UNIT THREE

THE PLANNING
AND
DECISION MAKING
FUNCTIONS
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Chapter contents
3.1. The planning functions
◦ 3.1.1. The definitions of Planning
◦ 3.1.2. Nature or Characteristics of Planning
◦ 3.1.3. Significance/Importance of Planning
◦ 3.1.4. Types of Planning
◦ 3.1.5. Types of Planning
◦ 3.1.6. Approaches to Planning
◦ 3.1.7. The process of Planning
3.2. Decision Making
◦ 3.2.1 The Nature of Decision Making
◦ 3.2.3. The Decision-Making Process
◦ 3.2.3. Towards More Effective Decision-making
3.1.1. The definitions of Planning
▪Planning is the process “through which mangers determine
goals and devise the means for utilizing resources to
accomplish them”.
▪“Planning is deciding in advance what to do, how to do it, when
to do it and who is to do it. It bridges the gap from where we are
to where we want to go.” Koontz and O’Donnell.
▪Planning is looking ahead and deciding in advance what is to
be done, where and when it is to be done, how and by whom it
is to be done.

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▪ “To plan is to produce a scheme for future action to
bring about specified result, at specified cost, in a
specified period of time.” (Cylix L. Hudson)
▪ Planning is “the process of defining organizational
objectives and then articulating strategies, tactics, and
operations necessary to achieve those objectives” .

In planning process, mangers:

➢ Establish goals
➢ Anticipate future developments
➢ Identify course of actions required to attain the goals,
➢ Determine the time frame
▪ Planning is a dynamic process of making decision today
about future action and it is a selection or choice among
alternatives as to accomplish:
▪ What objectives should be achieved?
▪ What actions should be taken?
▪ When should it be taken?
▪ Who should do it?
▪ Where should it be done?
▪ In general the planning activity involves defining the organization’s
objectives, establishing an overall strategy for achieving these
goals and developing comprehensive hierarchy of plans to
integrate or coordinate activities.
3.1.2. Nature or Characteristics of Planning
1. The contribution of planning to purpose/objectives
2. The primacy of planning
3. Planning is pervasive / universal
4. Planning is directed towards efficiency
5. Planning concerns future activity
6. Planning has a dynamic aspect
7. Planning uses information as an input
8. Planning is a means to an end
3.1.3. Significance/Importance of Planning
Planning is an important area of management. There are several benefits
managers can acquire through sound planning.
1. Planning establishes coordinated effort. It gives directions to managers.
2. Planning is a way to reduce uncertainty through anticipating change.
3. Planning can reduce overlapping and wasteful resources, and activities.
4. Planning establish the objectives or standards that are to be used to facilitate control.
5. To gain economical operation/Efficient utilization of resources
6. Avoiding business failures
7. To develop managers
3.1.4. Principles of Planning
A principle is a general rule of truth that may be expected to apply under similar
conditions anywhere to reach or get similar outcomes. The most
important/essential guiding principles of planning are the following.
1. Principle of contribution to objectives
The purpose of every plan and all its supporting plans is to promote the
accomplishment of enterprise objectives.
2. Principle of efficiency of plans
Efficiency of a plan is measured by the amount it contributes to purpose the
cost required to formulate and operate it.
3. Principle of planning premises
Planning requires the understanding of planning premise or organizational
environment.
5. Principle of strategy and policy framework
The more strategies and policies are clearly understood and implemented in practice, the
more consistent and effective will be the frame work of enterprise plans.
6. Principle of the limiting factor
Planning is constrained by some of the limiting factors such as scarcity of raw materials,
lack of technology, lack of capital, lack of trained manpower, etc.
7. Principle of flexibility
Plans should be flexible to decrease the danger of losses incurred through unexpected
events.
8. Principle of communication
The making of plan by itself is not enough; it should be conveyed to all concerned
parties.
9. Principle of feasibility
Plans should not be mere wishes, but something that are attainable or realizable.
3.1.5. Types of Planning
Plans can be classified on the bases of different factors or dimensions

1) Plans Based on Formality/Status Dimension

A) Informal Plans
Informal plans are unwritten plans which are made in the daily life
of individuals
B) Formal Plans
They are written, documented plans developed through an
identifiable process.

