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Introduction

Planning involves selecting the missions and objectives as well as the actions to achieve them. It requires decision making, which means choosing a future course of action from among alternatives. Planning and controlling are closely interrelated, although they are discussed separately in this report. There are many types of plans, such as missions or purposes, objectives or goals, strategies, policies, procedures, rules, programs, and budgets. Once an opportunity is recognized, a manager plans rationally by establishing objectives, making assumptions (premises) about the present and future environment, finding and evaluating alternative courses of action, and choosing a course to follow. Next, the manager must make supporting plans and devise a budget. These activities must be carried out with attention to the total environment. Short-range plans must, of course, be coordinated with long-range plans.

Objectives are the end points toward which activities are aimed. Objectives are verifiable if it is possible at the end of the period, to determine whether they have been accomplished. Objectives form a hierarchy, starting from corporate missions or purposes going down to individual goals. Managers can best determine the number of objectives they should realistically set for themselves and how much they can delegate. In any case managers should know the relative importance of each of their goals.

Management by Objectives (MBO) has been widely used for performance appraisal and employee motivation, but its really a system of managing. Among its benefits, MBO results in better managing, often forces managers to clarify the structure of their organizations, encourages people to commit themselves to their goals, and helps develop effective controls.

Some of its weaknesses are that managers sometimes fail to explain the philosophy of MBO (which emphasizes self-control and self-direction) to subordinates or give them guidelines for their goal setting. In addition, goals themselves are difficult to be set, tend to be short-term, and may become inflexible despite changes in the environment. People, in their search for verifiability, may overemphasize quantifiable goals.

Essential of Planning and Management by objectives

Definition of Planning:
Planning is deciding best alternative among others to perform different managerial functions in order to achieve predetermined goals. There are many definitions for the term planning, each person has his/her own ideas concerning the meaning of the term Planning. Definition of Among the most common definitions for this term are: According to Koontz O Donnel Planning is deciding in advance what to do, how to do it, when to do it and who is to do it. Planning bridges the gap from where we are to where we want to go. It makes it possible for things to occur which would not otherwise happen. According to Urwick, Planning is a mental predisposition to do things in orderly way, to think before acting and to act in the light of facts rather than guesses. According to Ricky W. Griffin, Planning means setting an organizations goals and deciding how best to achieve them.

Overview of Planning:

ACTIVITY COVERED
Corporate Planning: Corporate planning is a systematic approach to clarifying corporate objectives, strategic decision making and checking progress toward objectives. A corporate plan is a set of instructions to managers of an organization describing what role each department is expected to fulfill in the achievement of organization's objectives. It is the process of drawing up detailed action plans to achieve an organization's goals and objectives, taking into account the resources of the organization and the environment within which it operates. Corporate planning represents a formal, structured approach to achieving objectives and to implementing the corporate strategy of an organization. Success of the Plan depends how best the resources (strength Essential of Planning and Management by objectives

3 and weakness) of the organization and the environment (opportunity and threats) have been critically analyzed. In addition, modification in action plans prepared based on feedbacks are the key for success.

Functional Planning: Functional planning refers to medium term planning carried out by middle management and at times with assistance of top management as well. Functional planning is undertaken by various departments (functions) in the organization to determine their respective objectives, derived from the long-term goals and objectives, as well as for putting in place strategies and action plans. Functional planning may also be of a long term nature where the business organization is subjected to an uncertain and highly volatile business environment. Functional planning also refers to the process of managing the work and tasks within a given department of a larger business. This work includes tasks with a specific project and general planning to improve the work environment in a department. Functional planning includes identifying employees' strengths in the department, identifying the department's output and objectives and making a plan that assesses the work process.

PERIOD
Long-Term Planning Long-term plans are those that take anywhere from five years and up to complete. . This type of planning is strategic in nature. At the time of business launch, long-term plans can appear unrealistic, so many business owners go back and adjust long-term plans to suit the direction of the company. Long-term plan examples include getting shareholders in the business, expanding the company to several states or internationally and having a net worth triple that of liabilities. All loans and liabilities can also be paid off as part of the long-term plans, especially if the loans are largeIn an organization, higher management levels focus on longer time horizons. Long term planning is also defined as an exercise that is aimed at formulating a long term plan to meet future needs. The estimation of future needs is done through extrapolation of current needs and cost of living. Long term planning goes on concurrently with short term planning as for long term financial goals; one cannot forgo short term financial goals. Another important feature of long term planning is that it involves breaking the goal into smaller, achievable goals. Short-Term Planning The process of setting smaller, intermediate milestones to achieve within closer time frames when moving toward an important overall goal. Many business operators will engage in short term planning that typically covers time frames of less than one year in order to assist their company in moving gradually toward its longer term goals. Short-term planning addresses goals that can be obtained within a short period of time. Short-term usually refers to anything that can be done within a week, such as getting a website up for the company, to a year, like expanding the customer base by 50 percent. Other short-term plans include selling a certain amount of products each day, publishing a newsletter on a monthly basis and hiring new employees for marketing.

APPROACH
Proactive Proactive planning is the concept of planning AHEAD of the actual event, to be prepared for it (whatever it is). By being proactive organizations avoid being over-run by the event, and have plans and procedures in place to cope with it (whatever it is). Emergency organizations, like police and EMS have plans for Essential of Planning and Management by objectives

4 future events like riots, floods or earthquakes, you should, too. In business, it is always good to be prepared. Proactive planning is the opposite of reactive, which is waiting for failure. Proactive is the changing of parts before they fail. As an example, on a scheduled down day, major components are checked for wear. Depending on the process, this can be very time consuming, but the efficiency and the reliability of the process is greatly increased. Although not a foolproof solution, failures can still occur but instead of major components failing with a greater or longer downtime to repair the problem, smaller parts may fail but can be replaced much quicker. Some parts cannot be checked for they are what is called 'black boxes', which will operate for so long before they fail, and because they are less expensive you wait for them to fail and then react to the failure. Another example of proactive planning: lighting studies done for lighting efficiency for larger factories or buildings which suggest replacing lamps at eighty percent spent or used before they expire. Reactive Reactive planning is the process whereby future action is dictated as a response to whatever has already, or is now, occurring--- it is "reflex" or "knee-jerk" in nature. The opposite side of the coin is proactive planning, which sets in motion actions as a function of what is anticipated or probable; it is preemptive in nature. It is a different approach to the problem of planning under uncertainty is taken in the reactive planning paradigm. In this approach, no specific sequence of actions is planned in advance. Just as for contingency planning, the planner is given a set of initial conditions and a goal. However, instead of producing a plan with branches, it produces a set of condition-action rules: for example, universal plans [Schoppers 1987] or Situated Control Rules (SCRs) [Drummond 1989]. In theory, a reactive planning system can handle exogenous events as well as uncertain effects and unknown initial conditions: it is possible to provide a reaction rule for every possible situation that may be encountered, whether or not the circumstances that would lead to it can be envisaged. In contrast, a contingency planner such as Cassandra cannot handle exogenous events as it cannot predict them. Cassandra and other contingency planners focus their planning effort on circumstances that are predicted to be possible (or likely, in the case of a probabilistic contingency planner such as C-BURIDAN). It would be possible to represent Cassandra's contingency plans as sets of condition-action rules, by using the causal links and preconditions to specify the conditions in which each action should be performed. However, more reasoning is required at execution time to use reaction rules than is required to execute a contingency plan. Instead of simply executing the next step in the plan, reasoning only at branch points, the use of reaction rules requires the evaluation of conditions on every cycle in order to select the relevant rule.

