PRINCIPLES AND PRACTICE OF

MANAGEMENT

UNIT – II

PLANNING
 UNIT-II
PLANNING
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“Planning is deciding in advance what to do, how to do, when to do it and who is to
do it.” — Koontz and O’Donnell
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INTRODUCTION
Planning is the most basic managerial function and is all-encompassing in nature. All
other functions of management are largely dependent on the effectiveness of planning.
Managerial planning helps an organization to decide where it wants to be in the future
and how to get there. Decision making pervades all managerial functions of the
organization. However, there are usually differences in the nature, scope and pattern
of decisions made at different levels of management. Decision-making skill or
decisiveness is critical for every manager as it determines their success in the job.
Most managerial decisions are irreversible in nature and can also impact the future
fortunes of the whole organization.

CONCEPT
Planning involves deciding the future course of action in advance. A manager has to
plan what is to be done, where, how, and by whom. Planning helps the manager to
understand in advance the future activities that need to be performed to achieve the
desired results for the organization as a whole and also for each department. Effective
planning requires not only assessing the future, but also making adequate provision
to face the future. From this perspective, planning is a rational approach to the future.
Managers are, therefore, required to plan and initiate necessary actions for successful
implementation of their plans.
“Planning is the design of desired future and of effective ways of bringing it
about.” — Russell L. Ackoff

“Planning is deciding in advance what to do, how to do, when to do it and who is
to do it.” — Koontz and O’Donnell
“Planning is the act of determining the organization’s goals and the means for
achieving them.” — Richard L. Daft and Dorothy Marcic

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OBJECTIVES OF PLANNING
Planning facilitates Managers and Administrators of any business or industrial unit to
make progress as per the needs of the desired objectives. Below given are some of
the objectives of planning.
1. To forecast the future state: The most important objective of planning is
forecasting. During the planning process itself, organizations forecast the future
and discover suitable alternative courses of action. Depending on the quality of
prediction (making use of scientific forecasting tools), managers can have a
relatively realistic idea of the future and chalk out suitable programmes of
action.
2. To focus attention on objective & results: Planning helps the manager to
focus attention on the organization’s goals and activities. This makes it easier
to apply and coordinate the resources of the organization more economically.

3. To reduce uncertainty and change: By providing a more rational, fact-based

procedure for making decisions, planning allows managers and organizations
to minimize risk and uncertainty. In a dynamic society such as ours, in which
social and economic conditions alter rapidly, planning helps the manager to
cope with and prepare for the changing environment.

4. To provide sense of direction: Planning involves deciding the objectives,

drafting the plans and programmes, defining the policies for optimum utilization
of the human and material resources. All these provides a direction to achieve
the objectives in any organization.
5. To bring economy in managerial operations: Planning is done considering
the factors of economy and efficiency in operations. It also facilitates the
managers to decide how and when they allocate the physical, financial and
human resources.
6. To help in coordination: Goals and objectives formulated as a part of plan
provide a sense of direction to the whole organization. Goals and objectives
ensure that there is a unity of purpose, commonality of actions and proper
coordination among all the members and their activities.
7. To win over the competitors: Planning assists and develops the organization
to face competitions of all sorts and in all aspects. The strategic planning helps
the organization to formulate and implement plans that can provide a
competitive advantage over its rivals.

TYPES OF PLANNING
Planning is applicable to all levels of management as plans can serve different
purposes for different managers. An organizational plan can take different forms
depending on its scope, time frame, degree of detail and frequency of use involved.

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A. Classifications Based on the Scope and Degree of Details

