In this article we will discuss about:- 1. Meaning of Situation Audit 2. Process of Situation Audit 3. Fundamental Purposes 4. Description of Contents.

Meaning of Situation Audit:

Strategic planning is the process of making current risk-taking decision with the best possible knowledge of the future consequences and situations. It thus requires sensing of expectations and needs, creating awareness throughout the organisation, crystallising the development focus and making people committed to achievement of specific goals.

Process of Situation Audit:

‘Situation audit’ refers to the analysis and appraisal of these basic planning premises and covers the entire process of determining the following pertinent issues:

(i) Expectations of major outside interests in relation to: society, community, stakeholders, customers, suppliers, and creditors;


(ii) Expectations of major inside interests in relation to: top managers, senior and middle-level managers, supervisors, staff and workmen;

(iii) Data base with respect to past performance, current situation and forecasts; and

(iv) Evaluation of environment (i.e., opportunities and threats) and of company (i.e., strengths and weaknesses).

With these data in hand thrown up by situation audit, the top management or the Chief Strategist is in a position to determine company mission, basic purposes, objectives, policies, and programme strategies.

Fundamental Purposes of Situation Audit:


1. A major objective of the situation audit is to identify and analyse the key trends, forces, and phenomena that may have a potential impact on the formulation of strategies. This helps a company to identify specific elements in the environment that will be addressed.

2. The situation audit serves to emphasise the importance of systematic assessment of environmental impacts.

3. The situation audit is a forum for sharing and debating divergent views about relevant environmental changes. The more open the debate about them, the more likely the planning system will be effective.

4. Systematic attempts to appraise the environment, through situation audit, help individuals to sharpen vague amorphous altitudes about forces operating in the environment.


5. Finally, all of the information collected in the situation audit provide a base for completing the strategic planning process in all of its phases, from re-evaluating missions to formulating strategies and implementing them.

Description of Contents of Situation Audit:

1. Expectations of Outside Constituents:

The constituents viz. outside people and groups are interested to understand what a large corporation wants to do. Systematic examination of the attitudes, demands, and expectations of these groups and their considerations in appropriate forms help a corporation in the strategy formulation.


2. Expectations of Inside Constituents:

The values, attitudes, and interests of individuals and groups within a corporation constitute significant premises for planning. The value systems of top management particularly are basic and fundamental premises in any comprehensive corporate planning system.

Whether the executive values are written or not, proven or disproven to be correct, they may determine basic long-range directions of a company. For instance, when a chief executive says, ‘I want my company to be the technologically best in industry in the next decade’, he provides a very different frame of reference for doing corporate planning.

These value systems not only influence objectives but also influence all sorts of decisions made in the planning process. For instance, one executive may wish to do business with Japanese because he likes them. Another may prefer not to extend his operations to Japan. The reasons are not exactly concerned with sales and profits but solely determined by the values each holds.


3. Data Base:

Past performance:

The data about it are useful as a base for assessing the present situation and possible developments in the future. For instance, if market share of product A has been declining over the past five years, an appraisal of current performance as being satisfactory is hardly justified should such trend continue.

Data about the past covers the basic information as sales, profits, return on investment, productivity, marketing systems, and so on.


Current situation the data about it could include the company’s financial position, market share, competition, customers and markets, evaluation of managerial and employee skills, various measures of efficiency (e.g. sales per employee, plant utilisation, investment per employee), constituent demands, government regulations, general environmental setting, and so on.


The data about this would certainly include forecasts of markets, sales, competition and selected economic trends of prime concern to the company. These are traditional projections.

But the estimates of future technological developments, changing social expectations, anticipated political and regulatory forces likely to affect the company and other trends of particular concern to the firm (e.g. population, international political turbulence, etc.) are vitally necessary in the situation audit.


4. SWOT Analysis-Environment:

This is a critical phase of the situation audit. In this phase, a company seeks to identify the principal opportunities that appear to exist in the environment of the future as well as the threats that may adversely affect the company. The assessment of company strengths and weaknesses in relation to the perceived opportunities and threats affects the strategy formulation and its implementation.