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2) Plans Based on Scope/Breadth Dimension
These types of plans are developed at the different levels of management; i.e.
they are related to the hierarchy of plans at the three levels of management.
They are strategy, tactical and operational.
a) Strategic Plans
The following are distinguishing characteristics of strategic plans.
• Strategic plans require looking outside of the organization at the external
environment of the organization for threats and opportunities.
• They take longer period of time, comprehensive and relatively general and
affect many parts of an organization.
• They tend to be top management responsibility to be issued and implemented.
• They address such issues as: - How shall we finance the organization?
- How the organization should be structured?
- Which business should the organization enter?
b) Tactical planning
• Tactical planning is the process through which mangers design coherent
groups of activities to accomplish a strategy. It is a means of translating
strategies into short-term tactics.
• Middle-level managers are responsible for formulating the tactical plans of the
organization.
Tactical Plans:
• facilitate objectives, because they are prepared as a performance targets
• translate the strategic plans into measurable tactical objectives
• tend to be short-term, usually not more than two years
• Prepared by middle mangers who are responsible in directing departments,
divisions or other similar sub-units of the organization.

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c) Operational Planning
• Operational planning is the process through which mangers design
specific activities and steps to accomplish objectives. Whereas
strategic and tactical planning has time horizons of a number of
years, operational planning has a very short time frame, usually a
few months.
• First-level mangers are responsible for accomplishing the
operational planning.
• Operational planning is narrow in scope and short-lived. It is
concerned with budgets and schedules.
• As can be seen in the figure below, organizational level that
mangers hold determine to which type of plan they are responsible.
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• It is important to note that the three types of plans mentioned
above interact each other.
• As Baird et al. describe strategic plans cannot be accomplished
without the implementation of tactical and operational plans.
• Tactical and operation plans, on the other hand, do not make
much sense if they are not coordinated through a broader
strategic plan.
• Managers, therefore, have to ensure that there is a mutual
interaction among them.

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3) Plans Based on Time Dimension
These plans show how long they stay in operation.
1. Long- term Plans
These plans establish long-term goals and work out strategies, policies and
programs to achieve the goals. They usually extend beyond five years.
2. Medium-term Plans
These plans are usually made to support long-term plans. They cover a period of
more than one year, but less than five years.
3. Short –term Plans
Generally such types of plans are made to achieve short-term goal and are
instrumental in implementing long-term plans. These plans are action –oriented
and the responsibility of lower level managers. Here the length of time may vary
from one business to another depending on the nature and size of the organization.
4) Plans Based on Use Dimensions
Use-based plans indicate whether we can use the plans repeatedly
for uniformity or for a single period. These plans can be subdivided
into: Single use or Standing use plan.
A) Single-use Plans
• Single-use plans are developed to deal with “one-short” situations
for a given purpose or a given period of time and then discarded.
• The most common forms of single-use plans found in organizations
are budget, program and project.
• Budgets are financial plans for allocating resources to complete a
program, project, or other organizational activity. Once the period
of time covered by the budget is completed, the budget is
replaced by a new one.
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A program is plan that outlines a variety of interdependent activities that must
be coordinated to achieve an objective.
Programs are a complex of goals, policies, strategies, rules, task assignments,
procedures/ steps to be taken, resources to be employed and other elements
necessary to carry out a given course of action. Program also refers to
exceptionally large and long-range projects or group of similar projects.
Example:
- The Ethiopian airlines may have a major program of acquiring a $ 500 million
fleet of jets within a period of two years.
- The Ethiopian Road Authority may develop a program to upgrade the high
ways from Addis to the different regional states.

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Projects are single use plans that are either smaller in
scale than programs or part of a programme.
• A project is a small and separate portion of a program.
Each project has limited scope and distinct directives
concerning assignments and time.
• They are a one-time activity or a unit activity with a
well-defined set of desired end results.
B) Standing Plans
• Standing plans are long-range plans. They are used over and over
again to help guide the actions of an organization.
• It is a “predetermined courses of action undertaken under specified
circumstances.
• Standing plans enables top management to provide a clear
guideline for middle and lower level management.
• Organizations use different types of standing plans. The most
common once are:
• Objectives
• Policies
• Procedures
• Rules
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Objective
• Objectives are statements of organization targets or the end results
that administrators seek to achieve.
• It is general statement of the mission of the organization and of what
it intends to do.
• Organizational objectives reflect management responsibilities and the
position in the organizational structure.
• At the top level management, objectives are strategic and relate to
long-range planning issues, whereas tactical and operational
objectives are related to medium and short-range plans respectively.
• It is important to note that objectives should be “specific, measurable,
and realistic, and each has a definite time period for achievement.

