6. Selection of Alternative Course : After having searched and examined the
alternative courses, the next step is to evaluate the alternatives taking into
consideration their favourable and unfavourable problem as one alternative may
have some favourable points and other alternative may have some other
favourable points.
7. Budgeting : A master budget for the whole enterprise and other departmental
budgets are prepared to give meaning to plans. Financial aspects are covered
under budgeting.
8. Follow-up : This is the last step in planning. After having adopted major and
expected plans and they are brought into execution.
1 2
Estimating Setting
Professional of
Opportuni objectives
Ties 3
8 Follow-up Forecasting
Establishing the
7 Budgeting sequence of 4
Select- Determi- Activities
ion of ining of
Alternative Alternatives
Course Courses
6 5
It is necessary to make a provision to check that the actual work is being
executed and results are obtained at each stage according to plans and in case of
variances or differences to actual, corrective steps are taken immediately.
A.5 Functional Types of Planning :
There are many types of planning on the basis of nature, period, objectives and
area of functions. Planning is a Primary, intellectual and important function of
management. Due to proper planning the objectives of organization can be achieved
very easily. According to Henry Fayol there are 14 principles of management. The
45
,first and most important principle is of 'Division of Labour.’ On the basis of this
principle the entire process of the organization is divided into some
sections/departments and sub-sections. In any production organization Finance,
production, personnel and Marketing are some of the important departments.
Other than these there may be purchase, storage, advertising and accounting
departments, so depending upon the scope and size of the business. The planning of
these four functional departments need to be studied in detail.
Types of Functional Planning
↓ ↓ ↓ ↓
A) Financial B) Production C) Personnel D) Marketing
Planning Planning Planning Planning
↓ ↓ ↓ ↓
1) Procurement of 1) Production 1) Forecasting of no. 1) Marketing
Funds Targets of Employees forecasting
2) Investment of 2) Quality of 2) Recruitment 2) Customer Survey
Funds Products 3) Training 3) Sales Target
3) Funding Structure 3) Production 4) Employees 4) Sales Promotion
4) Return on Process Expenses 5) Advertisement
Investment 4) Production 5) Welfare of Branding etc.
5) Financial Shedule Employees
Budgeting 5) Production
Budget
A) : Financial Planning:
Capital is essential to start the business. Funds are also required to run and to
expand the business. In short the capital or funds are required at every stage of
business. For the constant flow of funds in business proper financial planning is
essential. Financial planning is related with how to raise the funds and how to invest
in any asset or resource so that maximum return can be gained from the capital.
Capital is raised in two ways. One is own capital and another is borrowed capital.
Own capital includes share capital, capitalization of reserves etc. Borrowed capital
includes issue of debentures, loans from banks and financial institute etc. When the
collected capital is invested in long-term fixed assets, it is called fixed capital and
when the funds are invested in short term needs this is called working capital. How
to raise the funds through proper financial structure and how to invest the funds in
46
,different assets, what will be reserves, how will be the profit distribution, annual
budgeting etc. are the main factors of financial planning.
Financial planning is the process of estimating capital requirement and
determining its utilization. It is an activity of framing financial policies in relation to
procurement, investment and administration of funds of an enterprise.
This financial planning includes-
I) Estimating the amount of capital to be raised.
II) Framing different sources of capital from both owned and borrowed capital.
III) Setting the policies of application of raised capital in different resources so that
maximum return can be achieved by each investment.
Definations of Financial Planning:
1) Walker and Boughni:
“Financial Planning pertains only to the function of finance and includes the
determination of the firms financial objectives formulating and promulgating
financial policies and developing financial procedures.”
2) Henry Hagland:
“Financial planning of a corporation is its patterns of outstanding stocks and
bonds.”
From the above definitions it is clear that financial planning is the responsibility
of finance department. It is very useful to achieve the goals of the organization in
time.
Importance of Financial Planning:
Financial planning plays an important role in the success of any business
organization. Due to financial planning funds flows constantly without any obstacle.
The importance of financial planning in any business organization can be understood
from following points.
1) Forecasting of funds:
Financial planning helps to forecast the need of funds for different reasons in the
business. This helps to prepare different types of budgets.
47
, 2) Capital Structure:
Under the financial planning plans for how to raise own capital and how much
to collect borrowed capital is also decided. By issuing appropriate number of shares
the burden of fixed rate of interest on borrowed capital can be decreased.
3) Proper distribution of capital:
The collected capital can be distributed in to fixed capital and working capital. It
is possible due to financial planning only.
4) Maximum use of Resources:
Financial planning helps in deciding the investment of funds in different
resources. It also decides the return on investment in advance, which helps to
maintain optimum use of resources.
5) Economy in capital structure :
Financial planning helps in maintaining the lowest expenses while raising
capital funds. i.e. cost of capital factor is predetermined under financial planning.
6) Constant flow of funds:
Financial planning helps to maintain constant flow of funds in the business. This
reduces the risk of over liquidity and unsound insolvency position of the business. It
reduces the over-capitalisation and under-capitalisation.
B) : Production planning:
Production is a main and an important process of any business organization.
There is a need of raw material, machinery, men-power and oil-fuel etc. as factors of
production. There is a need to plan for all these production factors. Under the
production planning, schedule and production budget is prepared. Production
planning is the responsibility of production manager. Quality of production,
production cost control, production efficiency etc. are important things to be
considered while preparing production planning.
Production planning is an important to maintain the constant flow of production
process from raw material to finished goods and from finished goods to consumption
by the customer.