FORMULATION
Formal Formal strategic planning calls for an explicit process for determining the firm's long-range objectives, procedures for generating and evaluating alternative strategies, and a system for monitoring the results of the plan when implemented. Basically, this type of plan is adopted by large companies. One of the expected benefits of formal planning is that it will avoid sub-optimization. It should lead to greater success in light of all of the organization's objectives. Thus, an examination should be made of the impact of planning upon each of the stakeholders. Informal Informal planning, very little, if anything, is written down. What is to be accomplished is in the head of one or few people. Furthermore, the organization's objectives are rarely verbalized. This is very common Essential of Planning and Management by objectives

5 in small business, but informal planning also exists in some large organization. Informal planning takes place when a manager plans institutively without any structure or rigid framework.

IMPORTANCE
Strategic Planning A strategic planning is an outline of steps designed with the goals of the entire organization as a whole in mind, rather than with the goals of specific divisions or departments. Strategic planning begins with an organization's mission. Strategic plans look ahead over the next two, three, five, or even more years to move the organization from where it currently is to where it wants to be. Requiring multilevel involvement, these plans demand harmony among all levels of management within the organization. Top-level management develops the directional objectives for the entire organization, while lower levels of management develop compatible objectives and plans to achieve them. Top management's strategic plan for the entire organization becomes the framework and sets dimensions for the lower level planning. Operational planning An operational plan is one that a manager uses to accomplish his or her job responsibilities. Supervisors, team leaders, and facilitators develop operational plans to support tactical plans. Operational plans can be a single-use plan or an ongoing plan. Operational Plan is the part of organizations completed Strategic Plan. It defines how Managers will operate in practice to implement their action and monitoring plans what organizations capacity needs are how they will engage resources, how they will deal with risks, and how managers will ensure sustainability of the projects achievements. An Operational Plan does not normally exist as one single standalone plan; rather the key components are integrated with the other parts of the overall Strategic Plan.

Close relationship of Planning and Controlling

Planning involves selecting mission and objectives and deciding on the actions amongst all alternatives. Plans thus strongly implies managerial innovation. It bridge the gap from where we are to where we want to go. It also important to point out that panning and controlling are control without plans is meaningless, Essential of Planning and Management by objectives

6 since there is no way for people to tell whether or not they are going where they want to go ( the result of the tasks of control) unless they first know where they want to go ( part of the task of planning) plans thus furnish the standards of control.

Planning Precedes All Other Managerial Functions

Planning is the primary management function, the one that precedes and is the basis for the organizing, influencing, staffing, leading and controlling functions of managers. This can be shown in Figure

Although all the functions intermesh in practice as a system of action planning is unique in that it establishes the objectives necessary for all group effort. Besides, plans must be made to accomplish these objectives before the manager knows what kind of organization relationships and personal qualifications are needed, along which course subordinates are to be directed and led, and what kind of control is to be applied. And, of course, all the other managerial functions must be planned if they are to be effective.

Features of Planning
1) Planning is futuristic: Planning is based on forecasting i.e on anticipating and predicting future condition. It involves thinking and looking ahead and the process is aimed at determining the future course of action so as to achieve the best result for the results for the enterprise. For example, for a successful production programme pertaining to a particular product , it is very essential to find out its estimated demand or consumption trends in future. Planning involves this activity. Planning is preparation for future. 2) Planning is goal oriented: Every enterprise is set up with some purpose or objectives in view to guide its progress. The process of planning seeks to establish some specific objectives or goals to guide the efforts of the enterprise and each of its components. Effective management is always management by objectives (MBO). Planning thus involves setting up of goals for the enterprise as a whole and for all levels of management. Establishment or predetermination of goals is essential for an orderly and progressive growth of an enterprise and to avoide unnecessary wastage of resources, both men and material. 3) Planning is the basic of all other functions: Planning is not only a primary function of management, it is also a pre-condition or pre-requirement for other functions of management. Other functions such as organizing, Staffing, Directing and Controlling cannot be effective and successful without proper planning in their respective activities. Essential of Planning and Management by objectives

7 4) Planning involves selection of most suitable course of action: in order to achieve a specific objective or a set of objective, there may be a number of alternatives. But all the alternatives may not be equally suitable or some of them may not be even teasible. Planning involves choosing among the alternatives that course of action that may be the most advantages that achieving the enterprise goals. Planning thus involves choice. A manager while planning has to evaluate and examine various course of action to achieve the result and choose out of action to achieve the result and choose out of them the most appropriate one. 5) Planning is pervasive: Planning is a function of managers at all levels of enterprise. In fact all levels of management have to determine the course of action to be followed and have to plan to achieve the specific goals. However the role of planning may be different at different levels of management, no manager can function effectively without proper planning meaning thereby is all pervading. 6) Planning is continuous: Planning is not a one time affair. Even anticipated condition are likely to change according to the prevailing situation and circumstances at a particular time. It would require continues re-evaluation and review of plans of action and even their modification, if need be. Again planning may be short term, medium term or for a long term. One plan is to be followed by another plan. Thus it is a continuous process. The task is never completely finished. 7) Planning is flexible: Planning is flexible in the sense that it may need modification depending upon the change in the situation or it depends. After all, planning is based on forecasting and prediction of future condition which are dynamic and subject to change, so there may always be need for adjustments to be made the plans. 8) Planning is participatory: Planning or decision making is not the act of an isolated individual. Different persons may contribute to the formulation and final selections of a major plan contribute to the formulation and final selection of a major plan of action. Sometimes even subordinate manger who have better and more intimate knowledge of operating than those at higher levels of knowledge of operating conditions than those at higher levels of management can contribute o lot towards finalization of the major plan. Extensive participation in planning opens up the opportunities for those at lower level to give their best to achieve the goals set up for them.

Importance of Planning
Planning is a vital tool for manager as it is the basis of coordinate action to achieve the organizational goals. Planning is the primary and basic function of management and precedes all other functions of management viz Organizing, Staffing, Directing and Controlling. This primary and pervasiveness of planning makes it a function of vital importance. Management cannot achieve desired results without a proper and sound plan. Planning makes management effective and fruitful in the following ways 1) Planning helps to reducing future risk and uncertainties: The process of planning involves anticipating future conditions and changes. Future conditions are uncertain. Planning is based on forecasting i.e. on well through anticipation and pragmatic thinking. Planning devises a particular course of action to achieve the organizational objectives. In case of changes in the conditions an alternate plan of action is also planned. Thus planning helps the management to meet all eventualities. Proper and sound planning reduces the risks and uncertainty of the future. 2) Planning sets up objectives of management: An enterprise can not be successful unless it achieves the desired results or objectives for which it has been set up. It is planning that establishes the specific objectives or goals for the enterprise and its components and devices a plan of action those objectives. Successful and effective management is Management by Objectives. Planning makes the objectives clear and specific and gives a plan of action to guide the efforts of the thus facilitating management by objectives. 3) Planning increases management effectiveness and efficiency: By setting specific objectives for the enterprise and its departments and the most appropriate course of action to achieve these objectives, planning guides the efforts in a systematic way ensuring optimum utilization of resources both men and material available with the enterprise and make various operations more effective and efficient. Essential of Planning and Management by objectives

