Cost of production increased because of sudden increase in transportation cost, which resulted in lesser profits.

Which limitation of planning is highlighted in the aforesaid statement?

Planning may not work in a dynamic environment

The correct answer is option (1)- Planning may not work in a dynamic environment.

The limitation of planning highlighted in the given statement is Planning may not work in a dynamic environment.

The sudden increase in transportation costs, leading to a decrease in profits, indicates that the business environment is dynamic and can change unexpectedly. In such dynamic conditions, plans may become less effective as they might not adapt quickly enough to changes in the external environment.

Planning may not work in a dynamic environment: The business environment is dynamic, nothing is constant. The environment consists of a number of dimensions, economic, political, physical, legal and social dimensions. The organisation has to constantly adapt itself to changes. It becomes difficult to accurately assess future trends in the environment if economic policies are modified or political conditions in the country are not stable or there is a natural calamity. Competition in the market can also upset financial plans, sales targets may have to be revised and, accordingly, cash budgets also need to be modified since they are based on sales figures. Planning cannot foresee everything and thus, there may be obstacles to effective planning.

OTHER OPTIONS

• Planning reduces creativity: Planning is an activity which is done by the top management. Usually the rest of the members just implements these plans. As a consequence, middle management and other decision makers are neither allowed to deviate from plans nor are they permitted to act on their own.

• Planning is a time-consuming process: Sometimes plans to be drawn up take so much of time that there is not much time left for their implementation.

• Planning involves huge costs: When plans are drawn up huge costs are involved in their formulation. These may be in terms of time and money for example, checking accuracy of facts may involve lot of time. Detailed plans require scientific calculations to ascertain facts and figures. The costs incurred sometimes may not justify the benefits derived from the plans.