48
alternative courses, the next step is to evaluate the alternatives taking into
consideration their favourable and unfavourable problem as one alternative may
have some favourable points and other alternative may have some other
favourable points.
7. Budgeting : A master budget for the whole enterprise and other departmental
budgets are prepared to give meaning to plans. Financial aspects are covered
under budgeting.
8. Follow-up : This is the last step in planning. After having adopted major and
expected plans and they are brought into execution.
1 2
Estimating Setting
Professional of
Opportuni objectives
Ties 3
8 Follow-up Forecasting
Establishing the
7 Budgeting sequence of 4
Select- Determi- Activities
ion of ining of
Alternative Alternatives
Course Courses
6 5
It is necessary to make a provision to check that the actual work is being
executed and results are obtained at each stage according to plans and in case of
variances or differences to actual, corrective steps are taken immediately.
A.5 Functional Types of Planning :
There are many types of planning on the basis of nature, period, objectives and
area of functions. Planning is a Primary, intellectual and important function of
management. Due to proper planning the objectives of organization can be achieved
very easily. According to Henry Fayol there are 14 principles of management. The
45
,first and most important principle is of 'Division of Labour.’ On the basis of this
principle the entire process of the organization is divided into some
sections/departments and sub-sections. In any production organization Finance,
production, personnel and Marketing are some of the important departments.
Other than these there may be purchase, storage, advertising and accounting
departments, so depending upon the scope and size of the business. The planning of
these four functional departments need to be studied in detail.
Types of Functional Planning
↓ ↓ ↓ ↓
A) Financial B) Production C) Personnel D) Marketing
Planning Planning Planning Planning
↓ ↓ ↓ ↓
1) Procurement of 1) Production 1) Forecasting of no. 1) Marketing
Funds Targets of Employees forecasting
2) Investment of 2) Quality of 2) Recruitment 2) Customer Survey
Funds Products 3) Training 3) Sales Target
3) Funding Structure 3) Production 4) Employees 4) Sales Promotion
4) Return on Process Expenses 5) Advertisement
Investment 4) Production 5) Welfare of Branding etc.
5) Financial Shedule Employees
Budgeting 5) Production
Budget
A) : Financial Planning:
Capital is essential to start the business. Funds are also required to run and to
expand the business. In short the capital or funds are required at every stage of
business. For the constant flow of funds in business proper financial planning is
essential. Financial planning is related with how to raise the funds and how to invest
in any asset or resource so that maximum return can be gained from the capital.
Capital is raised in two ways. One is own capital and another is borrowed capital.
Own capital includes share capital, capitalization of reserves etc. Borrowed capital
includes issue of debentures, loans from banks and financial institute etc. When the
collected capital is invested in long-term fixed assets, it is called fixed capital and
when the funds are invested in short term needs this is called working capital. How
to raise the funds through proper financial structure and how to invest the funds in
46
,different assets, what will be reserves, how will be the profit distribution, annual
budgeting etc. are the main factors of financial planning.
Financial planning is the process of estimating capital requirement and
determining its utilization. It is an activity of framing financial policies in relation to
procurement, investment and administration of funds of an enterprise.
This financial planning includes-
I) Estimating the amount of capital to be raised.
II) Framing different sources of capital from both owned and borrowed capital.
III) Setting the policies of application of raised capital in different resources so that
maximum return can be achieved by each investment.
Definations of Financial Planning:
1) Walker and Boughni:
“Financial Planning pertains only to the function of finance and includes the
determination of the firms financial objectives formulating and promulgating
financial policies and developing financial procedures.”
2) Henry Hagland:
“Financial planning of a corporation is its patterns of outstanding stocks and
bonds.”
From the above definitions it is clear that financial planning is the responsibility
of finance department. It is very useful to achieve the goals of the organization in
time.
Importance of Financial Planning:
Financial planning plays an important role in the success of any business
organization. Due to financial planning funds flows constantly without any obstacle.
The importance of financial planning in any business organization can be understood
from following points.
1) Forecasting of funds:
Financial planning helps to forecast the need of funds for different reasons in the
business. This helps to prepare different types of budgets.
47
, 2) Capital Structure:
Under the financial planning plans for how to raise own capital and how much
to collect borrowed capital is also decided. By issuing appropriate number of shares
the burden of fixed rate of interest on borrowed capital can be decreased.
3) Proper distribution of capital:
The collected capital can be distributed in to fixed capital and working capital. It
is possible due to financial planning only.
4) Maximum use of Resources:
Financial planning helps in deciding the investment of funds in different
resources. It also decides the return on investment in advance, which helps to
maintain optimum use of resources.
5) Economy in capital structure :
Financial planning helps in maintaining the lowest expenses while raising
capital funds. i.e. cost of capital factor is predetermined under financial planning.
6) Constant flow of funds:
Financial planning helps to maintain constant flow of funds in the business. This
reduces the risk of over liquidity and unsound insolvency position of the business. It
reduces the over-capitalisation and under-capitalisation.
B) : Production planning:
Production is a main and an important process of any business organization.
There is a need of raw material, machinery, men-power and oil-fuel etc. as factors of
production. There is a need to plan for all these production factors. Under the
production planning, schedule and production budget is prepared. Production
planning is the responsibility of production manager. Quality of production,
production cost control, production efficiency etc. are important things to be
considered while preparing production planning.
Production planning is an important to maintain the constant flow of production
process from raw material to finished goods and from finished goods to consumption
by the customer.
48