8 4) Planning minimizes costs: Proper planning makes activities and operations purposeful and orderly. All efforts are directed to achieve the most desirable results at minimum cost. Planning seeks to get best advantage out of the facilities eliminating all wasteful and unnecessary activities. Planning is economic in the sense that it helps in savings time, effort and costs. 5) Planning helps coordination: Planning involves drawing out plans of action for divisions, departments and groups which guide their activities towards common organizational goals, fostering cooperation and unity of purpose among them. Planning helps in harmonizing and coordinating the efforts of all the groups and departments of the enterprise. In fact planning is the base of coordination which is so essential for achieving the desired goals. 6) Planning facilities control: Planning establishes and identifies specific goals to be achieved. These goals or target serve as standards of performance to be accomplished. Any performance falling short of the planned goals needs to be corrected. If the actual performance or results of the efforts deviate from the planned or desired results, then necessary corrective steps must be taken so that the performance conforms to the planned one. Planning provide a basic for control and helps in achieving planned targets. 7) Planning promotes creativity and innovation: Planning involves determination of most appropriate plan of action to achieve enterprise goals. It necessitates creative steps must thinking, a sound judgment, a bent of mind to achieve higher results based on new ideas on the part of individual managers. Planning provides opportunities for innovation and creative thinking. He must seek new products, new methods, new outlets initiatives for better results. 8) Planning makes activities systematic, orderly and meaningful: A sound plan with well define objectives and course of action serves as a motivating force and makes every effort by the employees purposeful, contributing towards the organizational goals. Planning eliminates haphazard or adhoc decisions. Planning ensures order in the enterprise and endows it with a systematic and rational approach that contributes to higher growth and purposeful. Thus planning is essential for successful functioning of an enterprise and paves he way to its growth and prosperity by giving right direction to its efforts, by ensuring utilization of resources to the best advantage, by fostering cooperation amongst varies groups and providing opportunity for coordinated action towards a common goal and above, all by making management effective, efficient and purposeful.

Types of Plans
Plan can be classified as (1) Missions or Purposes, (2) Objectives or Goals, (3) Strategies, (4) Policies (5) Procedures (6) Rules (7) Programs and (8) Budgets.

Essential of Planning and Management by objectives

9 Mission or Purpose The mission or purpose identifies the basic purpose or function or tasks of an enterprise or agency or any part of it. Every kind of meaningful organized operation has or at least should have, a mission or purpose. In every social system, enterprise has a basic function or task assigned to them by society. For example the purpose of a business generally is the production and distribution of goods and service. The purpose of a university is teaching, research, and providing services to the community. Objectives or Goals Objectives or goals are the ends toward which activity is aimed. They represent not only the end point of planning but also the end toward which organizing, staffing leading and controlling are aimed. Stratrgies The determination of the basic long-term objectives of an enterprise and the adoption of course of action and allocation of resources necessary to achieve these goals. For example, the military used the word strategies to mean mead if what it was believed an adversary might or might not do. Policies Policies also are plans, they are generally statements or understanding that guide or channelize thinking indecision making. Not all policies are statement they are often merely implied from the action of managers. For example, the president of a company may strictly follow-perhaps for convenience rather than be interpreted as policy and carefully followed by subordinates. Procedures Procedures are plan that establish require method of future activities. They are chronological sequences of required actions. They are guides to action, rather than to thinking, and details the exact manner in which certain actives must be accomplished. Three steps for its appraisal process a) Setting performance objectives, b) performing a mid-year review of the process c) conducting a performance discussion at the end of period A few examples illustrate the relationship between procedures and policies. Company policy may grant employees vacations; procedures established to implement this policy will provide for scheduling vacations to avoid disruption of work, setting rates of vacation pay and method for calculating them maintain records to ensure each employee of a vacation and spelling out the means for applying for leave. Rules Rules spell out specific required actions or nonactions, allowing no discretion. They are usually the simplest type of plan. No smoking is a rule that allow no deviation from a stated course of action. The essence of a rule is that it reflects a managerial decision that certain action must or must not be taken. Rules are different from policies ; policies are meant to guide decision making by marking off areas in which managers can use their discretion, while rules allow no discretion in their application. Programs Programs are a complex of goals, polices, procedures, rules task assignments, steps to be taken, resources to be employed and other elements necessary to carry out a given course of action; they are cordially supported by budgets. Budgets Budgets is a statements of expected results expressed in numerical terms. It may be called a quantified plan. In fact the financial operating budget is often called profit plan. A budget may be expressed in financial terms; in terms of labor- hours, units of product or machine-hours; or in any other numerically measureable terms. Making a budget is clearly planning. The budget is the fundamental planning instruments in many companies. The budget is necessary, for control, but it cannot serve as a sensible standard of control unless it reflects plans. Essential of Planning and Management by objectives

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STEPS IN PLANNING

1) Being aware of Opportunities: This precedes actual planning, and is therefore not a part of actual planning. It includes carrying out a SWOT analysis of the firm. All managers should take a preliminary look at possible future opportunities and see them clearly and completely, know where the company stands in the light of its strengths and weaknesses, understand what problems it has to solve and why, and know what it can expect to gain. 2) Setting objectives and goals: Where we want to be and what we want to accomplish and when. This step is to establish objectives for the entire enterprise and then for each subordinate work unit. Essential of Planning and Management by objectives

11 This is done for long term as well as short term. 3) Considering planning premises: The principle of planning premises is the more thoroughly individuals charged with planning understand and agree to utilize consistent planning premises, the more coordinated enterprise planning will be. In what environment internal and external will our plans operate? 4) Identifying alternatives : What are the most promising alternatives in accomplishing our objectives? A manager usually draws upon research, experimentation, and experience to identify and develop a number of possible courses of action. 5) Comparing alternatives in light of goals sought: When alternatives will give us the best chance of meeting our goals at the lowest cost and highest profit. In this step managers evaluate the alternatives by weighing them in light of premises and goals. In fact, at this step in the planning process that operations research and mathematical as well as computing techniques can be primarily applied. 6) Choosing an alternatives: Selecting the course of action we will pursue. A plan is adopted at this point and is , therefore, the real point of decision making. Managers may decide to follow several courses instead of one best course. 7) Formulating supporting plans: Such as plan to Buy equipment - Buy materials - Hire and train workers - Develop new workers - Develop a new product. Managers would need a new supportive plan for training employees to use the equipment and need another new supportive plan for maintaining the new equipment. 8) Quantifying plans by making bufgects: Develop such budgets as; volume and price of sales, operating expense necessary for plans expenditures for capital equipment. The overall budgets of an enterprise represent the sum total of income and expenses with resultant profit or surplus and budgets of major balance sheet items such as cash and capital expenditures.

Essential of Planning and Management by objectives

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Objectives
An end that can be reasonably achieved within an expected timeframe and with available resources. In general, an objective is broader in scope than a goal, and may consist of several individual goals. Objectives are a basic tools that underlying all planning and strategic activities. They serve as the basis for policy and performance appraisals. An objective is verifiable when at the end of the period one can determine whether or not it has been achieved. The goal of every manager is to create a surplus (in business organizations, this means profit). Clear and verifiable objectives facilitate measurement of the surplus as well as the effectiveness and efficiency of managerial actions.

