for each subordinate unit. Objectives specifying the results expected indicate the end points of
what is to be done, where the primary emphasis is to be placed, and what is to be accomplished
by the network of strategies, policies, procedures, rules, budgets and programs.
Enterprise objectives should give direction to the nature of all major plans which, by
reflecting these objectives, define the objectives of major departments. Major department
objectives, in turn, control the objectives of subordinate departments, and so on down the line.
The objectives of lesser departments will be better framed, however, if subdivision managers
understand the overall enterprise objectives and the implied derivative goals and if they are given
an opportunity to contribute their ideas to them and to the setting of their own goals.

c) Considering the Planning Premises:

Another logical step in planning is to establish, obtain agreement to utilize and disseminate
critical planning premises. These are forecast data of a factual nature, applicable basic policies,
and existing company plans. Premises, then, are planning assumptions – in other words, the
expected environment of plans in operation. This step leads to one of the major principles of
planning.
The more individuals charged with planning understand and agree to utilize consistent planning
premises, the more coordinated enterprise planning will be.
Planning premises include far more than the usual basic forecasts of population, prices, costs,
production, markets, and similar matters.
Because the future environment of plans is so complex, it would not be profitable or realistic to
make assumptions about every detail of the future environment of a plan.
Since agreement to utilize a given set of premises is important to coordinate planning, it
becomes a major responsibility of managers, starting with those at the top, to make sure that
subordinate managers understand the premises upon which they are expected to plan. It is not
unusual for chief executives in well- managed companies to force top managers with differing
views, through group deliberation, to arrive at a set of major premises that all can accept.

d) Identification of alternatives:
Once the organizational objectives have been clearly stated and the planning premises
have been developed, the manager should list as many available alternatives as possible for
reaching those objectives.
The focus of this step is to search for and examine alternative courses of action, especially those
not immediately apparent. There is seldom a plan for which reasonable alternatives do not
exist, and quite often an alternative that is not obvious proves to be the best.
The more common problem is not finding alternatives, but reducing the number of alternatives
so that the most promising may be analyzed. Even with mathematical techniques and the
computer, there is a limit to the number of alternatives that may be examined. It is therefore
usually necessary for the planner to reduce by preliminary examination the number of
alternatives to those promising the most fruitful possibilities or by mathematically eliminating,
through the process of approximation, the least promising ones.

e) Evaluation of alternatives
Having sought out alternative courses and examined their strong and weak points, the
following step is to evaluate them by weighing the various factors in the light of premises and
goals. One course may appear to be the most profitable but require a large cash outlay and a slow
payback; another may be less profitable but involve less risk; still another may better suit the
company in long–range objectives.
If the only objective were to examine profits in a certain business immediately, if the future were
not uncertain, if cash position and capital availability were not worrisome, and if most factors
could be reduced to definite data, this evaluation should be relatively easy. But typical planning
is replete with uncertainties, problems of capital shortages, and intangible factors, and so
evaluation is usually very difficult, even with relatively simple problems. A company may wish
to enter a new product line primarily for purposes of prestige; the forecast of expected results
may show a clear financial loss, but the question is still open as to whether the loss is worth the
gain.
f) Choice of alternative plans
An evaluation of alternatives must include an evaluation of the premises on which the
alternatives are based. A manager usually finds that some premises are unreasonable and can
therefore be excluded from further consideration. This elimination process helps the manager
determine which alternative would best accomplish organizational objectives.

g) Formulating of Supporting Plans

After decisions are made and plans are set, the final step to give them meaning is to numberize
them by converting them to budgets. The overall budgets of an enterprise represent the sum total
of income and expenses with resultant profit or surplus and budgets of major balance– sheet
items such as cash and capital expenditures. Each department or program of a business or other
enterprise can have its own budgets, usually of expenses and capital expenditures, which tie into
the overall budget.
If this process is done well, budgets become a means of adding together the various plans and
also important standards against which planning progress can be measured.

h) Establishing sequence of activities

Once plans that furnish the organization with both long-range and short-range direction have
been developed, they must be implemented. Obviously, the organization can not directly benefit
from planning process until this step is performed.
TYPES OF PLANS/COMPONENTS OF PLANNING

In the process of planning, several plans are prepared which are known as components of
planning.

