BBA Practice Management Procedures Methods Rules Study Material Notes

BBA Practice Management Procedures Methods Rules Study Material Notes: Procedures Policy and Procedure a comparisons Characteristics of a good procedure Methods Rules Project Role of Peter Plans in Project Budger Types of Budgets Master and Functional Budgets Capital and Revenue Long term and Short terms Budget Fixed and Flexible Types of Budgeting Zero base Strategic Performance Discussion Question Objective Questions :

MCom I Semester Human Resource Policies Practices Study Material

PROCEDURES

Procedures are plans in that they establish a method for handling future activities. These are specific manners in which a particular activity is to be performed. They prescribe basically the chronological sequence of the action required to achieve an objective. Terry and Franklin have defined procedure as follows:

Procedures, thus, provide the guidelines for performing an action. They include how each task in the organisation will take place, when it will take place, and by whom it is to be performed. Normally, time limits are also placed on each step of a procedure to ensure that the end result will be accomplished when desired. Time factor is important not only to expedite the controlling efforts applied to a procedure but also helps to coordinate the operation of various procedures within the organisation. Once the procedure is established, this can be used over and over for accomplishing a particular work.

In an organisation, procedures can be set up for different activities. They are quite pervasive and cover the entire organisation. For example, procedures may be set about how board of directors will take a particular decision. Similarly, procedure can be set up how an order will be executed. However, there is a difference between the procedures set at various levels. They are more exacting and numerous at lower levels as compared to higher levels. This is largely because at lower levels, mostly routine jobs are performed requiring less discretion in decision making. The efficiency in such situations can be achieved through the prescription of procedures for doing the work.

Procedures may cut across the functional lines in an organization. Many a time, the execution of work may require the help of various departments even at lower level also. In such a case, the procedures may be prescribed in such a way that the performance of an action will serve the requirement of all functional areas. For example, the execution of an order may involve production, finance, and inventory control departments besides the sales department which is primarily responsible for the execution of the order. In such a case, a procedure may be described how the sales order is executed so that all the departments get information automatically about the execution of the order.

Procedures Methods Rules

Policy and Procedure: A Comparison

Often confusion arises between policy and procedure because of the common purpose to which these are directed, that is, guiding for managerial actions for future periods. But this guiding aspect is different for policy and procedure. The major difference between policy and procedure can be identified as follows:

1 Policy provides guidance for managerial thinking as well as action. As a result, it does not tell a manager how to do the things; it merely channels his decision-making! along a particular line by eliminating his span of consideration. On the other hand, a procedure simply provides guidelines to the action by prescribing how an action can be performed step by step.

2. A policy is more flexible as compared to a procedure. Policy is more flexible because It prescribes the areas of discretion to managers, while procedure prescribes the exact sequence of the activities without scope of any variation. This difference between policy and procedure may be understood by an example. An organisation may have a policy of granting vacation to its employees. For implementing this policy, certain procedure may be followed through which an employee may get leave and related benefits. A manager can refuse the leave to the employee concerned depending on the organisational situation. But the employee will have to follow certain procedure of applying for leave, completion of certain formalities to avail the benefits if leave is granted.

3. Policy is more pronounced at higher levels while procedures are more prevalent at lower levels. At higher levels, managers are more concerned with looking into the totality of the organisational functioning and, therefore, they should prescribe policies so that uniformity is maintained for particular action. People at lower levels are engaged mostly in routine work which can be better accomplished if the set standards are prescribed without leaving any scope of discretion. Since external situations play more important role in policy formulation and its implementation, managers at higher levels have to make many decisions which are not similar to the previous ones. Therefore, they have authority to vary according to the needs. At lower levels, no such problems arise.