The Nature of Objectives

Authorities differ as to the exact nature of objectives for business enterprises. Perhaps the better approach is to consider first what the objective of our economic system is. This is, broadly, to provide goods and services to customers. Industrial and commercial concerns, which comprise the greater part of the economic system, must therefore have the same objective. The objective of a limited company clearly states that the objective is to manufacture a commodity or provide a service. Nationalized industries have the predominant objective of providing an efficient and economical service to customers.

General and specific objectives

Objectives can be general or specific and may range in time from months to years; they may apply to the whole company or to units or persons. General objectives are determined by the board of directors who approve other objectives. It is preferable for objectives to be specific and expressed in quantitative terms. The first question to be answered is: what is the nature of the present business? This may change, but it must be understood in order for adaptation to changing customer needs to be possible. For example, a firm selling typewriters and accounting machines can expand with technology and move on to computers. If it decides it is in the information processing business, rather than the office machine business, then expansion will be easier. Specific objectives usually have time limits, e.g. to open a new spare-parts section in six months time; or it could be to diversify in certain fields in order to avoid relying on the fortunes of a single market or industry. It can be mentioned here that the big problem in such a venture is whether staff on the right caliber are available effectively to operate these newer types of business. The ideal is for a company to formulate specific objectives and develop policies, within the framework of general objectives, which together result in coordinated and controlled decision making. Careful planning of objectives helps management to give members a sense of direction and purpose. This is essential to achieve effective results. To be able to survive, a firm must earn sufficient profits to sell services or products, of a certain quality, at a competitive price. Peter Drucker stresses that survival depends upon the ability to cover the costs of staying in business. These costs include providing for replacement and obsolescence as well as market risk and uncertainly. But it is rare to see survival stated as an objective. Drucker considers objectives are important in every area where performance and results directly affect the survival and prosperity of a business. These key areas must be carefully selected and he distinguishes them by considering. Essential of Planning and Management by objectives

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There are eight specific areas in which objectives have to be set, in terms of performance and results. These are: market share; innovation; productivity; physical and financial resources; profitability; manager performance and development; worker performance and attitude, and public responsibility. It should be noted that the eight key results areas are relevant for public sector and non-profit ventures, even though they were directed at profit orientated enterprise. Whatever areas are deemed important, it is preferable that any standards desired should be capable of being expressed in quantitative terms (e.g. number of items to be produced monthly). It is also important to note that if the organization structure is not well designed, managers will find it difficult to achieve high performance.

Advantages of business objectives

They embody basic ideas and theories concerning what the enterprise is trying to accomplish; They provide a basis for directing and guiding the enterprise and provide targets which enable efforts to be observed and aided; They help to motive people and they provide a sense of unity to the various groups in the organization, as an individuals units contribution can be seen to be integrated with total enterprise goals.

Hierarchy of Objectives
As below figure shows, objectives form a hierarchy, ranging from the broad aim to specific individual objectives. The zenith of the hierarchy is the purpose or mission, which has two dimensions. First, there is the social purpose, such as contributing to the welfare of people by providing goods and services at a reasonable price. Second, there is the mission or purpose of the business, which might be to furnish convenient, low-cost transportation for the average person. The stated mission might to be produce, market, and service automobiles. As you will notice, the distinction between purpose and mission is a fine one, and, therefore, many writers and practitioners do not differentiate between the two terms. At any rate, these aims are in turn translated into general objectives and strategies, such as designing, producing, and marketing reliable, low-cost, fuel-efficient automobiles.

Figure: Relationship of objectives and the organizational hierarchy The next level of the hierarchy contains more specific objectives, such as those in the key result areas. These are the areas in which performance is essential for the success of the enterprise. Essential of Planning and Management by objectives

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Although there is no complete agreement on what the key result areas of a business should be and they may differ between enterprises Peter F. Drucker suggests the following: market standing, innovation, productivity, physical and financial resources, profitability, manager performance and development, worker performance and attitude, and public responsibility. More recently, however, two other key result areas have become of strategic importance: service and quality. Examples of objectives for key result areas are the following to obtain a 10 percent return on investment by the end of calendar year 2005 (profitability); to increase the number of units of product X produced by 7 percent by June 30, 2005 without raising costs or reducing the current quality level (productivity). The objectives have to be further translated into those of divisions, departments, and units down to the lowest level of the organization.

Setting Objectives and the Organizational Hierarchy

The above figure shows managers at different levels in the organizational hierarchy are concerned with different kinds of objectives. The Board of directors and top-level managers are very much involved in determining the purpose, the mission, and the overall objectives of the firm, as well as the more specific overall objectives in the key result areas. Middle-level managers, such as the vice president or manager of marketing or the production manager, are involved in the setting of key-result-area objectives, division objectives, and departmental objectives. The primary concern of the lower-level managers is setting the objectives of departments and units as well as of their subordinates. Although individual objectives, consisting of performance and development goals, are shown at the bottom of the hierarchy, managers at higher levels also should set objectives for their own performance and development. There are different views about whether an organization should use the top-down or the bottom-up approach in setting objectives, as indicated by the below figure. In the top-down approach upper-level managers determine the objectives for subordinates, while in the bottom-up approach subordinates initiate the setting of objectives for their positions and present them to their superior. Proponents of the top-down approach suggest that the total organization needs direction through corporate objectives provided by the chief executive officer (in conjunction with the board of directors). Proponents of the bottom-up approach, on the other hand, argue that top management needs to have information from lower levels in the form of objectives. In addition, subordinates are likely to be highly motivated by, and committed to, goals that they initiate. Personal experience has shown that the bottom-up approach is under-utilized, but that either approach alone is insufficient.

Figure: Top-Down and Bottom-Up Approach in Setting Objectives

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Guidelines for Setting Objectives:

MBO SYSTEMS VARY widely, ranging from comprehensive managerial programs to individual performance appraisals. Common to all MBO efforts, however, is the setting of objectives for individual managers-one of the most troublesome aspects of any management-by-objectives plan. Setting objectives appears simple-at first glance. Yet, as any manager knows, what is simple in theory can be difficult in practice. And in the case of MBO, it's important that objectives be verifiable-that is, at the end of the time period specified for attainment, it must be possible to measure whether or not the objectives have been achieved. An effective MBO program has many of the following characteristics: Managers at all organizational levels set objectives. Supervisors and subordinates agree what should be accomplished at a specific time; these statements then become the individual managers' objectives. In the case of complex, important objectives, action plans are developed that identify the activities, and organizational efforts necessary to achieve the objectives. These plans are implemented by providing an environment in which individuals, working together in groups, are motivated and committed to achievement of the objectives. Performance-individual and organizational-and results are measured against previously set objectives. Objectives are set again for the future, and the process is repeated. Some managers argue that these characteristics of the MBO approach are nothing more than good management. Yet, few managers or companies use this approach systematically and vigorously. Setting individual objectives Once goals for the enterprise and the organizational unit have been clarified, the tedious task of setting objectives for individuals begins. Consider these steps: 1. One can start by asking "Why does my job exist?" The answer to this question leads to a statement of the job's purpose. (Companies that compile job descriptions will find them useful here.) 2. The next step is to identify individual key-result areas (IKRAs) or key tasks (both terms can be used). It's not unusual to learn that these may cover only 20 percent of the job but account for 80 percent of the results. 3. The relative importance of the IKRAs must be determined. Similarly, key tasks must be prioritized. 4. To set realistic objectives, internal and external environments must be forecast. For example, will the GNP increase five percent or will the economy move toward recession? This forecast, then, becomes the premise underlying certain key objectives and plans. 5. Objectives must be set for individual key-result areas or key tasks. These objectives may be categorized as regular performance objectives, improvement or creative objectives, and professional development objectives. How the achievements are to be measured should also be stated. 6. Action plans for achieving complex and critical objectives must be developed. This may result in modification of previously set objectives. 7. Objectives also have to be integrated vertically and horizontally so that they are congruent with the aims of other managers. This may require meetings and negotiations with superiors, subordinates, and peers on the same or similar organizational level. 8. Because all plans are made in light of uncertainties, contingency plans must be prepared. Specifically, plans may be developed on assumptions different from, say, the one cited in item four above. Essential of Planning and Management by objectives