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Policies
• While objectives refer what is to be done, policies focus on
how organizational objectives will be achieved.
• Policies provide a general guideline to action.
• It is a frame work for administrators to follow in making
decisions and handling problem situations.
• Policies are mainly prepared by the top management.
• Policy statements, according to Holt, should be clear and
understandable, stable over time, and communicated to
everyone involved.
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Procedures
• Whereas policies are general framework to attain the organizational
objectives, procedures are specific steps required to achieve policies.
• Well-established procedures provide specific instructions in handling
organizational operations.
Rules
• A rule is a statement that tends to restrict actions or prescribe
specific activities with no discretion. In other words a rule is a
specification for actions that must be taken, or must not be taken, in
particular circumstances.
• They are designed to be clear and unambiguous.
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❑ Elements of Planning
The planning process deals with setting of organizational end results, strategies,
policies, procedures, rules, formulation of budgets, and decision making.
➢ Organizational Vision
It is an aspiration expressed as strategic intent. It is what the organization
would ultimately like to become in the long run.
Eg. The former vision of UU
“To be the leading private African centers of academic excellence, respected for
the range of academic programs that it offers, for the capable and confident
graduate it produces and for their contributions to local and global
development”
➢ Organizational Mission
• Mission is the description of an organizations reason for its existence and its
fundamental purpose.
• A mission statement defines what an organization is, why it exists (its
reason for being).
• At a minimum, organizational mission statement should define who the
customers are, identify the products and services it produce, and describe
the geographical location in which it operates.
• Eg. The former mission of UU
“UU is committed to using innovative approach to ensure the continuous
enhancement of human resources and in particular to produce qualified
professionals who are well placed to meet global development needs.
➢ Goals
Goals are future states or conditions that contribute to the fulfilment of
organizational mission. They are more concrete and specific than
mission. They are derived from the organizational mission.
➢ Objectives
They are statements outlining what the organization is trying to
achieve. They are short term, specific and measurable targets that must
be achieved to accomplish goals. (More specific than goals)
▪ Courses of Action
Course of action are the means or specific activities planned to achieve the
objectives.Courses of action includes:
➢Strategies
Most often strategy denotes/states a general course of action, development of
resources and the allocation of resources to attain objectives.
➢Policies
Policies are general guidelines to action that constrain or direct objective
attainment. They do not tell organizational members exactly/specifically what to
do, but they do establish the boundaries with in which they must operate and
ensure that the decision will be consistent with and contribute to an objective.
The characteristics of effective/sound policies are flexibility, comprehensiveness,
consistency with strategies and objectives, clarity and written.
➢ Procedures
A procedure is a series of related steps or tasks expressed in chronological order
for a specific purpose. Procedures are defined in step-by-step fashion through
which policies are achieved. They are guides to action rather than to thinking
and they give the details of the exact manner in which certain activities must be
accomplished.
➢ Rules
Rules are statements that a specific action must or must not be taken in a given
situation. Rules leave little doubt about what is to be done. They permit no
flexibility and deviation. Unlike procedures, rules do not have to specify
sequence. Procedures and rules are subsets of policies.
➢ Budgeting
Budgeting is the formulation of plans for given future period in
numerical or financial terms. A budget is a financial plan
outlining how funds will be spent in a given period of time and
how these funds will be obtained. Budgets have to be based on
past experience, present realities and an accurate assessment of
future events.
3.1.6. Approaches to Planning
There are three approaches that describe who has
responsibility for developing plans. These are:
1. Centralized Top-down Planning
2. Decentralized Bottom-up Planning
3. Team Planning

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Centralized Top-down Planning
• Top-down planning is the prevalent approach to planning in which a
centralized group of executives or staff assumes the primary planning
responsibilities.
• The term centralized is used because planning responsibilities are
assign to a few executives at the organization’s highest levels.
• The term top-down is used because these executives assume the
burden of establishing an organizations major objectives, writing
policies, and communicating to lower-level mangers expectations for
formulating more detailed plans.
• In larger, more complex organizations, executives charged with
planning responsibility have a planning department with staff experts
who do most of the actual work.
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Decentralized Bottom-up Planning
Bottom-up planning is an approach to planning in which authority to establish
objectives and planning responsibilities is delegated to lower-level mangers,
which are expected to initiate planning activities.
The term decentralized is used to emphasize that authority is pushed down for
independent planning initiatives. The term bottom-up, on the other hand, is
used to emphasize that planning decisions made at lower-levels are aggregated
at higher levels to form a comprehensive plan.
Team Planning
Team planning is a participative approach to planning whereby planning teams
comprising mangers and staff specialists initiate plans and formulate
organizational objectives.

