Essentials of Planning and

Management by Objectives
(MBO)

Chapter 3

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 Essentials of Planning (Class 5)
Contents
• Planning and its Importance
• Advantages of Planning
• Types of Plans
• Formal Planning Process
• Level of Planning and Planning in the
Hierarchy of Organizations
• Types of Plans According to Their Use
• Criticisms of Planning
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Planning:
• Precede the execution of all other managerial functions.

• Involves selecting missions & objectives and the actions

to achieve them.

• Requires decision making i.e., choosing among

alternative future courses of action

• Bridges the gap from where we are to where we want to

go.

• Requires that we consciously determine courses of

action and base our decisions on purpose, knowledge
and considered estimates.
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 Why Planning Is Important
– Participation: all managers are
involved in setting future goals.
– Sense of direction and purpose:
planning sets goals and strategies for all
managers.
– Coordination: plans provide all parts of
the org with understanding about how
their systems fit with the whole.
– Control: Plans specify who is incharge
of accomplishing a goal. 4
 ADVANTAGES OF PLANNING:
• Reduces uncertainty and Risk
• Focuses attention on Objectives and Results
• Improves efficiency.
• Provides basis for controlling
• Improves coordination
• Provides sense of direction
• A useful way of participation of all managers in
decision making
• Encourages innovation and creativity.
• Planning can reduce the impact of change.
• It minimize waste and redundancy . 5
 Types of Plans
Plans
Documents/Statements that outline how goals are to be
accomplished
Describe how resources are to be allocated and establish
activity schedules

1. Mission or Purpose
• It is the basic function or fundamental reasons for
existence.

Mission Statement:
It is a broad statement of basic, unique purpose and scope
of operations that distinguish the organization from other of
its type.

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2. Goals or Objectives:
• These terms are interchangeably used. These are
future Targets or End results that an organization
wishes to achieve.
• Simply a desired outcome

3. Strategy:
• It is a long term plan for interacting with the
environment in order to achieve long term goals,
adoption of courses of action and allocation of
resources necessary to achieve them.

4. Policies:
• Policies are plans and statements that guide or
channel thinking in decision making.
• Policies define an area within which a decision is to be
made and ensure that the decision will be consistent
with, and contribute to an objective. 7
5. Procedures:
• Procedures are plans that guides for actions in a detailed
and exact manner. These are prescribed series of related
steps to be taken under certain recurring circumstances
6. Rules:
• These are statements that spell out specific actions to be
taken or not taken in a given situation. Rules allow no
discretion and they reflect managerial decisions.
7. Programs:
• A comprehensive plan that coordinates a complex set of
goals, policies, procedures, rules task assignments, step
to be taken, resources to be mobilize and other elements
necessary to carry out a given course of action
8. Budgets:
• A budget is a statement of expected results expressed in
numerical terms. It may be called a Quantified plan or
Financial plan.

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 Formal Planning Steps
Information collection ,opportunities seeking, Study past & future
Situational analysis/
conditions& forecast future, Internal recourses, org strengths &
Aware of Opportunities
weaknesses, External Environment

Setting Objectives Or Goals What we want to be, what we want to accomplish and when?

What are the most promising alternatives to accomplishing

Identifying Alternative the objectives?

Evaluate the advantages, disadvantages, and potential effects

Evaluation of the Alternatives of each alternative goal and plan, prioritize those goals consider
the implications of alternative plans

Best option is finally selected on the basis of evaluation

Selection of Goals and Plan of various options (appropriate and feasible)

Implement properly, managers must understand the plan,

Implementation Have the necessary resources, and be motivated to implement it

Monitor and control Monitor the actual performance in relation to the goals and plans,
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develop control systems to take corrective action
 Level of Planning
• Strategic Planning
– decisions of senior executives about the organization’s
long-term goals and strategies
– Apply to the entire organization
– Establish the organization’s overall goals.
– Seek to position the organization in terms of its
environment.
– strategic goals/Objectives - major targets that relate
to the long-term survival, value, and growth of the
organization
– strategy - pattern of actions and resource allocations
designed to achieve the goals of the organization
• matches the skills and resources of the organization to
the opportunities found in the external environment 10
 Level of Planning
• Tactical planning
– translates broad strategic goals and plans into
specific goals and plans that are relevant to a definite
portion of the organization
– focuses on the major actions that a unit/department
must take to fulfill its part of the strategic plan
• Operational Planning
– identifies the specific procedures and processes
required at lower levels of the organization
– Cover short time period and focus on routine tasks

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Planning in the Hierarchy of Organizations

Tactical Planning

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 Types of Plans (cont’d)
• Long-Term Plans
– Plans with time frames extending beyond three
years
• Short-Term Plans
– Plans with time frames on one year or less
• Specific Plans
– Plans that are clearly defined and leave no room
for interpretation
• Directional Plans
– Flexible plans that set out general guidelines,
provide focus, yet allow discretion in
implementation.
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Specific Versus Directional Plans

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 Types of Plans (cont’d)
• Single-Use Plan
– A one-time plan specifically designed to meet
the need of a unique situation.
• Standing Plans
– Ongoing plans that provide guidance for
activities performed repeatedly.