Plans can be broadly classified as

a) Strategic plans
b) Tactical plans
c) Operational plans

Operational plans lead to the achievement of tactical plans, which in turn lead to the attainment
of strategic plans. In addition to these three types of plans, managers should also develop a
contingency plan in case their original plans fail.

a) Strategic plans:
A strategic plan is an outline of steps designed with the goals of the entire organization as a
whole in mind, rather than with the goals of specific divisions or departments. It is further
classified as
i) Mission:
. The mission is a statement that reflects the basic purpose and focus of the organization which
normally remain unchanged. The mission of the company is the answer of the question : why
does the organization exists?

Properly crafted mission statements serve as filters to separate what is important from what is
not, clearly state which markets will be served and how, and communicate a sense of intended
direction to the entire organization.
Mission of Ford: ―we are a global, diverse family with a proud inheritance, providing
exceptional products and services‖.

ii) Objectives or goals:

Both goal and objective can be defined as statements that reflect the end towards which the
organization is aiming to achieve. However, there are significant differences between the two. A
goal is an abstract and general umbrella statement, under which specific objectives can be
clustered. Objectives are statements that describe—in precise, measurable, and obtainable terms
which reflect the desired organization‘s outcomes.

iii) Strategies:
Strategy is the determination of the basic long term objectives of an organization and the
adoption of action and collection of action and allocation of resources necessary to achieve these
goals.
Strategic planning begins with an organization's mission. Strategic plans look ahead over the next
two, three, five, or even more years to move the organization from where it currently is to where
it wants to be. Requiring multilevel involvement, these plans demand harmony among all levels
of management within the organization. Top-level management develops the directional
objectives for the entire organization, while lower levels of management develop compatible
objectives and plans to achieve them. Top management's strategic plan for the entire organization
becomes the framework and sets dimensions for the lower level planning.
b) Tactical plans:
A tactical plan is concerned with what the lower level units within each division must do,
how they must do it, and who is in charge at each level. Tactics are the means needed to activate
a strategy and make it work.
Tactical plans are concerned with shorter time frames and narrower scopes than are strategic
plans. These plans usually span one year or less because they are considered short-term goals.
Long-term goals, on the other hand, can take several years or more to accomplish. Normally, it
is the middle manager's responsibility to take the broad strategic plan and identify specific
tactical actions.

c) Operational plans
The specific results expected from departments, work groups, and individuals are the
operational goals. These goals are precise and measurable. ―Process 150 sales applications each
week‖ or ―Publish 20 books this quarter‖ are examples of operational goals.
An operational plan is one that a manager uses to accomplish his or her job responsibilities.
Supervisors, team leaders, and facilitators develop operational plans to support tactical plans (see
the next section). Operational plans can be a single-use plan or a standing plan.
i) Single-use plans apply to activities that do not recur or repeat. A one-time occurrence,
such as a special sales program, is a single-use plan because it deals with the who, what,
where, how, and how much of an activity.
Ø Programme: Programme consists of an ordered list of events to be followed to
execute a project.
Ø Budget: A budget predicts sources and amounts of income and how much they are
used for a specific project.
ii) Standing plans are usually made once and retain their value over a period of years
while undergoing periodic revisions and updates. The following are examples of ongoing
plans:
Ø Policy: A policy provides a broad guideline for managers to follow when dealing with
important areas of decision making. Policies are general statements that explain how a
manager should attempt to handle routine management responsibilities. Typical
human resources policies, for example, address such matters as employee hiring,
terminations, performance appraisals, pay increases, and discipline.
Ø Procedure: A procedure is a set of step-by-step directions that explains how
activities or tasks are to be carried out. Most organizations have procedures for
purchasing supplies and equipment, for example. This procedure usually begins with a
supervisor completing a purchasing requisition. The requisition is then sent to the next
level of management for approval. The approved requisition is forwarded to the
purchasing department. Depending on the amount of the request, the purchasing
department may place an order, or they may need to secure quotations and/or bids for
several vendors before placing the order. By defining the steps to be taken and
 the order in which they are to be done, procedures provide a standardized way of
responding to a repetitive problem.
Ø Rule: A rule is an explicit statement that tells an employee what he or she can and
cannot do. Rules are ―do‖ and ―don't‖ statements put into place to promote the safety
of employees and the uniform treatment and behavior of employees. For example,
rules about tardiness and absenteeism permit supervisors to make discipline decisions
rapidly and with a high degree of fairness.

d) Contingency plans
Intelligent and successful management depends upon a constant pursuit of adaptation,
flexibility, and mastery of changing conditions. Strong management requires a ―keeping all
options open‖ approach at all times — that's where contingency planning comes in.
Contingency planning involves identifying alternative courses of action that can be implemented
if and when the original plan proves inadequate because of changing circumstances.
Keep in mind that events beyond a manager's control may cause even the most carefully prepared
alternative future scenarios to go awry. Unexpected problems and events frequently occur. When
they do, managers may need to change their plans. Anticipating change during the planning
process is best in case things don't go as expected. Management can then develop alternatives to
the existing plan and ready them for use when and if circumstances make these alternatives
appropriate.