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3.7. The process of Planning
The formal approach to the planning process depicted hereunder can serve as a general model
which can be applied, with some modification to the planning process of any organization.
1. Identifying and defining the real problem/Being aware of opportunities
2. Establishing Clear–cut Objectives
3. Establishing the Planning Premises and Constraints
4. Identifying Alternative Courses of Action
5. Evaluation of Alternative Courses of Action
6. Choosing the Proposed Plan
7. Arranging Detailed Sequence and Timing for the proposed plan
8. Numbering plans by Making Budgets
9. Implementing the plan into Action
10. Monitoring the Implementation
11. Evaluating the Implementation
 3.2 DECISION MAKING
3.2.1 The Nature of Decision Making
▪Decision-making is the process of defining problems, generating
alternative solutions, choosing one alternative, and implementing it.
▪It means choosing among from various alternatives.
▪By its nature, decision making involves a choice, and decision-making
situations are choice situations.
▪Decision making is a conscious choice among analyzed alternatives,
followed by action to implement the choice. Decision-making includes
the evaluation of available alternatives through critical appraisal
methods.
It enables administrators to solve social, economic and political problems.
◦ For example, if an Engineer who is responsible for the construction of road is behind the
schedule, the top management has a problem to resolve.
The Engineer may be reluctant to follow the construction activity or construction
materials may not be available as planned. If the top management investigates
and discovers that the Engineer has been lacking directing people towards
implementing plan, a decision has to be made on how to correct the problem. The
Engineer may be replaced by another competent Engineer, given training on basic
management, or reassigned to work not requiring the same skills. Among those
three choices, the top management may decide to send the Engineer for a short-
term training. If so, after the decision is implemented, the management would
check the Engineer’s performance to determine whether training had resolved the
problem.
 Types of Decisions

1A. Programmed Decisions. They have repetitive and routine solutions, and made
at a lower level management. When a particular problem occurs often, managers
develop a routine procedure for solving it.
1B. Non-programmed Decisions. They are made for non-repetitive, non-routine,
infrequent, special, highly important, dynamic, complex and unstructured
problems. They are made at a higher level of management. When a problem
contains elements that management has not previously confront.
 There are two categories of decisions. These are programmed and non-programmed decisions as
illustrated in the figure2 below.

Determined outcomes
Inputs of Decision Programmed results of most operations
Policies, Procedures,
Decision are expected, known, or
rules, guidelines, and
probabilities are estimated
other parameters

Inputs for Decisions Outcomes

no clear objective Non-programmed results are unknown or
information; often Decision unexpected,
intuition and judgment probabilities are not
estimated

Programmed Decisions
 ➢ Programmed Decisions
✓Programmed decisions are those that are made in predictable
circumstances and have predictable results.
✓Results are predictable because similar decisions have often been
made before under similar and recurring circumstances.
✓When problems are of repetitive and routine nature, alternative
procedures are developed and used to solve these problems each
time they occur.
✓Programmed decisions are, therefore, based on policy directives,
procedures and rules.
 ➢ Non-Programmed Decisions
✓Non-programmed decisions are those that are made in unique
circumstances and often have unpredictable results.
✓While programmed decisions can be anticipated, non-
programmed decisions must be dealt with as they occur.
✓Higher level mangers tend to make more non-programmed
decisions, while lower-level mangers usually make more
programmed decisions.
2A. Proactive Decision. A decision made in anticipation of an
external change or other conditions.
2B. Reactive Decision. A decision made in response to external
changes.