16 9. Unless performance is reviewed in a timely manner, the program will fail. First, a comprehensive formal review should be conducted, usually once or twice annually. Second, progress reviews (periodic and intermittent) should be scheduled from time to time to ensure progress toward the objective and to identify problems that may inhibit performance. Third, informal monitoring is needed to ensure prompt attention to deviations from plans. If any do occur, the supervisor and subordinate should take action immediately, without waiting for the next comprehensive or progress review. The MBO process is not completed with the performance review. Building on the benefits of past experience, the participants repeat the entire process, beginning with a brief review of the job and key tasks. New objectives are set, and a new countdown-steps one through nine-is initiated. One manager's objectives There is no universal format for stating objectives. Most companies develop their own forms, ranging from a simple statement of objectives to a complex form calling for many details. The form detailed in Figure 1 will fit most positions, though in this instance it has been set up to illustrate how objectives can be set for a branch manager of a construction firm. Note how the individual KRAs, or key tasks (Column 1), have been categorized and ranked (Column 2). The relative importance can also be indicated by an A-B-C ranking or by assignment of percentage weights. The statements of objectives (Column 3) may be too cryptic or otherwise unclear in some instances -for example "To obtain six new profitable industrial contracts by 5/1 in the amount of . . ." could have spelled out exactly what profits were expected. In this instance, the manager presumably had other objectives listed elsewhere that specified the "profitability" of the operations and were acceptable as guidelines. In any event, take care.

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17 Develop an action plan Objectives, especially comprehensive ones, often require a supportive plan for their achievement. An action plan should provide the following-or similar data: Functions, tasks, and activities necessary to achieve end-results. How these functions of individuals and groups are to be integrated, vertically and horizontally, in the organizational hierarchy. Key tasks and activities for individual positions. Role, authority, and responsibility for individual positions. Time schedule for major activities, integrated into a time network. Human, financial, and other resources required to carry out activities. Review of action plans to see if they are congruent with objectives.

Clearly, action plans can become complex, and they may be necessary only if objectives involve many activities. The appraisal-by-objective form illustrated here may not fit all organizations or positions; yet it can be applied effectively in most instances. The comments at the bottom of each column suggest the direction of additional evaluative checks that may be necessary to ensure proper analysis and evaluation of results, and establishment of effective standards. For example, an evaluation of the adequacy of control information is suggested to ensure effective measurement of performance; short, frequent reviews are Essential of Planning and Management by objectives

18 urged to assure progress toward objectives; improvement and development plans are urged to promote additional progress following completion of the action period covered in the current form. Guidelines for goal-setting Setting objectives appears deceptively simple. But when one actually sits down to write them, many difficulties are usually encountered. Goals are too often stated in generalities, with little operational usefulness. Objectives such as "to improve communication" or "to maximize profit" are platitudes with little value for the operating manager. The checklist (Figure 2) provides guidelines that spotlight commonly encountered difficulties. (The numbered paragraphs below correspond to the checklist questions.) 1. Objectives should cover the job's main features. Key tasks can usually be derived from the job description, though not all tasks can, or should, be translated into objectives. In most situations, however, a few key activities account for a majority of results. Thus it's important to focus on the few crucial activities that generate results. 2. The number of objectives should be manageable; often MBO neophytes list 20 or 30 objectives, not realizing how difficult it is to keep track of so many goals. Some management experts believe that a manager cannot pursue more than two to five objectives effectively-too many objectives detract from the really important goals. We have learned, however, that a manager can combine minor goals and state them as one major objective. At any rate, the exact number of objectives depends on the position of the MBO participant, his or her specific tasks, and the degree to which a manager can assign tasks to subordinates. 3. Perhaps the most difficult and crucial-aspect of setting objectives is stating them in verifiable terms so that at the end of a period, the manager and supervisor can determine whether or not objectives have been achieved or to what degree they have been accomplished. Terms such as "maximize," "minimize," "as soon as possible," "adequate" indicate non-verifiability. An economist can discuss, with authority, theories regarding "profit maximization." A CEO or board of directors wants to know, however, not that a manager has "maximized" his unit's profit, but that he/she has attained the 15 percent (or whatever) gain that was set as a goal at the last planning session. Some managers distinguish between quantitative and qualitative objectives. A quantitative objective would be to produce 100 widgets per month at a certain cost. An example of a qualitative objective would be to "install a computerized control system in the production department by December 31 at a cost not to exceed $100,000." The latter objective shows how an activity can be translated into a verifiable objective. Do not to distinguish between quantitative and qualitative objectives because it can be difficult to do. Moreover, many objectives are stated not only in terms of quantity but also in terms of quality-by which we mean the property or characteristic of the output or result. Thus we talk here about the quality of output, not of qualitative objectives, which are mostly activities stated in the form of verifiable objectives. 4. Verifiable objectives should state quantity, quality, time, and cost. At the minimum, they should indicate the quantity in answer to the "how much" question and state the time by which the results are to be achieved. Quality may be important when, for example, the life and welfare of people depend on the product or service. On the other hand, a return-on-investment objective of 12 percent by the year-end may not require an explicit statement about quality. In summary, then, the quality of a product, service, or result should be stated when it is crucial and feasible. More of something is not necessarily better. We may not want to increase the quantity of the objective, but desire to achieve the same result at a lower cost. The cost aspect of objectives is crucial at a time when we are concerned about productivity which, in a simplified form, can be stated as output Essential of Planning and Management by objectives