Procedures Methods Rules

Characteristics of a Good Procedure

Since procedures are the standing plans which can be used frequently in doing the work, these should be framed very carefully. These should be prescribed in a way that they contribute positively to managerial actions. Normally, a procedure or set of procedures with the following characteristics contributes in a positive way in the organization:

1 Based on Facts. A procedure should be based on adequate facts of the particular situation and not on guesses or personal whims. For each case, due consideration must be given to the objectives, the physical facilities, the personnel, and the type of work. Moreover, a procedure should not be copied from another organisation because a procedure that is best for a given organisation may not be best for another simply because significant differences among the factors affecting the operation of the procedure may be present. The procedure should be such that it does not hinder the efficiency. The end result governs the steps taken and is of prime consideration. The steps should be complementary and lead cumulatively to the accomplishment of the desired goal. Each step should be justified, fulfil a definite need, and be in proper relationship to the remaining steps of the procedure.

2. Stability. A procedure should possess stability in that it provides a steadfastness of the established course, with changes made only when fundamental modifications in the factors affecting the operation of the procedure occur. Stable procedure provides continuity in the action and people get well-versed with the system. This helps in efficient execution of actions.

3. Flexibility. Stability of procedure does not mean that there is no scope for change when needed. Flexibility of procedure is desirable in order to cope with a crisis or emergency. special demands, or adjustment to a temporary condition; however, emergencies may become to commonplace, and the benefits from the use of stable procedures are lost. Therefore, a balance should be maintained between stability and flexibility of the procedure.

4. Updated Procedures. There should be a continuous review of the procedures so that is ascertained. In many cases, it happens that a new procedure is added without the existing ones. Thus, after a certain time, the organisation has too many procedures without taking full advantage of these. The periodical reviews speclly the type of changes that are needed in the procedures to make them more workabic procedures are to be added, and redundant ones to be eliminated.

5. Minimum Procedures. A basic principle of procedures is that they should be kept to ne minimum possible. It is to be noted that every procedure costs something to the organisation in terms of manager’s time, paper handling, delay, and lack of responsiveness to change. Moreover, they curtail flexibility of work, sometimes quite essential for efficient working. Thus, more the number of procedures, more is the cost on the part of the organisation. Therefore, their number should be kept to the minimum possible, otherwise procedures become more important than results themselves.

6. Procedures as a System. Procedures, to be more effective, must be recognised as a system of interrelated activities of a network. Procedures cannot bring efficiency unless their complex systematic structure is analysed and support systern is provided. The designing of a procedure should be linked with the organisational relationships and all factors should be taken into account which affect these relationships. This is possible only when a comprehensive view of procedures and their working are taken into account and suitable modifications are made therein.

METHODS

A method is one step of procedure. It can be defined as a prescribed manner for performing a given task with adequate consideration to the objective, facilities available, and total expenditures of time, money, and effort. Thus, a method specifies how a step of procedure is followed. By taking complex tasks, breaking them down into specific procedures, and then developing comprehensive methods for each step in those procedures, it is possible to place people in jobs for which their skills are considerably lower than what would have been required otherwise. A method is normally confined to one department and frequently to the efforts of one individual while engaged in the specified work. Thus, a method is more limited as compared to a procedure.

The determination of method to be employed in any given situation depends upon the manager’s experience, knowledge, and creativeness. Various efforts have been made to simplify the methods for better efficiency. Analysis of methods shows that greater output is achieved when the task is carefully defined, performed in a definite manner, and within a definite period of time. Various techniques available for methods improvement are time and motion study, work simplification, and work standardization.

RULES

A rule is prescribed guide for conduct or action. Rules are plans as they are a course of action which is chosen from among alternatives. A rule is a specific guide for action, established authoritatively, and utilised in order to inform employees of conditions under which designated activities are to be performed. There may be several areas where rules are to be specified for the performance of organisational activities. Examples of rules may be “The office opens at 8.00 a.m.” or “Smoking is prohibited in the factory premises.”

Rules are often confused with policies or procedures. However, there are differences among these. A policy provides guidelines for managerial actions by defining areas of discretion, while in rule, there is no such discretion. A rule provides definite action to be! taken or not taken with respect to a situation. Thus, rule does not allow any deviation from stated course of action. For example, if the organization prescribes that ‘smoking is prohibited’, there is no discretion except to accept it. Often it is said that ‘a rule is a rule whosoever is covered under this.’