3A. Intuitive Decision. A decision made based on estimation or

guesswork to decide among alternatives.
3B.Systematic Decision. A decision made based on organized,
exacting and data driven process for choosing among
alternatives.
4A. Formal Decision. A decision made on data and well
organized and well documented manner. Usually decisions
made in organizations are formal plans. They follow certain
prescribed patterns and written rules and procedures.
4B. Informal Decisions. A decision made without proper data
support and proper organization. They are not properly
documented manner. Usually decisions made in our personal
life are informal (in informal plans)
 3.2.2. The Decision-Making Process
Decision-making is an affair of the mind, an intellectual process.
▪ It consists of a sequence of steps starting with inputs (a problem) and
ending with an output (action).
▪In this sense, decision-making is a system of inputs, processes and out-
puts. In other words, decision making involves several steps that lead
administrators towards optimal solution.
▪Hence, administrators are required to solve organizational problems
which are caused by changing situations and unusual circumstances
using the following rational decision-making steps.
These steps in the rational decision-making process are:
1. Define the Objectives
-What do I want to achieve?
▪Concrete objectives must be identified which should be
consistent with the general purposes and the stated prime
objectives of the organization.
▪Well-defined operational objectives would be essential in
detecting and identifying problems to be solved by the decision-
maker.
 2. Diagnose the Problem
-What problems must I solve in order to achieve the
objective?
➢It is essential to examine problems thoroughly, recognize
symptoms and identify causes.
◦For example, common symptom of business administration
problem is declining profit. For this problem different possible
causes can be identified such as poor-quality product, absolute
technology, and ineffective decision-making.
 3. Identify Viable Alternative Course of Action
-What are the possible options I have in dealing with the
situation?
Decision-making situations are problem situations that involve
choice. Administrator’s task here is to begin developing viable
alternatives (choices) which represent feasible courses of action
for dealing with the problem at hand.
 4. Evaluate each Alternative Course of Action
-What are the pros and cons of each of these alternatives?
The process of evaluating alternative courses of action requires screening
alternatives, examining the advantages and disadvantages of each course of
action, and analyzing each alternative. Moreover, using appropriate methods,
alternatives are evaluated on three criteria.
Sufficiency -An alternative is viable if it is sufficient to solve the problem identified.
Feasibility -Many alternatives that are intuitively feasible turn out to be impossible
given the organization’s resource constraints.
Realism –An alternative may be feasible yet unrealistic. An organization faces
constraints that limit choices, and while an option may be feasible, it may not be
realistic given the prerogatives of managers or some other limiting criteria.
 5. Make a Choice and Implement Decision
-What solution will work best in dealing with the situation?
After accessing alternative courses of action, the decision-maker must make a
decision that is optimal. If a problem has been accurately formulated and sufficient
viable alternatives exist, then a manger should make a choice that is best under the
circumstances. This will be the optimal choice-one that generates the greatest
possible benefits with the fewest negative consequences.
Once the most promising choice is made, decision implementation will follow. In
order to implement the decision successfully the manager must:
➢Develop an action plan
➢Consider the resources involved in decision implementation
➢Assign specific responsibility for decision implementation and this mean determining the
appropriate organizational level
➢Anticipate problems that might occur during decision implementation
 6. Follow-up and Evaluate the Decision
-How can I review and evaluate decision?
The final step in the rational decision-making process is control, follow-up and
evaluate the results of the decision. Once the decisions are implemented,
controls are needed to guide action toward desired results.
The effectiveness of decision can largely depends on top management ability in
providing answers to the following questions.
1. To what extent has the decision helped the organization to deal with the
problem at hand? Has it attained the purpose for which it was made?
2. How well the decision-makers carry out the steps of the decision-making
process?
3. How well was the decision accepted by those involved?
 ▪ Decision Making Conditions
Decisions can be made under the following three conditions
1. Decisions under certainty conditions
It is the decision making situation in which the decision maker knows
exactly what the results of an implemented alternative will be. So,
managers have to list the outcomes for alternatives and then choose
the alternative with the highest pay-off or reward for the organization.
Decision making under certainty seldom occurs, however, because
external conditions seldom are perfectly predictable and because it is
impossible to try to account for all possible influences on any given
outcome.
2. Decisions under uncertainty conditions
It is the decision making situation in which the decision maker has no
absolute idea about what the results of an implemented alternative will
be. In this situation decision makers usually find that sound decisions are
often a matter of chance.
3. Decisions under risk condition
It is the decision making situation in which the decision maker has only
enough information to estimate how probable the outcome of
implemented alternative will be. Thus, the risk condition lies between
certainty and uncertainty condition.
3.2.3. Towards More Effective Decision-making
The following are the major guidelines for making effective
decisions.
1. Use Information Effectively
Using information effectively is one way to reduce confusion
and improve decisions because it is the quality of timely
information that helps managers make good decisions.
 2. Enhance Systems for Decision-making