19 divided by input, or P = 0/1 This means we may (1) increase output with the same input, (2) decrease input and obtain the same level of output, or (3) change both input and output in a way that produces a more favorable ratio. 5. Objectives should be challenging, yet reasonable, and require some effort for their achievement. The belief that unrealistically high objectives will motivate subordinates is erroneous. Nonachievable objectives are often de-motivating to many people. 6. Priorities should be assigned to objectives on the basis of their relative importance. 7. Objectives should not relate only to current operations. Indeed, the greatest benefits of MBO may be gained by focusing on improvement and creative objectives designed to change and improve traditional ways of doing things. Moreover, objectives should also include personal and professional development accomplishments. 8. Objectives must be coordinated with other managers and organizational units, since few positions are independent of others and an organization is an interdependent system in terms of activities and goals. 9. Objectives, to be operational, should be communicated to all who need to know. For example, an objective to increase sales certainly requires communication with production. Aim for long-term success 10. Short-term objectives should be consistent with long-range aims. In the past, most MBO programs emphasized short-term results, which were at times achieved at the expense of the enterprise's long-term health. Japan's high level of productivity may, in part, be attributable to the managerial system that favors decisions benefiting the company in the long run. 11. Assumptions underlying major objectives should be clearly stated. Because the future cannot be predicted accurately, however, the wise manager will make contingency plans based on different sets of assumptions. 12. Objectives should be expressed clearly in writing, stating them in terms of quantity, time, and, if feasible, quality and costs. Some managers have their objectives clearly in mind; however, most benefit by recording them. This not only helps to clarify objectives but also creates a document that can be distributed to concerned individuals. 13. Opportunities for timely feedback should be provided. Prompt feedback facilitates actions to correct deviations from plans before they become major problems. 14. The setting of objectives should be accompanied by examination of resources and authority needed to achieve them. A manager should have access to appropriate financial, human, and physical resources and the authority commensurate with his or her responsibility. 15. In general, objectives should be set by the managers who will carry out the activities to achieve their results. MBO emphasizes, whenever appropriate, participation in setting goals, since participation elicits commitment to aims. On the other hand, goals imposed by superiors on subordinates are often resisted. Experience has shown that, in the proper organizational environment, objectives set by individuals themselves are higher than those set by their superiors. 16. Individuals should have control over those job requirements for which they are held accountable. Few things cause more frustration than being held responsible for tasks beyond the individual's control. Yet, most positions in modern organizations are interdependent with activities in other organizational units. The ideal situation of equality of authority, responsibility, and accountability Essential of Planning and Management by objectives

20 can seldom be obtained. Consequently, the network of aims may have to include group goals, which may in turn require team building, involving managers whose tasks are highly interdependent. 17. Care must be taken to select the right objectives and to avoid those that may produce dysfunctional behavior. Objectives must focus on goals that encourage managerial behavior that benefits the organization. Pursuit of wrong objectives wastes resources and is counterproductive. For example: "To reduce the number of warranty claims by 10 percent by December 31" appears to be, a good objective. But if sales increase by 50 percent in the same period, reducing warranty claims as stated may be impossible. Another caution: objectives frequently cause undesirable behavior that may be detrimental in the long run. Taking the above example, the objective of reducing warranty claims could motivate field engineers to reject customer complaints outright, rather than handle them objectively. The resulting loss of customer goodwill would be detrimental. Objectives for staff positions A frequently heard complaint is that MBO may be difficult to apply to staff positions. There are some differences between line and staff applications, but it can be used. Some managers find it difficult to set verifiable objectives for staff positions because staff activities may focus on development of programs. However, MBO can be applied by stating objectives in terms of activities. For example: The objective of a systems analyst may be "To install a computerized control system in the warranty department by March 31, involving 300 work hours and a downtime system not to exceed five percent during the first two months of operation." This objective states what has to be done, when it will be done, the costs in terms of work hours (the labor cost in dollars also could be stated), and quality in terms of downtime. The accountability of staff is always an issue. One could argue that the systems engineer cannot be held solely responsible for the downtime because it also is the operator's responsibility to keep the computer in working order. Some would say that responsibilities should be further specified for the systems designer and the operator. But one could also argue that staff should be made responsible for results, and line and staff must jointly share responsibility and credit for achieving objectives. Whatever position is taken, dual responsibility cannot be completely avoided in organizations with interlocking tasks. Most managers depend on the contribution of others. Similarly, managers also contribute to other organizational units.

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Evolving Concepts in Management by Objectives (MBO)

Management by objectives (MBO), first popularized by Peter ducker in his book The Practice of Management in 1954 . Management by objectives is now practice around the world. But it is not always clear what is the actual meaning of MBO. Some think that it is an appraisal tool; other thinks it is a motivational technique; other considers MBO is a planning and control device. According to George Odiome, MBO is "a process whereby superior and subordinate managers of an Organisation jointly define its common goals, define each individual's major areas of responsibility in terms Of results expected of him and use these measures as guides for operating the unit and assessing the contribution of each of its members." But according to Heinz Weihrich and Harold koontz we can define Management by objectives as a comprehensive managerial system integrates many key managerial activities in a systematic manner. directed toward the effective and efficient achievement of organizational and individual objectives. Simply, we can say Management by Objectives is A method whereby managers and employees define objectives for every department, project and person and use them to monitor subsequent performance. Or It is a program that encompasses specific goals, anticipatively set, for an explicit time period, with feedback on goal progress. A comprehensive management system based on measurable anticipatively set objectives that leverages the motivational power of objectives.

Goals of Management By Objectives (MBO)

MBO is based on goal setting. The goal(s) should: Be mutually agreed upon: Objectives should be discussed by superior and subordinate and should result mutually understood and accepted objectives. By discussing the objectives and thereby reaching an agreement, that subordinate would feel involved and more committed. Be difficult, but achievable (realistic): The goal or objectives can be tough or difficult but it must be achievable, it is means realistic. We cannot set imaginable or unrealistic objectives. Have a defined time frame: Objectives should specify a deadline for results to be accomplished. If the Objective intends to improve the state of affairs in the organization, it should have a specific target date identified. Be measurable (objective and budgeted): Objectives should be specific and quantitative. Only if they are measurable and verifiable, it is possible to assess how much progress has been made. This is extremely difficult for managers to accomplish as they are often confused as to how to identify specific criteria in areas which are subjective, if the objectives as qualitative, then it should be explained as to why the objective has been chosen, what will be its end result and how one will know whether the objective has been achieved or not. Provide means for feedback: An objective should specify a single key result area to measure a particular objectives effectively each subordinate a manager must know specifically what is to be achieved. Therefore, the focus should be on a single key result areas in each performance objectives.

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SMART Objectives:
In an MBO program, good goals are SMART goals. To set smart goals for the effective and efficient achievement of organizational and individual objectives we have to maintain five important steps. These are: 1. Specific describe a specific outcome what we expect. 2. Measurable linked to a rate, number, percentage or frequency. 3. Achievable with a reasonable amount of effort, we can actually be achieved. 4. Relevant the people involved have the necessary knowledge, authority and skill . 5. Timebased Include clearly defined finish and/or start dates.

EXAMPLES:
For General Staff
Scholarships Objective
Increase the number of scholarships available to Business & Law students by introducing 3 new scholarships for students to apply in 2012. Each scholarship awarded will be a minimum $3,000 per scholarship.

Breakdown of Objective
Specific - says what the staff member will do (increase the number of scholarships offered to Business & Law students)

Measurable - states how many scholarships to be introduced (3) and how much is to be awarded ($3,000 per scholarship)
Achievable - staff member has the necessary contacts and resources from previous years, other faculties and relevant policies to refer to Relevant - links with the faculty's goal to increase student attraction and retention numbers Timely - indicates that new scholarships must be ready for students to apply by 2012.

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FIVE-STEP PROCESS FOR MBO

Peter Drucker outlined the five-step process for MBO shown in figure, below. Each stage has particular challenges that need to be addressed for the whole system to work effectively.