A rule is also different from procedure, though related with it sometimes. Therefore, the difference between the two should be clearly specified. A rule requires that a specific and definite action be taken or not taken with respect to a situation. Thus, it is related with procedure in that it guides action but specifies no time sequence. As a matter of fact, a procedure could be looked upon as a sequence of rules. A rule, however, may or may not be part of a procedure. For example, ‘no smoking is a rule quite unrelated to any procedure; but a procedure governing the handling of orders may incorporate the rule that all orders must be confirmed the day they are received.

Rules bring rationality in behaviour of organization’s members. They prescribe behaviour, that is, what type of behaviour is expected from people in the organisation. The behaviour is governed by rule of law rather than rule of man. Rules also perform the function of communicating the obligation of persons. It can be noted that rules comprise a functional equivalent for direct orders. Like direct orders, rules specify the obligation of the people forcing them to do particular things in certain specified ways. Looking at it in this light, rules are a form of communication for acting in particular way which is helpful in completing the tasks and, therefore, contributing to the achievement of organisational objectives.

Project

A project, or programme, is a type of plan which can be thought of in terms of planned actions integrated into a unity and designed to bring about a stated objective. It is a scheme for investing resources which can be analysed and appraised reasonably and independently. It can be a gigantic scheme like a multi-purpose river valley project or small project like purchase of a calculator. A project involves basically the investment of funds the benefits from which can be accrued in future. Examples of investment may be outlays on land, building, machinery, research and development, etc., depending upon the situation. Thus, a project has the following features:

1 Project activity is definable in terms of specific objectives. Thus, each project contributes in some way towards the realisation of organisational objectives. For example, project for opening a factory contributes to the organisational objectives by providing manufacturing facilities.

2. Project activity is unique, infrequent, or sometimes even unfamiliar to the organisation. It is not of routine type or repetitive type and, therefore, the organisation is required to take action considering all relevant factors whenever any project is undertaken. For example, opening of a factory is not a continuous activity. This may be undertaken only very infrequently. For some organisations, this may happen only once.

3. Project activity is complex in respect to independence of various task accomplishments. A project contains a complex of goals, policies, procedures, rules. task assignments, steps to be taken, resources to be employed, and other elements necessary to carry out a given course of action.

4. Project activity is critical to the organisation in terms of the realisation of its objectives. Therefore, completion of project at right time and with appropriate cost is necessary. For example, opening of factory, a project undertaken by the organisation, will have certain time schedule and cost involvement. If it is delayed, there may be cost overrun. Similarly, if an organisation has undertaken project work on behalf of other organisation, its completion within time limit is necessary otherwise there may be fine for delay which reduces profit volume.

Role of Other Plans in Project

A project, truly speaking, is a complex of policies, procedures, rules, etc., to carry a given course of action. Thus, a project is prepared in the context of the objectives incorporating policies, procedures, rules, and other elements which are necessary for project formulation and execution. In fact, in one sense, project is a major type of plan as most of the managers suggest. Therefore, all types of plans must support this plan.

The role of policy in project is to provide guidelines for selecting, formulating, and implementing projects. The various aspects of a project are evaluated in the light of given policies. Thus, policies decide which projects can be undertaken. For example, policies provide whether projects will be undertaken to increase profitability of the organisation or they will be taken to contribute to the prestige and image of the organisation. Further, whether risky projects will be taken or projects having lesser risk will be undertaken. All these are decided within the framework of policy prescriptions. Similarly, at the level of project implementation, policies provide how various activities of a project will be performed, for example, to open a factory where and on what basis land will be acquired, and so on.

Besides policies, other plans like procedures, rules, budgets also play important role in project selection and implementation. Every organisation may provide a procedure manual setting forth in detail the capital expenditure budgeting. The organisation may provide the procedure through which the project proposals may be routed and who will be involved in project decision. Routing a proposal through several persons provides mechanism for obtaining the views and judgements of others. This also facilitates the coordination of interrelated activities. Coordination is required because a project involves many departments of the organisation. Rules provide help in project execution by fixing the norm for project completion in terms of timing, etc. Similarly, budgets help the project formulation and implementation. In one way, project is a capital expenditure budget which suggests the outlays on various activities of the projects. For example, establishing a new plant involves capital expenditures of various types, say, purchase of land, development of land, construction of buildings, purchase of machinery, erection, provision of support facilities, etc. For all these, budgets have to be prepared so that the total outlay for the project is known and funds are made available at the right time.