OBJECTIVES
Objectives may be defined as the goals which an organisation tries to achieve. Objectives
are described as the end- points of planning. According to Koontz and O'Donnell, "an objective is
a term commonly used to indicate the end point of a management programme." Objectives
constitute the purpose of the enterprise and without them no intelligent planning can take place.
Objectives are, therefore, the ends towards which the activities of the enterprise are aimed. They
are present not only the end-point of planning but also the end towards which organizing,
directing and controlling are aimed. Objectives provide direction to various activities. They also
serve as the benchmark of measuring the efficiency and effectiveness of the enterprise.
Objectives make every human activity purposeful. Planning has no meaning if it is not related to
certain objectives.
Features of Objectives
• The objectives must be predetermined.
• A clearly defined objective provides the clear direction for managerial effort.
• Objectives must be realistic.
• Objectives must be measurable.
• Objectives must have social sanction.
• All objectives are interconnected and mutually supportive.
• Objectives may be short-range, medium-range and long-range.
• Objectives may be constructed into a hierarchy.

Advantages of Objectives
• Clear definition of objectives encourages unified planning.
• Objectives provide motivation to people in the organization.
• When the work is goal-oriented, unproductive tasks can be avoided.
• Objectives provide standards which aid in the control of human efforts in an
organization.
• Objectives serve to identify the organization and to link it to the groups upon which
its existence depends.
• Objectives act as a sound basis for developing administrative controls.
• Objectives contribute to the management process: they influence the purpose of the
organization, policies, personnel, leadership as well as managerial control.
 Organizing

DEFINITION
According to Koontz and O'Donnell, "Organizing involves the grouping of activities
necessary to accomplish goals and plans, the assignment of these activities to appropriate
departments and the provision of authority, delegation and co-ordination."
Organization involves division of work among people whose efforts must be co-ordinated to
achieve specific objectives and to implement pre-determined strategies.

NATURE OR CHARACTERISTICS OF ORGANIZING

From the study of the various definitions given by different management experts we get
the following information about the characteristics or nature of organization,
(1) Division of Work: Division of work is the basis of an organization. In other words, there can
be no organization without division of work. Under division of work the entire work of business
is divided into many departments .The work of every department is further sub-divided into sub-
works. In this way each individual has to do the saran work repeatedly which gradually makes
that person an expert.
(2) Coordination: Under organizing different persons are assigned different works but the aim
of all these persons happens to be the some - the attainment of the objectives of the enterprise.
Organization ensures that the work of all the persons depends on each other‘s work even though
it happens to be different. The work of one person starts from where the work of another person
ends. The non-completion of the work of one person affects the work of everybody. Therefore,
everybody completes his work in time and does not hinder the work of others. It is thus, clear that
it is in the nature of an organization to establish coordination among different works, departments
and posts in the enterprise.
(3) Plurality of Persons: Organization is a group of many persons who assemble to fulfill a
common purpose. A single individual cannot create an organization.
(4) Common Objectives: There are various parts of an organization with different functions to
perform but all move in the direction of achieving a general objective.
(5) Well-defined Authority and Responsibility: Under organization a chain is established
between different posts right from the top to the bottom. It is clearly specified as to what will be
the authority and responsibility of every post. In other words, every individual working in the
organization is given some authority for the efficient work performance and it is also decided
simultaneously as to what will be the responsibility of that individual in case of unsatisfactory
work performance.
(6) Organization is a Structure of Relationship: Relationship between persons working on
different posts in the organization is decided. In other words, it is decided as to who will be the
superior and who will be the subordinate. Leaving the top level post and the lowest level post
everybody is somebody's superior and somebody's subordinate. The person working on the top
level post has no superior and the person working on the lowest level post has no subordinate.
(7) Organization is a Machine of Management: Organization is considered to be a machine of
management because the efficiency of all the functions depends on an effective organization. In
the absence of organization no function can be performed in a planned manner. It is appropriate
to call organization a machine of management from another point of view. It is that machine in
which no part can afford tube ill-fitting or non-functional. In other words, if the division of work
is not done properly or posts are not created correctly the whole system of management
collapses.
(8) Organization is a Universal Process: Organization is needed both in business and non-
business organizations. Not only this, organization will be needed where two or mom than two
people work jointly. Therefore, organization has the quality of universality.
(9) Organization is a Dynamic Process: Organization is related to people and the knowledge
and experience of the people undergo a change. The impact of this change affects the various
functions of the organizations. Thus, organization is not a process that can be decided for all
times to come but it undergoes changes according to the needs. The example in this case can be
the creation or abolition of a new post according to the need.