Based on the scope and details, planning can be classified into three categories. They
are: strategic planning, tactical planning and operational planning
Strategic planning — Usually, strategic plans are formulated by the top authorities
of organizations comprising the board of directors and top management. These
plans pertain to the organization as a whole rather than to any specific department,
division or individual. Strategic plans focus primarily on an organization’s
environment, resources and mission. These plans are normally comprehensive in
scope, relatively general and typically implemented over a long period of time.
Strategic plans outline the broad goals for the whole organization and
also state its mission (purpose of existence). It is a blueprint that drives an
organization’s efforts towards goal accomplishment.
Tactical planning — Tactical plans are the detailed plans designed to implement the
strategic goals and plans formulated by the top management. Tactical plans are
derived from strategic plans. These plans normally offer details of
how an organization will compete within its chosen area. Middle managers
have the main responsibility of formulating and implementing tactical planning.
Tactical plans can be defined as an organized sequence of steps designed to execute
strategic plans. Tactical plans normally have a shorter time frame than strategic plans.
Plans that focus on the functional areas of an organization like marketing,
manufacturing, financing and human resource are a few forms of tactical plans.
Operational planning — Operational plans aim at converting the strategic plans
into reality through specific, focused and short-term plans. It also aims at supporting
the execution of tactical plans. Operational plans are usually derived from tactical
plans. These plans are formulated by department managers, supervisors, team
leaders and other low-level managers for carrying out the strategic and tactical plans
through day-to-day activities. These plans are typically viewed as a part of the
implementation phase of strategic plans. Purchase plans, advertising
plans, financial plans, facilities plan and recruitment plans are a few typical examples.
B. Classifications Based on Time Horizon
Plans are normally classified into short-term plans, intermediate plans and long-term
plans depending on the time period. Let us now see these plans in detail.
Short-term plans — These plans are formulated when the organizations want to
accomplish their goals within a short span of time. The short-term plan period may not
usually exceed a year. These plans normally become tools for management of day to
day activities in departments, divisions, units, etc. Short-term plans are the steps that
lead to the fulfilment of long-term objectives.
Intermediate-term plans — Intermediate plans define the organizational activities
that are essential for the execution of long-term plans and goals. When the
environment becomes uncertain and long-term plans are unsustainable, organizations

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tend to focus on intermediate planning as an alternative for goal accomplishment.
Normally, long-term and intermediate-term plans are suitable for corporate and
business level goals while intermediate- and short-term plans are fit for functional
goals and strategies. These plans normally cover a time horizon of one to two years.
Long-term plans—Long-term plans are prepared when organizations require long
periods of time to reach their goals. Strategic plans are usually the long-term plans
of the organization. A long-term plan can provide a “big picture” of an organization
and also indicate its future direction. Top management is normally involved in the
formulation of long-term plans. Political, economic, legal and industrial conditions
typically shape the long-term plans of a firm. These plans may cover a time period of
two to five years or more.
C. Classifications Based on Frequency of Use

Plans can also be classified into single-use plans and standing plans depending on
the number of times these plans are used in the organization. Let us see them now.
Single-use plans — These plans are generally prepared for one-time use. The aim
of these plans is to meet the needs of a particular situation. They are developed to
achieve non-routine and unique goals of an organization. The course of action
developed as a part of these plans is less likely to be repeated in future and in the
same form. Plans formulated by the management for completing acquisition or merger
processes are examples of single-use plans. The important forms of single-use plans
are: (i) programmes, (ii) projects and (iii) budget.
(i) Programmes — Programmes are single-use plans that are prepared to
handle specific situations. They are helpful when a large set of activities are
to be carried out on a target-oriented and time-bound basis. Each programme
is normally a special and one-time activity for meeting a non-routine nature of
goals. Programmes are expected to remain in existence only till the
achievement of specific goals. Introduction of new products, entry into new
markets, opening new facilities, restructuring of business, etc.
(ii) Projects — Projects are another form of single-use plans but they are usually
less complex in nature. Projects usually have shorter time horizon than
programmes. Typically, projects can be a part of programme and also be
independent, self-contained single-use plans. Special training to a group of
employees who might be given special assignments after the planned
business takeover can be a project, while the takeover itself is a programme.
(iii) Budgets — Budgets are another form of single-use plans. They are
expressed in financial terms. A budget refers to the funds allocated to operate
a unit for a fixed period of time.30 Budgets normally cover a specific length of
time, say one year, and serve a specific purpose. In
organizations, budget normally mentions how funds will be sourced and how
such funds will be spent on labour, raw materials, overheads, marketing,
capital goods, automation, etc.