Procedures Methods Rules

Budget

Budget is a kind of single-use plan of expected results expressed in numerical terms. These results are expected to be achieved within specified time period which is generally one year. The term ‘budget’ has been derived from the French word ‘bougettee’ denoting a leather pouch in which funds are appropriated for meeting anticipated expenses. This is the basic idea behind the use of budgets, both in organizational and non-organizational context. In the organizational context, a budget expresses organisational and departmental objectives and programmes in financial and non-financial terms. It anticipates operating results over some future period of time and provides basis for execution of a plan and measurement of results obtained. Organizations use different types of budgets and adopt different types of mechanisms for preparing budgets.

Procedures Methods Rules

TYPES OF BUDGETS

since budgets express plans, and an organisation may have different types of plans, there may be different types of budgets. These may be classified on the basis of:

1 Coverage of functions-master and functional budgets,

2. Nature of activities covered-capital and revenue budgets,

3. Period of budgets-long-term and short-term budgets, and

4. Flexibility adopted-fixed and flexible budgets.

These categories of budgets are not independent but different ways of classifying these. Therefore, a basis of classification may overlap on others. For example, the master budget may be prepared consisting of both capital and revenue expenditure; may be prepared on long-term or short-term basis; or may be prepared on the basis of fixed and variable volumes of operations. Various types of budgets contain the items given below:

Procedures Methods Rules

Master and Functional Budgets

A master budget is prepared for the entire organisation incorporating the budgets of different functions. For example, when we refer to the annual budget of Government of India, we have in mind the annual budget incorporating the budget outlays of different ministries. In business organisations, the master budget incorporates various functions and units and their outlays. It generally includes sales, production, costs-variable and direct costs and overheads. In essence, it expresses the likely outcomes of entire organisational activities and appears like a projected profit and loss account. As against master budget, a functional budget is prepared incorporating a major function and its subfunctions. Since an organisation may have number of functions, numerous functional budgets are prepared. For example, we may find sales budget, production budget, cash budget, etc., in an organisation. Based on the budgeting practices, either the functional budgets are prepared first and are incorporated subsequently into master budget or master budget is prepared first and functional budgets are derived out of that.

Procedures Methods Rules

Capital and Revenue Budgets

An organisation’ activities involve two processes creating facilities for carrying out activities and actual performance of activities. Their expenses and outcomes are different. Creating facilities for carrying out activities involves capital expenditure whose returns accrue over a number of years. For such activities, capital budget is prepared which is essentially a list of what management believes to be worth while projects for acquisition of new assets together with the estimated cost of each project. Revenue budget involves the formulation of targets for a year or so in respect of various organisational activities such as production, marketing, finance, etc. Thus, a revenue budget includes expenditure and earning for a specific period, say one year.

Long-term and Short-term Budgets

Most of the organizations follow the practice of preparing budgets for a year. However, many companies integrate their yearly budgets with long-term projections of business activities and along with yearly budgets, they prepare budgets for a longer period of 2-3 years. When one budget period is over, budgets are prepared for the next year and subsequent 2-3 years. The budget for the immediate next year is based on the budget estimates prepared earlier along with the incorporation of the impact of changes that have taken place during the period. This system of budget preparation Integrates short-term plans with long-term plans.

Procedures Methods Rules

Performance Budgeting

A performance budget is an input-output budget or costs and results budget. It shows costs matching with operations. Although the terms programme budgeting and performance budgeting refer to the same concept, some distinction can be made between the two. Programme budgeting measures total costs of programmes or activities, performance budgeting measures both costs and activities.

The concept of performance budgeting originated in the U.S.A. around 1960s when defence budgeting led to the thinking of ways and means of linking outputs to inputs. Afterwards, this became quite popular in many government departments outside the United States. Now performance budgeting is being used in business and other organisations besides government departments. In India, though the concept of performance budgeting was discussed during the debate of Lok Sabha in 1964, it was adopted much later.