➢Recent innovations in management reflect exciting changes

in systems, human forms of organization, and joint endeavors
lead to improve performance.
➢Practicing managers at every level are responsible for
creating systems, not simply working within them.
◦For example, researchers have found that when new computerized
information systems are implemented, the pace of work increases
and middle mangers are pressed to make more rapid decisions
about more issues.
 3. Empower those who must Implement Decisions
➢Empowerment means not only including employees in decision-
making, but also ensuring that they are given both the resources
necessary to implement decisions and the responsibility for getting
the job done.
➢The main benefit of empowerment is improved cooperation. Those
who feel empowered are more likely to accept and understand
organizational decisions.
 4. Communicate Effectively
➢Decisions must be understood by those who carry them out as
well as by those at higher echelons who must evaluate
performance.
➢Clear communication is crucial to gaining acceptance.
➢Communicating expectations for performance, detailing
decisions, and explaining changes and adaptations are all
essential for organizational success.
 5. Delegate Pragmatically
Leadership and motivation focus on the delegation of authority. Mangers cannot
evolve systems, communicate effectively, or empower employees if all decisions are
made or vetoed by one dominant authority figure.
Assuring timely and more accurate decision-making at critical points in operations
consists basically of shifting authority downward.
Pragmatic delegation suggests that mangers define who is best suited to make
decisions on the basis of several criteria.
People with experience in solving problems, who have access to information, and
who are in the best position to implement decisions are the best candidates for
decision-making authority.
 CHAPTER FOUR
The organizing
functions
 content
4.1. The Meaning of Organizing
4.2. The process of Organizing
4.3. Types of Organizations
4.4. Types of Organizations
4.5. Span of Management
4.6. Delegation
 4.1. The Meaning of Organizing
“Organizing is the process of grouping activities necessary to
attain common objectives and the assignment of each grouping
to a manager, who has the authority necessary to supervise the
people performing the activities.
Organizing is the process of dividing an overall task into parts
that individuals, groups, or units can perform, then coordinating
their efforts with each other and with financial and technical
resources so that the over all goals are ultimately achieved.
“Organizing involves the establishment of an intentional
structure of roles through determination and
enumeration of the activities required to achieve the
goals of an enterprise and each part of it; the grouping
of these activities, the assignment of such groups of
activities to the manager, the delegation of authority
and informational relationship horizontally and vertically
in the organization structure” (Harold Koontz and
O’Donnell, 1985) are important aspects of the
organizing function.
As we can see from the above definition and many other
definitions given by other authors, organizing is a process and
it involves the following activities.
➢Identification of key activities necessary to achieve objectives
➢Grouping of these activities in a manageable manner
➢Assignment of each group of activities to a manager who has the
authority and responsibility to manage
➢Delegation of authority to managers so as to accomplish their
duties efficiently
➢Coordination of different groups of activities horizontally or
vertically.
It is important to note that organizing involves four basic steps.
1. Divide the total workload into tasks that can logically and
comfortably be performed by individuals or groups. This is referred to
as the division of work.
2. Combine tasks in a logical and efficient manner. The grouping of
employees and tasks is generally referred to as departmentalization.
3. Specify who reports to whom in the organization. This linking of
departments results in an organizational hierarchy.
4. Set up mechanisms for integrating departmental activities into a
coherent whole and monitoring the effectiveness of that integration.
This process is called coordination.
 • Nature of Organizing
The functions of management are sitting over the strong
organizational set up.
A palace may be constructed only when a very strong foundation is
laid. The same principle is followed here.
Organization is the foundation of management.
Without organization, the function of management such as planning,
organizing, staffing, directing and controlling cannot succeed.
4.2. The process of Organizing
From the above definitions, it is understood that the
functions of organization includes:
➢ determination of activities,
➢grouping of activities,
➢allotment of duties to specified persons,
➢delegation of authority,
➢defining relationships and ,
➢co-ordination of various activities.
 4.3. Types of Organizations
Organizations can be classified on the basis of different criteria Such as:
➢ On the basis Ownership
▪Private (Sole Proprietorship/sole trader, Partnership (General and Limited)
▪Government
▪Cooperatives
▪Companies (PLC and S.C.)
➢ On the basis Objective
▪Profit making
▪Non-profit making
➢ On the basis Activity
◦ Manufacturing
◦ Service giving
◦ Merchandising

➢On the basis of authority and responsibility

◦ Formal
◦ Informal
 ➢ Formal Organization
The formal organization represents the classification of activities within the
enterprise, indicates who reports to whom and explains the vertical journal of
communication which connects the chief executive to the ordinary workers. In other
words, an organizational structure clearly defines the duties, responsibilities,
authority and relationships as prescribed by the top management.
➢In an organization, each and every person is assigned the duties and given the
required amount of authority and responsibility to carry out this job.
➢It creates the co-ordination of activities of every person to achieve the common
objectives. It indirectly induces the worker to work most efficiently.
➢The inter-relationship of staff member can be shown in the organization chart
and manuals under formal organization.
 BOARD

PRESIDENT SENATE

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Service Programming Relations Service
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ACADEMIC VICE- ADMINISTRATION VICE-

PRESIDENT PRESIDENT

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ng Finance Department

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FACULTY FACULTY OF FACULTY OF

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Studies
 ✓ Characteristics of Formal Organization
➢It is properly planned.
➢The r/ship is shown on organizational chart
➢Communication is based on formal channels of communication
➢It is based on delegated authority.
➢It is deliberately impersonal.
➢The responsibility and accountability at all levels of organization are clearly define
➢Unity of command is normally maintained.
➢It has clear superior-Subordinate r/ship
➢Duties/responsibilities and authority each member is well-defined(Clear division o
labor)
➢It is stable
 ➢ Advantages of Formal Organization

▪The definite boundaries of each worker are clearly fixed and this
avoids conflict among the workers.
▪Overlapping of responsibility is easily avoided.
▪Shifting responsibility is very difficult.
▪A sense of security arises from classification of the task
▪There is no chance for favoritism in evaluation and placement of
the employee.
▪It makes the organization less dependent on one man.
 ➢ Limitations of Formal Organization