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Standing plans — These plans are used repeatedly because they focus on situations
that recur regularly over a period of time. The primary purpose of standing plans is to
make sure that the internal operations of the organization are performed efficiently.
Standing plans are normally developed once and then modified to suit the changing
business needs. These plans offer guidance for repetitively performed actions of
the organization. Policies, procedures, and rules and regulations are important forms
of standing plans.
(i) Policies — Policies are one form of standing plans that provide broad
guidelines for routinely made decisions of the managers. Organization’s
strategic plans and goals usually form the basis for framing the policies. In
normal circumstances, policies are expected to define the boundaries within
which decisions are to be made by the managers and supervisors. HR
policies like hiring policies, compensation policies and performance
evaluation policies are a few examples of an organization’s policies.
(ii) Procedures — Procedures are the standing plans that define specifically the
steps to be followed for achieving specific goals. Procedures are also known
by terms such as standard operating procedures (SOPs) or methods.
Procedures are usually more specific than policies. Procedures state exactly
what course of action is to be adopted by an employee in a particular
circumstance.
(iii) Rules and regulations — These are the narrowest forms of standing plans.
Rules clearly state what is to be done by an employee in a specific situation.
Regulations in turn regulate the behaviour of the organizational members in
a programmed manner. Rules normally do not leave any scope for exercising
options or decision making by managers. They do not supplement decision
making activities, rather they substitute them. For instance, when employees
are late to the office, it drives the managers to a predetermined course of
action. Similarly, when there is a non-payment by a trade debtor, it instructs
the sales people to follow a standard practice without any deviation.
D. Classifications Based on Specificity
Based on the scope for different interpretations, plans can be classified into specific
plans, directional plans, contingency plans and scenario plans.
(i) Specific plans — Specific plans are well-defined plans that do not allow
different interpretations by different managers. They ensure consistency and
continuity in the decisions of managers. These types of plans are apt for
organizations that enjoy stable external and internal environments. A plan that
aims at cutting the production cost by 3 per cent in one year is an example of a
specific plan.
(ii) Directional plans — Directional plans are general plans that offer a great deal
of flexibility to the managers in goal formulation and execution. They provide a
general direction in which the organization proposes to move forward but there

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 are no specific plans or deadlines. Directional plans are best suited for
uncertain and volatile organizational environments. The distinct feature of these
plans is that they are sufficiently flexible to enable an organization to respond
quickly to the unexpected developments in the environment. These plans
provide focus to the managers without tying them down to any predetermined
and specific course of action. A plan that aims at increasing the corporate profit
between 4 per cent and 6 per cent is an example of a directional plan.

TECHNIQUES OF PLANNING
Two different techniques of planning that are quite popular are: contingency planning
and scenario planning.
Contingency planning — Contingency plans are the specific actions to be taken by
an organization in the case of crisis, setbacks or unforeseen circumstances.
These plans become functional in the event of unexpected happenings with important
consequences for the organization. Organizations operating in vastly uncertain
environments usually develop contingency plans along with strategic, tactical and
operational plans. Contingency planning is a process of identifying what can go wrong
in a situation and getting ready with plans for avoiding, coping or even exploiting
them.
The need for contingency planning arises out of a thorough analysis of the risk
that an organization faces. The risks may arise from internal factors like strikes,
machinery breakdowns, key people’s resignation or hospitalization, accidents, fire or
other disasters. It may also emerge from external factors like new technological
developments, increase in cost of supplies, transport disturbances, sudden changes
in interest rates, economic slowdown, government regulations, terror strikes, etc.
Organizations can have separate contingency plans for internal contingencies and
external contingencies.
Scenario planning — A scenario means a description of scenes. Scenario planning
is basically a modern forecasting technique used in the planning process. It helps in
learning about the future by understanding the nature and impact of the uncertain
forces affecting the external environment of an organization. Scenario planning is an
opportunity to generate a clear and imaginative background for thinking how to act
in the future. In this type of planning, group of managers mentally rehearse different
scenarios based on their expectation of diverse changes that could have an effect on
the organization. In this type of planning, each scenario is seen as a story that has
several possible endings. Group members discuss different endings for each scenario
ranging from the most optimistic to the most pessimistic. They then decide how they
would respond. Scenarios can help in recognizing major changes and likely problems.
They also help managers to improve their knowledge of the organizational
environment.

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STEPS OF PLANNING

Planning is never a one-time activity of a business, rather it is a continuous activity

performed throughout the life of the organization. Planning is a process that involves
several interrelated steps. Even though the steps in the planning process may vary
from one organization to another, certain steps are important for all planning
processes. The following figure illustrates the steps in the planning process.