These steps are explained below: 1. Set or Review Organizational Objectives MBO starts with clearly defined strategic organizational objectives. If the organization isn't clear where it's going, no one working there will be either. 2. Cascading Objectives Down to Employees To support the mission, the organization needs to set clear goals and objectives, which then need to cascade down from one organizational level to the next until they reach the everyone. To make MBO goal and objective setting more effective, Drucker used the SMART acronym to set goals that were attainable and to which people felt accountable. He said that goals and objectives must be: 1. Specific they describe a specific outcome 2. Measurable they are linked to a rate, number, percentage or frequency 3. Achievable with a reasonable amount of effort, they can actually be achieved 4. Relevant the people involved have the necessary knowledge, authority and Skill 5. Timebased they include clearly defined finish and/or start dates. The "A" in SMART is "achievable." This is sometimes referred to as "agreed" but, with MBO, agreement about the goals is a critical element: It's not enough for the goals and objectives to be set at the top and then handed down. They must flow, or trickle, down through various stages of agreement. The only goal that is going to be met is one that is agreed on. How much easier is to get buy in when the person responsible for achieving the goal had a hand in developing it? For each objective, organization needs to establish clear targets and performance standards. It's by using these that Managers can monitor progress throughout the organization. These are also important for communicating results, and for evaluating the suitability of the goals that have been set. 3. Encourage Participation in Goal Setting Everyone needs to understand how their personal goals fit with the objectives of the organization. This is best done when goals and objectives at each level are shared and discussed, so that everyone understands Essential of Planning and Management by objectives

24 "why" things are being done, and then sets their own goals to align with these. This increases people's ownership of their objectives. Rather than blindly following orders, managers, supervisors, and employees in an MBO system know what needs to be done and thus don't need to be ordered around. By pushing decision-making and responsibility down through the organization, you motivate people to solve the problems they face intelligently and give them the information they need to adapt flexibly to changing circumstances. Through a participative process, every person in the organization will set his or her own goals, which support the overall objectives of the team, which support the objectives of the department, which support the objectives of the business unit, and which support the objectives of the organization. In an MBO system, employees are more self-directed than boss-directed. If one expects this type of independent performance from employees, he/she have to give them the tools they need. Once one have established what it is that someone is accountable for, he/she must provide the information and resources needed to achieve results. He/she must also create a mechanism for monitoring progress towards the goals agreed. 4. Monitor Progress Because the goals and objectives are SMART, they are measurable. They don't measure themselves though, so managers have to create a monitoring system that signals when things are off track. This monitoring system has to be timely enough so that issues can be dealt with before they threaten goal achievement. With the cascade effect, no goal is set in isolation, so not meeting targets in one area will affect targets everywhere. On the other hand, it is essential that managers ensure that the goals are not driving adverse behavior because they have not been designed correctly. For instance, a call centre goal of finishing all calls within seven minutes might be useful in encouraging the staff to handle each call briskly, and not spend unnecessary time chatting. However, it might be that customers' calls were becoming more complex, perhaps because of a faulty new product, and call centre operators were terminating the call after 6 minutes 59 seconds in order to meet their target, leaving customers to call back, frustrated. In this situation, the monitoring process should pick up the shift in the goal environment and change the goal appropriately. Set up a specific plan for monitoring goal performance (once a year, combined with a performance review is not sufficient!) Badly-implemented MBO tends to stress the goal setting without the goal monitoring. Here is where managers take control of performance and demand accountability. 5. Evaluate and Reward Performance MBO is designed to improve performance at all levels of the organization. To ensure this happens, managers need to put a comprehensive evaluation system in place. As goals have been defined in a specific, measurable and time-based way, the evaluation aspect of MBO is relatively straightforward. Employees are evaluated on their performance with respect to goal achievement (allowing appropriately for changes in the environment.) All that is left to do is to tie goal achievement to reward, and perhaps compensation, and provide the appropriate feedback. Employees should be given feedback on their own goals as well as the organization's goals. Managers have to make sure that they remember the participative principle: When you present organization-wide results you have another opportunity to link individual groups' performances to corporate performance. Ultimately this is what MBO is all about and why, when done right, it can spur organization-wide performance and productivity. When managers reward goal achievers he/she send a clear message to everyone that goal attainment is valued and that the MBO process is not just an exercise but an essential aspect of performance appraisal. The importance of fair and accurate assessment of performance highlights why setting measurable goals and clear performance indicators are essential to the MBO system. Repeat the Cycle Having gone through this five-stage process, the cycle begins again, with a review of the strategic, corporate goals in the light of performance and environmental monitoring. Essential of Planning and Management by objectives

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SYSTEM APPROACH TO MANAGEMENT BY OBJECTIVES

The Oxford English Dictionary defines a system as "a set or assemblage of things connected, or interdependent, so as to form a complex unity; a whole composed of parts in orderly arrangement according to some scheme or plan." At first, this may seem obscure or insignificant to a manager. But the importance of interdependence becomes evident when this abstract definition is related to organizational reality. For example, a manager wants to make a relatively minor change, such as starting the work day one hour earlier. The effects on the organization can be dramatic and can result in organizational unrest. Why? It is not only because employees resist change, but the people in the organizational system are interdependent with other systems such as the school system (the employee may not be able to take his children to school), and the transportation system (there may be no public transportation so early in the morning). It is therefore important to recognize the interdependency of systems and the fact that a change in one system causes changes in other systems.

The managerial system within the organization is also complex and interdependent, and changes in plans often require organizational adjustments. Consequently, to be effective, MBO must be viewed as a managerial system that integrates the key managerial activities of planning, organizing, staffing, directing, and controlling. The model shown in Figure 1 will serve as a framework for the discussion that follows. The key concepts of the model are discussed further, and noted in italics.

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Relating the Organization to its Environment

The organization does not exist in a vacuum; rather it receives its inputs (human, capital, managerial, technological, and others -see Figure 1) from its external environment. There are also various people who claim a vital interest in the company. Unfortunately, the goal inputs of employees, consumers, suppliers, and stockholders, to name a few, are often not congruent with one another. The employees' demand for wage increases may, in fact, be opposed to the stockholders' aim of optimizing return on their investment. It should also be noted that in the suggested MBO model in Figure 1, the organization maintains close contact with the external environment through the sensing or information handling system, which identifies external opportunities and constraints for the company.

The MBO Transformation Process

MBO is a process involving the transformation of inputs in an effective and efficient manner to produce outputs. Although the steps involved in MBO may vary somewhat for the individual company, the following list provides a logical framework for a focus on the MBO transformation process. Strategic Planning and the Hierarchy of Objectives: Strategic planning and the hierarchy of objectives are closely interwoven and are consequently discussed together (see Figure 1). Strategic Planning is concerned with overall concepts of the operation. It involves determining major objectives of the company as well as how to acquire and dispose of the resources necessary to achieve the objectives. In strategic planning, therefore, opportunities and external constraints are analyzed and matched with the internal strengths and limitations of the organization. In turn, this analysis is the basis of determining the hierarchy of objectives, especially the higher-level objectives shown in Figure 2. The fundamental purpose, the mission, the overall objectives as well as the more specific overall objectives are, to a large extent, determined by top management, with, of course, input from lower level managers. These objectives are then further broken down into divisional, departmental, unit, and individual objectives. The process of setting objectives, however, is not a one-way street. Communication and planning efforts must go in both directions (down and up) as indicated in Figure 2.