IMPORTANCE OR ADVANTAGES OF ORGANIZING

Organization is an instrument that defines relations among different people which helps
them to understand as in who happens to be their superior and who is their subordinate. This
information helps in fixing responsibility and developing coordination. In such circumstances the
objectives of the organization can be easily achieved. That is why, it is said that Organization Is
a mechanism of management. In addition to that it helps in the other functions of management
like planning, staffing, leading, controlling, etc. The importance of organization or its merits
becomes clear from the following facts,
(1) Increase In Managerial Efficiency: A good and balanced organization helps the managers
to increase their efficiency. Managers, through the medium of organization, make a proper
distribution of the whole work among different people according to their ability.
(2) Proper Utilization of Resources: Through the medium of organization optimum utilization
of all the available human and material resources of an enterprise becomes possible. Work is
allotted to every individual according to his ability and capacity and conditions ant created to
enable him to utilize his ability to the maximum extent. For example, if an employee possesses
the knowledge of modem machinery but the modem machinery is not available in the
organization, in that case, efforts are made to make available the modem machinery.
(3) Sound Communication Possible: Communication is essential for taking the right decision
at the right time. However, the establishment of a good communication system is possible only
through an organization. In an organization the time of communication is decided so that all the
useful information reaches the officers concerned which. in turn, helps the decision-making.
(4) Facilitates Coordination: In order to attain successfully the objectives of the organization,
coordination among various activities in the organization is essential. Organization is the only
medium which makes coordination possible. Under organization the division of work is made in
such a manner as to make all the activities complementary to each other increasing their inter-
dependence. Inter-dependence gives rise to the establishment of relations which, in turn,
increases coordination.
(5) Increase in Specialization: Under organization the whole work is divided into different
parts. Competent persons are appointed to handle all the sub-works and by handling a particular
work repeatedly they become specialists. This enables them to have maximum work performance
in the minimum time while the organization gets the benefit of specialization.
(6) Helpful in Expansion: A good organization helps the enterprise in facing competition. When
an enterprise starts making available good quality product at cheap rates, it increases the demand
for its products. In order to meet the increasing demand for its products an organization has to
expand its business. On the other hand, a good organization has an element of flexibility which
far from impeding the expansion work encourages it.
Principles of organization or Requisites of an Ideal and Sound Organization: –
1. Principle of unity of objectives: All activities in an organization should aim at achieving common
goals. All departmental goals must be clearly defined and should aim at achieving the overall goal of
organization. Also, efforts must be made to synchronize the individual goals with organizational goals.
2. Principle of specialization: Sound and effective organization rests on specialization. When an
employee takes special type of knowledge and skill in any area, it is known as specialization. By
dividing the work into small tasks, each employee is required to perform a task repeatedly. In this way,
he becomes an expert in his area and benefits the organization by specializing in it.
3. Principle of coordination: Organization establishes coordination. Coordination is obtained by group
efforts with clearly defined roles that emphasize on unity of action.
4. Principle of parity of authority and responsibility: Authority is the power or right to give orders,
make decisions, and enforce obedience . Responsibility is the obligation to perform the duties assigned.
There should a balance between them otherwise more authority than required will lead to abuse of
authority. Similarly, without adequate authority, responsibility cannot be fulfilled effectively as the
employee will not be having powers to make decisions and enforce his orders.
5. Principle of delegation: Process of transferring authority and creation of responsibility between
superior and subordinates to accomplish a certain task is called delegation of authority. A superior can
delegate authority but not responsibility. Responsibility is absolute. The ultimate responsibility vests
with him only. He would be answerable to his superior for non performance of work by his
subordinates. Also, the principle of parity of authority and responsibility should not be disobeyed in
delegation as well.
6. Scalar Principle: Under this principle all the people working in the organization should be bound
with one another from top to bottom in a vertical chain. For example, Board of Directors > General
Manager > Departmental Manager > Supervisor > Foreman > Workers.
7. Principle of unity of command: Subordinates should receive orders from single superior at a time
and all subordinates should be accountable to that superior only. More superiors leads to confusion,
delay and shirking of work.
8. Principle of span of control: Span of control refers to the number of employees under the direct
supervision of the superior. Larger span of control is more difficult to supervise and coordinate.
However, it depends upon a number of factors like the ability of the superior and nature of his work etc.
Span of control determines the number of levels in the organisation.
9. Principle of flexibility: Organizational structure must be flexible considering the environmental
dynamism. Sometimes, change may need to be incorporated in the organization structure due to changes
in the environmental factors and in that condition, organization structure should have capability to
permit the change.
10. Principle of simplicity: This principle emphasizes the simplicity of organizational structure. The
structure of organization should be simple with minimum number of levels so that its employee can
understand duties and authority easily. Also, simple structure is cost effective and easy to understand.