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 Criticisms of Planning
• Planning may create rigidity.
• Plans cannot be developed for dynamic
environments
• Formal plans cannot replace intuition and
creativity.
• Planning focuses managers’ attention on
today’s competition not tomorrow’s survival.
• Formal planning reinforces today’s success,
which may lead to tomorrow’s failure .
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Management by MBO (Class 6)
• Contents
• Goal or Objectives
• Characteristics of Goals/Objectives
• Steps in Goal Setting
• Approaches to Establishing Goals
– Traditional Objective Setting
– Management By Objectives (MBO)
• Steps in MBO processes
• Strength And Weaknesses Of MBO
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 Goals/Objective

• These are future Targets or End

results that an organization wishes to
achieve.
• Simply a desired outcome

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 Characteristics of Goals/Objectives
• SMART
• S.  Specific and clearly understandable
• M.  Measurable and quantifiable
• A.  Attainable/Achievable and
challenging
• R.  Realistic and relevant to the
purpose of the organization.
• T.  Time limited (defined period of
completion)
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Objective:
Increase the number of scholarships available to Business
& Law students by introducing 3 new scholarships for
students to apply in 2008. 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 2008.
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 Steps in Goal Setting
1. Review the organization’s mission statement.
1. Do goals reflect the mission?
2. Evaluate available resources.
1. Are resources sufficient to accomplish the
mission?
3. Determine goals individually or with others.
1. Are goals specific, measurable, and timely?
4. Write down the goals and communicate all the
employees.
1. Is everybody on the same page?
5. Review results and whether goals are being met.
1. What changes are needed in mission, resources, or
goals?
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 Approaches to Establishing Goals
• Traditional Goal Setting
– Broad goals are set at the top of the
organization.
– Goals are then broken into sub goals for each
organizational level.
– Assumes that top management knows best
because they can see the “big picture.”
– Goals are intended to direct, guide, and
constrain from above.
– Goals lose clarity and focus as lower-level managers
attempt to interpret and define the goals for their areas
of responsibility
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Traditional Objective Setting

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 Approaches to Establishing Goals (cont’d)
• Management By Objectives (MBO)
MBO is a process through which specific goals are
set collaboratively for the organization as a whole
and every unit and individual within it. The goals are
then used as a basis for planning, managing
activities and assessing performance and rewarding
contributions.
• Key elements of MBO:
• Goal specificity, participative decision
making, an explicit Time period and
performance feedback
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 Cascading of Objectives

Overall
organizational
objectives

Divisional
objectives

Departmental
objectives

Individual
objectives

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 Steps in MBO processes
1. Develop Overall Organizational Goals
These goals are essentially strategic goals set by
the top management.
2. Establish Specific goals for Various Divisions,
Departments, Sections and Individuals
These goals are usually developed in collaboration
with the managers at the next Lower levels.
3. Formulate Action Plan
Once the goals are set, action plans must be
developed that focus on the methods or activities
necessary to achieve them.
Describes What is to be done, How, When, where,
and By whom to achieve a goal.
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 Steps in MBO processes
4. Implement and Maintain Self control
After developing action plans, individuals are
given considerable latitude in carrying out
these activities.
5. Review Progress Periodically
Regular reviews provide a good opportunity for
checking performance to date, identifying and
removing obstacles and updating action plans.
6. Appraise Performance
The appraisal session includes achievement of
targets, reasons for short falls, actions for
rectification and prevention. It also includes
praise, rewards and recognition for good
performance
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STRENGTH AND WEAKNESSES OF MBO
• Strengths or Benefits:
– Fosters employs motivation
– Facilitates vertical and Horizontal
communication
– Helps clarify priorities and expectations
– Development of effective controls that
measure results and lead to corrective
actions
– Encouragement of commitment to
personal and organizational goals 29
STRENGTH AND WEAKNESSES OF MBO

• Weaknesses or Disadvantages:
– Needs considerable training of
managers
– Can be misused as a punitive
device
– Lack of flexibility in changing goals
due to environmental changes

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