Figure 2: Hierarchy of Objectives This focus on the relationship of the organization to its environment has shown that inputs become very important for developing the strategic plan and the hierarchy of objectives. Now the thrust of the discussion is on the traditional and more specific aspects of: setting objectives, planning for action, implementing MBO, and control and appraisal (Figure 1). Setting Objectives: Objectives are set jointly by the superior and subordinate. In MBO, the emphasis is on verifiable objectives. That is, at the end of a period it can be determined if an objective has been achieved. Therefore, objectives should be stated, as clearly as possible, in terms of (a) quantity, (b) quality (c) time, Essential of Planning and Management by objectives

27 and (d) cost. Objectives, then, should be measurable: i.e., contribute to objectives of the next higher organizational unit; focus on results rather than on activities; indicate performance and personal development; be challenging, yet reasonable; emphasize results, but not to the neglect of other important aspects of a job that cannot be quantified. It can be seen that it is not easy to set objectives that meet all, or even most, of these criteria. Yet, this effort is necessary to make MBO effective. Planning for Action: Action planning determines what functions, tasks, and activities must be carried out to accomplish the objectives; how to achieve the objectives most effectively and efficiently; when the tasks and activities must be done; and who will do them. Action planning is therefore concerned with identifying and grouping activities; coordinating, vertically and horizontally, the efforts of groups and individuals; defining roles, authority, and responsibilities for each individual; scheduling the activities; and determining the need for human, financial, and other resources required to achieve the objectives. Since action planning is a complex, time-consuming process, it should be used with discretion. Therefore, it is often reserved for planning of the actions for the more complex or critical objectives. Implementation of MBO: Objectives and action plans give direction for organizational efforts. Both, however, must be implemented. To be effective, a number of conditions must be met. First, top managers must not simply give lip service to MBO; they must be involved in the process. Second, the organizational climate must be conducive to MBO philosophy. Third, objectives do not exist in isolation; they are interdependent. Therefore, coordination and a team approach must be used where appropriate. Fourth, objectives are based on premises that may change. Consequently, objectives must be reviewed from time to time, and MBO must be flexible enough to adapt to unforeseen changes in the environment. Fifth, MBO must be understood by management. Sixth, in most organizations, the implementation of MBO requires changes in the organization as well as changes in managing. Success in the implementation does not happen by chance; it must be planned. Control and Appraisal: Control refers to the measurement of organizational performance, whereas appraisal, or more appropriately self-appraisal, emphasizes the evaluation of individual performance. Simply stated, control involves the measurement and, if necessary, the correction of performance. Verifiable objectives become the standards against which performance is measured. Based on an analysis of performance and deviations, positive steps can be taken to correct deviations and to prevent them from occurring in the future. It is important to re-emphasize that the appraisal orientation is based on the MBO philosophy, which has several important characteristics. First, it focuses on performance, not on personality. Second, self-control rather than control by the boss is the underlying theme. Third, responsibility for evaluation and development rests primarily with the subordinate, not the superior. Fourth, appraisal is an opportunity to learn from the past, but to focus on the future. Therefore, during the appraisal meeting, a great amount of time is spent to set new objectives. Fifth, emphasis is shifted from the appraisal of the subordinate to a shared, rational analysis of performance by the superior and the subordinate. In short, MBO appraisal is not a faultfinding session that both the superior and subordinate dislike. Instead, the meeting is positive, constructive, and oriented toward the future. Subsystems: Several managerial subsystems can be integrated with the MBO process, depending on the specific needs of the organization. However, there are two that are frequently an integral part of MBO: one pertains to manpower planning, and the other to compensation. It is during goal setting and action planning that manpower needs are identified. The consequent analysis of available manpower and the forecast of future needs often reveal a gap that must be filled either by training and developing managers from within the organization, or by recruiting people from outside the organization. Whatever approach is used, MBO can be the basis for manpower planning. Essential of Planning and Management by objectives

28 The compensation program, another MBO subsystem, is often linked to the appraisal against verifiable objectives. Although there should be a basic congruency between the performance and compensation levels, there are some questions about how directly MBO should be linked to compensation. It requires great skill to develop a compensation system that is perceived as fair and does not result in unintended managerial decisions in which self-interest may interfere with the welfare of the organization. Organizational and Management Development Organizational development (OD) is concerned with the total organization. It involves systematic, planned, long-range efforts to make the organization more effective by improving human and social processes within the organizational culture. Some of the specific approaches of OD include problem solving, work team development, collaboration, and organizational renewal. Although OD emphasizes the macro aspects of the organization, the individual is not ignored. In fact, individual developmental aspirations are identified and integrated with management development; managerial needs are translated into personal development objectives and action plans. To restate, OD and management development are integral parts of the various phases of MBO; they are the dynamic aspects that make MBO effective.

Benefits and Weaknesses of Management by Objectives

Although goal-oriented management is now one of the most widely practiced managerial approaches, its effectiveness is sometimes questioned. Faulty implementation is often blamed, but another reason is that MBO may be applied as a mechanistic technique focusing on selected aspects of the managerial process without integrating them into a system. Benefits of Management by Objectives There is considerable evidence, much of it from laboratory studies, that shows the motivational aspects of clear goals. But there are other benefits, such as the followings: Improvement of managing through results-oriented planning. Clarification of organizational roles and structures as well as delegation of authority according to the results expected from the people occupying the roles. Encouragement of commitment to personal and organizational goals. Development of effective controls that measure results and lead to corrective actions. It can improve performance at all levels. It emphasizes getting results. It motivates employees to do better. Top management commitment and involvement. Weaknesses of Management by Objectives Despite all its advantages, an MBO system has a number of weaknesses. Most are due to shortcomings in applying the MBO process. It can take too much time and energy MBO requires considerable training of managers It wont work in rigid, authoritarian organizations Specific objectives can distract from strategic goals MBO can be misused by zealous or punitive managers Not as effective in dynamic environments that require constant resetting of goals Overemphasis on individual accomplishment may create problems with teamwork Allowing the MBO program to become an annual paperwork shuffle.

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Conclusion
Planning involves selecting the missions and objectives as well as the actions to achieve them. It requires decision making, which means choosing a future course of action from among alternatives. Planning and controlling are closely interrelated. There are many types of plans, such as missions or purposes, objectives or goals, strategies, policies, procedures, rules, programs, and budgets. Once an opportunity is recognized, a manager plans rationally by establishing objectives, making assumptions (premises) about the present and future environment, finding and evaluating alternative courses of action, and choosing a course to follow. Next, the manager must make supporting plans and devise a budget. These activities must be carried out with attention to the total environment. Short-range plans must, of course, be coordinated with long-range plans. Objectives are the end points toward which activities are aimed. Objectives are verifiable if it is possible at the end of the period, to determine whether they have been accomplished. Objectives form a hierarchy, starting from corporate missions or purposes going down to individual goals. Managers can best determine the number of objectives they should realistically set for themselves by analyzing the nature of the job and how much they can do themselves and how much they can delegate. In any case, managers should know the relative importance of each of their goals. Management by objective (MBO) has been widely used for performance appraisal and employee motivation, but it is really a system of managing. Among its benefits, MBO results in better managing, often forces managers to clarify the structure of their organizations, encourages people to commit themselves to their goals, and helps develop effective control.

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Reference
Books: 1. Management (8th edition) by Ricky W. Griffin 2. Management (A Global and Entrepreneurial Perspective) 13th edition by Heinz Weihrich; Mark V. Cannice; Harold Koontz. Articles: 1. General and specific objectives by Mr. Martin Hahn PhD Websites: 1. 2. 3. 4. 5. 6. 7. 8. 9. http://www.scribd.com http://www.hrtutorials.com http://www.ideatodays.com/business http://wiki.answers.com http://www.ehow.com http://www.cliffsnotes.com www.ontla.on.ca/library http://www.differencebetween.com http://www.businessdictionary.com

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