SPAN OF CONTROL

Span of Control means the number of subordinates that can be managed efficiently and effectively
by a superior in an organization. It suggests how the relations are designed between a superior and
a subordinate in an organization.

Factors Affecting Span of control:

a) Capacity of Superior: Different ability and capacity of leadership, communication
affect management of subordinates.

b) Capacity of Subordinates: Efficient and trained subordinates affects the degree of span of
management.
c) Nature of Work: Different types of work require different patterns of management.
d) Degree of Centralization or Decentralization: Degree of centralization or decentralization
affects the span of management by affecting the degree of involvement of the superior in
decision making.

e) Degree of Planning: Plans which can provide rules, procedures in doing the work higher
would be the degree of span of management.

f) Communication Techniques: Pattern of communication, its means, and media affect the
time requirement in managing subordinates and consequently span of management.

g) Use of Staff Assistance: Use of Staff assistance in reducing the work load of managers
enables them to manage more number of subordinates.

h) Supervision of others: If subordinate receives supervision form several other personnel

besides his direct supervisor. In such a case, the work load of direct superior is reduced
and he can supervise more number of persons.
 CENTRALIZATION AND DECENTRALIZATION

CENTRALIZATION:
It is the process of transferring and assigning decision-making authority to higher levels
of an organizational hierarchy. The span of control of top managers is relatively broad, and
there are relatively many tiers in the organization.

Characteristics
• Philosophy / emphasis on: top-down control, leadership, vision, strategy.
• Decision-making: strong, authoritarian, visionary, charismatic.
• Organizational change: shaped by top, vision of leader.
• Execution: decisive, fast, coordinated. Able to respond quickly to major issues and changes.
• Uniformity. Low risk of dissent or conflicts between parts of the organization.

Advantages of Centralization
• Provide Power and prestige for manager
• Promote uniformity of policies, practices and decisions
• Minimal extensive controlling procedures and practices
• Minimize duplication of function

Disadvantages of Centralization
• Neglected functions for mid. Level, and less motivated beside personnel.
• Nursing supervisor functions as a link officer between nursing director and first-line
management.

DECENTRALIZATION:
It is the process of transferring and assigning decision-making authority to lower levels of
an organizational hierarchy. The span of control of top managers is relatively small, and there
are relatively few tears in the organization, because there is more autonomy in the lower ranks.
Characteristics
• Philosophy / emphasis on: bottom-up, political, cultural and learning dynamics.
• Decision-making: democratic, participative, detailed.
• Organizational change: emerging from interactions, organizational dynamics.
• Execution: evolutionary, emergent. Flexible to adapt to minor issues and changes.
• Participation, accountability. Low risk of not-invented-here behavior.

Three Forms of decentralization

• De-concentration. The weakest form of decentralization. Decision making authority is
redistributed to lower or regional levels of the same central organization.
• Delegation. A more extensive form of decentralization. Through delegation the
responsibility for decision-making are transferred to semi-autonomous organizations not
wholly controlled by the central organization, but ultimately accountable to it.
• Devolution. A third type of decentralization is devolution. The authority for decision-
making is transferred completely to autonomous organizational units.