Performance budgeting emphasises non-financial measures of performance which can be related to financial measures in explaining changes and deviations from planned performance. Historical comparisons of non-financial measurements of activity are particularly helpful in justifying budget proposals and in showing how the resources of the organisation are being used. Performance measurements are useful for evaluating past performance and for planning future activities. For example, non-financial information involving educational activities such as number of students at various levels of schooling, number of schools, or number of teachers can be used to justify increased appropriation for future education programme as well as to explain the current cost variations in existing education programme. An evaluation of performance in performance budgeting may often require a combination of several different performance measures as support. Therefore, the challenge of performance budgeting is to find out sufficient performance measures to represent adequately all important variables in determining the cost of an activity, function, or, programme. Performance budgeting results in the following:

1 It correlates the financial and physical aspects of every programme or activity.

2. It improves budget formulation, review, and decision making at all levels of the organisation.

3. It facilitates better appreciation and review of organisational activities by the top management.

4. It makes possible more effective performance audit.

5. It measures progress towards long-term objectives.

Procedures Methods Rules

Zero-Base Budgeting

Zero-base budgeting (ZBB), comparatively a newer concept in business and non-business budgeting, was applied for the first time in preparing the divisional budgets of Texas Instruments of the U.S.A. in 1971. Subsequently, it was applied by State of Georgia in 1973. Since then, it has been used by a number of States and business organisations in the U.S.A. and other countries. In India, it became the focus of discussion of academicians, policy makers, and Government only a few years ago. It has been adopted by many departments of Government of India and also by some State Governments like Maharashtra and Rajasthan. Besides some public sector organisations have also applied this concept.

ZBB is based on a system where each function, irrespective of the fact whether it is old or new, must be justified in its entirety each time a new budget is formulated. It requires each manager to justify his entire budget in detail from scratch, that is zero base. Each manager states why he should spend any money at all. The process of ZBB involves the four basic steps: (0 Identification of decision units, that is, cluster of activities or assignments within a manager’s operations for which he is accountable: to analysis of each decis unit in the context of total decision package: (tto evaluation and ranking of all decis units to develop the budget request; and (iv) allocation of resources to each unit based upon ranking! Thus, emphasis is placed upon resource allocation according to the contributions of each decision unit.

ZBB results in a number of benefits over traditional budgeting. Such benefits may be in the form of effective allocation of resources, (tt) improvement in productivity and cost-effectiveness. (Il effective means to control costs, (iv) elimination of unnecessary activities, (u) better focus on organisational objectives, and (vi saving time of top management. However, ZBB may result in some problems if not followed properly. For example, it may result in extra paper work, difficulty in identifying decision packages, tendency to establish minimum level of efforts, etc. However, these problems can be overcome when an organisation gains experience of ZBB.

Procedures Methods Rules

Strategic Budgeting

Strategic budgeting is comparatively newer concept of budgeting and is used as a tool of resource allocation to various strategic business units and other units of an organisation. Under strategic budgeting, in determining the resource needs of various units, the basic question that is put is. “what sort of performance and results does the organisation want to generate?” This should be followed by another question, “what are key activities, organisational units, tasks, and jobs needed to be set up and organised to produce these results?” The answer should suggest the kinds of skills, expertise, and funding which will be needed to allow the various organisational units to accomplish the designated results. Therefore, jobs and tasks should be defined in terms of the desired strategic results and performance rather than in terms of the functions to be performed. Specific objectives should be developed not only for the organisation as a whole but for each major organisational subunit and through the efforts of subordinate managers, for each job. Every manager in the organisation needs to have his job spelled out in terms of expected results and the resources that may be required to accomplish those results. One of the major advantages of setting up of careful network of verifiable results to be achieved and a requirement of resources for achieving these effectively is the opportunity to tie up the resources with results which ultimately helps in implementing the strategy. In strategic budgeting, there are two stages of budget preparation: (1) preparation of position papers and (2) preparation of budget.