▪In certain cases, the formal organization may reduce the spirit of
initiative of employees.
▪Sometimes authority is used for the sake of convenience of the
employee without considering the need for using the authority.
▪It does not consider the sentiments and values of the employees in
the social organization.
▪It may reduce the speed of information communication.
 ➢ Informal Organization
Informal organization is an organization which establishes the relationship on the
basis of the likes and dislikes of officers without considering the rules, regulations
and procedures.
These types of relationships are not recognized by officers but only felt.
The friendship, mutual understanding and confidence are some of the reasons for
existing informal organization.
It is a network of personal and social relations not established or required by the
formal organization. It arises spontaneously as people associate with one another
on the basis of the likes and dislikes of members.
It does not consider the rules, regulations and procedures of the organization.
The relationship does not appear on an organization chart.
Informal organizations are influenced by the number of people in the group, the
actual personnel involved what the group is concerned with its changing
leadership and the continuing process of change.
The informal organization exists under the formal organization.
The informal organization or informal relationships may give a greater job
satisfaction and result in maximum production. According to C.J.Bernard,
“Informal organization brings cohesiveness to formal organization.
It brings to the members of a formal organization a feeling of belongingness,
status of self-respect and gregarious satisfaction.
Informal organizations are important means of maintaining the personality of the
individual against certain effects of formal organization which tend to
disintegrate personality.”
 ➢ Characteristics of Informal Organization
➢It arises without any external causes, i.e. voluntarily.
➢It is a social structure formed to meet personal needs.
➢It has no place in the organization chart.
➢It acts as an agency of social control.
➢It can be found on all levels of organization within the managerial hierarchy.
➢Its rules and traditions are not written but are commonly followed.
➢It develops from habits, conduct, customs and behavior of social groups.
➢It is one of the parts of the total organization.
➢There is no structure and definiteness to the informal organization.
➢ Advantages of Informal Organization

➢It fills up the gaps and deficiency of the formal organization.

➢It gives satisfaction to the workers and maintains the stability
of work.
➢It is a useful channel of communication.
➢Its presence encourages the executives to plan to work
correctly and act accordingly.
➢It also fills up the gaps among the abilities of the managers.
 ➢ Disadvantages of Informal Organization

➢It has the nature of upsetting the morality of the

workers.
➢It indirectly reduces the efforts of management to
promote greater productivity.
➢It spreads rumors among the workers regarding the
functioning of the organization unnecessarily.
➢It acts according to mob psychology.
4.4. Types of Organizations

➢Departmentalization
➢Span of Control
➢Delegation of Authority
➢Centralization and Decentralization
 ▪ Departmentalization
According to Koontz & O'Donnell, "Departmentalization is a process of dividing
the large monolithic functional organization into small and flexible
administrative units”.
It involves the grouping of common activities or similar activities of a business
under a single person’s control for the purpose of facilitating smooth
administration at all levels.
Departmentalization is an essential activity in the modern business world. All
activities cannot be looked after by a single individual.
 ➢ Types of Departmentalization
There are certain basic methods of dividing the duties
and responsibilities within an organization structure.
◦ Departmentalization by functions
◦ Departmentalization by products(Goods or services)
◦ Departmentalization by regions (area or location) or territory
◦ Departmentalization by customers
◦ Departmentalization by process
◦ Departmentalization by time
◦ Departmentalization by numbers
◦ Departmentalization by marketing channel
 4.5. Span of Management
Span of Management indicates the number of subordinates (people) who report directly to a
given manager or the number of people managed efficiently by a single officer in an
organization. Span of management may be narrow or wide. The alternative names for span
of management are Span of Control, Span of Supervision, Span of Authority and Span of
Responsibility.
The limit of the number of members for span of control may be increased or decreased
according to the levels of management.
Many management experts suggest a different number of executives for effective control.
According to L. Urwick, the ideal number of subordinates is four in case of higher level
management and eight to twelve in case of bottom level management. Ideally there are two
types of span of control: Narrow Span and Wider Span.
 ✓ Narrow Span of Management

A narrow span of control is where the number of subordinates under a given

supervisor are very few.
A narrow span of supervision has the following characteristics:
➢The organizational structure is tall, i.e., there is a long distance
between top level management and supervisors.
➢There are many managerial levels between top and lower level
management.
➢The number of employees supervised by a manager will be very few.
Advantages of Narrow Span of Supervision
◦Close supervision of employees or work is possible.
◦Close control is simple.
◦ Fast communication between subordinates and superiors is
possible.
Disadvantages of Narrow Span of Supervision
◦Superiors tend to get too involved in subordinates’ work.
◦There are many levels of management, and therefore the cost is
high.
◦The distance between the lowest level and the top level is long.
 ✓ Wide Span of Management
A Wide Span of control is an arrangement whereby the number of
subordinates under a given supervisor are many. A wide span of control
has the following characteristics:
➢The organizational structure is flat.
➢There are few managerial levels between the top and lower level
managers.
➢There are few middle level managers.
➢There is short distance between the top-level management and the
supervisors.
Advantages of Wide Span of Supervision
➢Superiors are forced to delegate authority.
➢Clear policies are required.
➢Subordinates are carefully selected.