Advantages of Decentralization
• Raise morale and promote interpersonal relationships
• Relieve from the daily administration
• Bring decision-making close to action
• Develop Second-line managers
• Promote employee‘s enthusiasm and coordination
• Facilitate actions by lower-level managers

Disadvantages of Decentralization
• Top-level administration may feel it would decrease their status
• Managers may not permit full and maximum utilization of highly qualified personnel
• Increased costs. It requires more managers and large staff
• It may lead to overlapping and duplication of effort

Centralization and Decentralization are two opposite ways to transfer decision-making power
and to change the organizational structure of organizations accordingly.
 There must be a good balance between centralization and decentralization of authority and
power. Extreme centralization and decentralization must be avoided.

Difference between Centralization and Decentralization

Basis Centralization Decentralization
Definition The concentration of decision- The distribution of decision-making
making authority at the top levels of authority to lower levels within the
the organizational hierarchy. organization.
Authority Authority is concentrated at the top Authority is distributed across various
levels of management. levels or departments.
Decision-Making Decisions are made by a small Decisions are made at multiple levels,
group of top executives or including lower and middle management.
managers.
Control High level of control maintained by Control is distributed, allowing for more
top management. autonomy at lower levels.
Flexibility Less flexible; changes and More flexible; decisions can be made
decisions may take longer due to more quickly at lower levels due to
the need for approvals from higher- reduced layers of approval.
ups.
Responsibility Top management holds primary Responsibility is shared among various
responsibility for decisions and levels of the organization.
outcomes.
Communication Communication tends to be more Communication can be more informal
formal and hierarchical, often and direct, facilitating faster information
leading to slower information flow. flow.
Innovation May stifle innovation due to rigid Can enhance innovation by empowering
control and slower decision-making lower levels to make decisions and
processes. propose new ideas.
Employee May result in lower motivation at Often leads to higher motivation and
Motivation lower levels due to lack of engagement as employees have more
involvement in decision-making. autonomy and influence.
Examples A multinational corporation where A company where regional offices have
major decisions are made by a significant autonomy to make decisions
central headquarters. relevant to their markets.
Efficiency Can be efficient for maintaining Can be more efficient in dynamic
consistency and control, especially environments by allowing quicker
in a stable environment. adaptation and responsiveness.
Risk Management Centralized control can result in Decentralized control can lead to varied
better risk management through risk management approaches, potentially
standardized procedures. increasing the risk of inconsistencies.
Organizational Typically involves a hierarchical Typically involves a more flexible, flatter
Structure structure with clear lines of structure with greater delegation of
authority. authority.
DELEGATIONOFAUTHORITY
A manager alone cannot perform all the tasks assigned to him. In order to meet the
targets, the manager should delegate authority. Delegation of Authority means division of
authority and powers downwards to the subordinate. Delegation is about entrusting someone else
to do parts of your job. Delegation of authority can be defined as subdivision and sub- allocation
of powers to the subordinates in order to achieve effective results.
Elements of Delegation
1. Authority - in context of a business organization, authority can be defined as the power and
right of a person to use and allocate the resources efficiently, to take decisions and to give
orders so as to achieve the organizational objectives. Authority must be well- defined. All
people who have the authority should know what is the scope of their authority is and they
shouldn‘t misutilize it. Authority is the right to give commands, orders and get the
things done. The top level management has greatest authority. Authority always flows from
top to bottom. It explains how a superior gets work done from his subordinate by clearly
explaining what is expected of him and how he should go about it. Authority should be
accompanied with an equal amount of responsibility. Delegating the authority to someone
else doesn‘t imply escaping from accountability. Accountability still rest with the person
having the utmost authority.
2. Responsibility - is the duty of the person to complete the task assigned to him. A person who
is given the responsibility should ensure that he accomplishes the tasks assigned to him. If
the tasks for which he was held responsible are not completed, then he should not give
explanations or excuses. Responsibility without adequate authority leads to discontent and
dissatisfaction among the person. Responsibility flows from bottom to top. The middle level
and lower level management holds more responsibility. The person held responsible for a
job is answerable for it. If he performs the tasks assigned as expected, he is bound for praises.
While if he doesn‘t accomplish tasks assigned as expected, then also he is answerable for
that.
3. Accountability - means giving explanations for any variance in the actual performance from
the expectations set. Accountability cannot be delegated. For example, if ‘A’ is given a task
with sufficient authority, and ‘A‘ delegates this task to B and asks him to ensure that task is
done well, responsibility rest with ‘B‘, but accountability still rest with ‘A‘. The top
level
management is most accountable. Being accountable means being innovative as the person
will think beyond his scope of job. Accountability, in short, means being answerable for the
end result. Accountability can‘t be escaped. It arises from responsibility.