1 Preparation of Position Papers. Preparation of position papers provides the background on which strategic budget is prepared. Such position papers include environment, organizational resources and constraints, past performance, and direction for future activities. (0) Position Paper on Environment. The position paper on environment may include economic, regulatory, political, marketing and competitive, and technological factors. The paper may cover the environment’s trends likely to affect the organisation’s performance specifying the assumptions involved. This position paper is likely to provide reference base for the development of annual plan to ensure the required alignment between strategic plan and annual plan. (0) Position Paper on Organisational Constraints and Resources. This paper would specify, at a broad level, the resources available for achieving the targets by way of personnel, funds, technology, capital expenditure, etc. Similarly, the paper also suggests the likely constraints by the organisation so that the resources are deployed keeping these constraints in mind. (ttPosition Paper on Past Performance. This would discuss the results of organisational performance in quantitative terms. The paper can show the performances based on strategic business units or responsibility centres. Such an analysis would aid in deciding the relative emphasis to be provided to the different business lines so that there is alignment between market needs and products and the process of organisational resource allocation among product/business. (iv) Position Paper on Future Direction of Activities. This paper would suggest the various short-term and long-term targets to be fulfilled. The targets may be identified again for the organisation as a whole and for different strategic business units or responsibility centres. The paper would also indicate the way the organisation will take over various activities to match itself with the environmental requirements, like meeting the competitive threats. The paper may also include the various tractics to be adopted to meet the above objectives. These may include the fixation of levels for working capital, credit level, wastage of materials and other physical factors.

The various position papers may be prepared by the corporate planning division, if it exists, or by respective functional executives, or by any other executive who has been entrusted specifically with the responsibility for preparing these, with the active collaboration of other functional and operational executives. These papers may then be discussed among functional and operational heads so as to identify issues pertaining to the organizational context. Subsequently, the papers may be discussed at the corporate level so that specific guidelines are prepared. These position papers and policy guidelines would be sent to various levels of managers who may take up the job of preparing actual budgets.

Procedures Methods Rules

2. Preparation of Budget. The strategic budget is prepared through the interaction between corporate level and SBU level in the light of position papers. The process will go like the one given in Figure Budget preparation will actually start when the SBU managers are communicated about the likely course of future action in the light of environmental factors, organisational resources and constraints, and past performance. It is better to initiate the budget preparation from the bottom in the light of position papers. However, the exercise will not merely be restricted to taking previous figures with some pluses or minuses but everyone responsible in the organisation must ask for resource allocation with details of various activities and the way these activities will contribute to the overall organisational objectives. Such demands for resource allocation will be integrated at successive levels and finally integrated in a master budget for the organisation as a whole. Since budget demand at each level is based on the chosen strategy of the organisation, there is every possibility that master budget will show the allocation of various resources according to the needs and importance of various functions, products, or businesses, thereby ensuring the better use of organisational resources and achievement of organisational objectives.

KEY CONCEPTS FOR REVIEW

Budget Budgeting Business strategy Corporate strategy Functional strategy Method Performance budgeting Policy Procedure Project

Role of strategy Rule Sound policy Sources of policy Strategic budgeting Strategy Strategy formulation Strategy implementation Tactics Zero-base budgeting

Procedures Methods Rules

DISCUSSION QUESTIONS

1 Discuss the concept of strategy. How does it differ from tactics? Discuss the different levels at which strategies operate.

2. Discuss the process of strategy formulation and implementation

3. Define term policy and identify the features of a good policy. How does it differ from strategy?

4. “A manager states that in his organisation policies are defined as the result of an appeal rather than being formulated and this has the advantage of having policies where most needed and avoiding unnecessary policy statements.” Do you agreee with the manager? Explain. What roles are performed by policies formulated in various areas?

5. Describe procedure as a type of plan. How does it differ from policy and rule? What are the characteristics of a good procedure?

6. What is a project? Discuss the role of policy, procedure, and budget in project formulation and implementation.

7. “Budget making is primarily a planning process whereas its administration is part of controlling.” Elaborate.

8. What are the different types of budgets. What are the dangers arising from inflexibility in budgets? How do flexible budgets help avoiding these dangers?

9. What are different approaches adopted for budget preparation? How is strategic budgeting better than conventional budgeting?

Procedures Methods Rules