Disadvantages of Wide Span of Supervision

➢There is a tendency of becoming decision bottlenecks on the part of
overloaded superiors.
➢There is a danger of losing control on the part of superiors.
➢A wide span requires exceptionally qualitative managers.
 ➢ Power VS Authority
➢Power is the ability to exert influence in the organization. It is the ability to
influence another person’s behavior, beliefs, or actions. It is much broader
than authority.
➢According to Henri Fayol, “Authority is the right to give orders and the power
to exact obedience.”
➢Koontz and O’Donnell, “Authority is the power to command others to act or
not to act in a manner deemed by the possessor of the authority to further
enterprises or departmental purposes.”
➢Terry, “Authority is the power to exact others to take actions considered
appropriate for the achievement of a predetermined objective.”
➢Authority is the power to make decisions which guides the actions of others.
It is the right to commit resources or the legal/legitimate right to give orders
(To tell someone to do or not to do something)
 ➢ The types and sources of Power
▪Legitimate Power (Position)
A power that one receives as a result of his/her position in the organization. All
managers have legitimate power over their subordinates.
▪Reward Power (Resource ownership)
The power to give or withhold rewards for others for carrying out activities or
meeting performance requirements. Rewards under the managers’ control
include: Bonuses, salary increase, promotion and recommendation.
▪Coercive Power (Position or resource owner ship)
It is the ability to punish others for not meeting requirements, is the negative
side of reward.
▪Referent Power (Charismatic or personality characteristics)
It is a power believed to be given to a person by a supernatural force (GOD). It is a
quality of someone given to him/her at birth. This power is more abstract when
compared to the others.
▪ Expert Power (Knowledge)
It is based on the perception or belief that the influencer has some relevant
expertise or special knowledge or information that the influence does not.
N.B: Unlike the first three types, referent and expert power cannot be given to
managers along with the job title.
 ➢ Authority Relations in an organization

There are three types of authority. In an organization,

different types of authority are created by the
relationships between individuals and between
departments.
◦Line authority
◦Staff authority
◦Functional authority
 ▪ Decentralization Versus Centralization
Decentralization is the degree to which responsibility and
decision-making authority is dispersed throughout the
organization.
In centralized organizations, on the other hand, decisions are
concentrated at the highest level in the organization.
 4.6. Delegation
Delegation is the process of partially distributing authority to
subordinates for making decisions or performing tasks.
A manger, in order to get things done with and through other
people, he must delegate part of his authority and
responsibility to another person.
Since the manager is ultimately responsible for the
achievement of the organizational objectives, he must establish
a system for controlling each person’s performance.
 there are many good reasons for delegation, including:
1. Delegating important tasks to subordinates gives them opportunities for valuable training and
skill growth and development
2. Delegating enhances effective communication with subordinates
3. Delegating gives subordinates the opportunity to participate in decision-making and thus
creates a commitment toward putting these decisions into action.
4. Delegating gives the manager the opportunity to do what he was hired to do managing.
It is important to remember that delegation involves:
◦ the allocation of duties
◦ the delegation of authority
◦ the assignment of responsibility
◦ the creation of accountability.
 ➢ The process of Delegation

The following steps will aid more successful delegations of authority:

1. Establishment of definite goals.
2. Decide which task can be assigned and the expected results.
3. Decide who should get the assignment.
4. Create an obligation (responsibility)
5. Delegate the authority
6. Establish a feedback system
7. Reward effective delegation
 ➢ Importance of Delegation of Authority

1. Delegation allows for promptness in action

2. It enables managers to perform higher-level work
3. It can be training experience for supportive staff
4. It can result in better decisions
5. It can improve morale
6. The expansion and diversification of business activities is possible
7. Saving of time and reduction of work load
 ➢ Disadvantages of Delegation

1. Control at the top may be more difficult:

The further decisions are removed from the highest level, the more difficult it is
to pen point problem areas and to take effective corrective action.
2. A manager may over time lose touch with what is really happening in the
organization
Without proper communication and feedback channel, the subordinate may
make decisions and take actions without the knowledge of the superior.
 ➢ Principles of delegation

1. Delegation has to be based on results expected

2. Non-delegation of responsibility
3. Authority and responsibility should commensurate with each other.
4. Unity of command
5. Definition of limitations of authority
6. The scalar principle/chain of command
 7. Line-staff Relationships
The line employees are those who are directly concerned with
primary operations of the organization.
◦For example, teachers, are all line employees in educational
institution.
Staff employees, on the other hand, are those who provide
advice, service ad counsel to the line employees.
◦Example of staff employees in a business firm is lawyers who give
legal counsel to the top management.
CHAPTER
END