1. Being aware of the business opportunities: An important part of the planning

process is to be aware of the business opportunities in the firm’s
external environment as well as within the firm. Once such opportunities get
recognized the managers can recognize the actions that need to be taken to
realize them. A realistic look must be taken at the prospect of these new
opportunities and SWOT analysis should be done.
2. Establishing Objectives: This is the second and perhaps the most important
step of the planning process. Here we establish the objectives for the
whole organization and also individual departments. Organizational objectives
provide a general direction, objectives of departments will be more planned and
detailed. They indicate the end result the company wishes to achieve. So,
objectives will percolate down from the managers and will also guide and push
the employees in the correct direction.
3. Planning Premises: Planning is always done keeping the future in mind,
however, the future is always uncertain. So, in the function of
management certain assumptions will have to be made.
These assumptions are the premises. Such assumptions are made in the form
of forecasts, existing plans, past policies, etc. These planning premises are also
of two types – internal and external. External assumptions deal with factors
such as political environment, social environment, the advancement of
technology, competition, government policies, etc. Internal assumptions deal
with policies, availability of resources, quality of management, etc.

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 4. Identifying Alternatives: The fourth step of the planning process is to identify
the alternatives available to the managers. There is no one way to achieve the
objectives of the firm, there is a multitude of choices. All of these alternative
courses should be identified.
5. Evaluation of Alternatives: The next step of the planning process is to
evaluate and closely examine each of the alternative plans. Every option will go
through an examination where all their pros and cons will be weighed. The
alternative plans need to be evaluated in light of the organizational objectives.
For example, if it is a financial plan, its risk-return evaluation will be done.
Detailed calculation and analysis are done to ensure that the plan is capable of
achieving the objectives in the best and most efficient manner possible.
6. Choice of Alternative: Finally, we reach the decision-making stage of the
planning process. Now the best and most feasible plan will be chosen to be
implemented. The ideal plan is the most profitable one with the least amount of
negative consequences and is also adaptable to dynamic situations.
7. Formulating Supporting Plans: Once you have chosen the plan to be
implemented, managers will have to come up with one or more supporting
plans. These secondary plans help with the implementation of the main plan.
For example, plans to hire more people, train personnel, expand the office etc
are supporting plans for the main plan of launching a new product. So, all these
secondary plans are in fact part of the main plan.
8. Establishing Sequence of Activities: After formulating basic and derivative
plans, the sequence of activities is determined so that plans are put into action
efficiently and effectively. Based on plans at various levels, it can be decided
who will do what and at what time so plans can be implemented in the right
way. The finance and account department prepare budgets for the various
period so plans get more concrete meaning for implementation.

MAKING PLANNING EFFECTIVE

Planning must lead to success rather than failure. If for some reasons planning fails,
it may cause crisis and panic, which may be costly and painful for the organization. It
is therefore imperative for managers to carry out continuous improvements in the
planning process to make it effective. We shall now discuss a few requirements that
can make planning an effective exercise.
1. Top management support — The success of any planning process critically
depends on top management’s support, commitment and involvement. The
active and sincere involvement of higher managements in the planning process
usually inspires confidence and collaboration among lower levels of
management.
2. Proper and timely communication — Effective communication plays a pivotal
role in the success of planning process. Without adequate communication

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 within the organization, goals become unclear and plans lack coordination. It
must also ensure the presence of a well-organized system for communication
among different groups involved in planning and execution activities.
3. Adequate availability of resources — Adequate resources must be
committed to the development and implementation of effective plans. In this
regard, managers must make an accurate assessment of plan requirements in
terms of organizational resources and ensure that these resources are utilized
in a timely and effective manner.
4. Constant revision and updating — Specific and sincere feedback about the
efficacy of planning process should be obtained from the plan participants and
other stakeholders of business. Such feedback must form the basis for
reviewing the planning process and also for initiating changes and
improvements, if necessary.
5. Participatory approach — It refers to the wider involvement of employees in
the planning and goal-setting process. In organizations, participatory approach
to planning improves motivation, learning, self-esteem and feeling of ownership
among employees. Participation in planning also makes employees partly
responsible for the success or failure of plan initiatives.
6. Adequate rewards — Plan-linked rewards play a major role in securing the
willing cooperation of organizational members for plan implementation.
Management must ensure the presence of rewards for effective execution of
organizational plans.
7. Sufficient and effective control — Planning and control are highly dependent
on each other for effectiveness. Management must analyse, identify and
eliminate the deficiencies in the existing controlling practices for constantly
monitoring and controlling the planning activities.
8. Positive attitude — Managers with a positive attitude can handle any situation
courageously. Further, positive thinking enables managers to take chances or
risks in their jobs. Further, positive managers tend to view difficulties in the
environment as challenges and tackle them confidently.
9. Climate for creativity — Organizations need to develop a climate that
encourages and rewards people who exhibit creativity, risk-taking attitude and
free-wheeling thoughts in goal setting and planning.
10. Accurate planning premises — Plans may fail due to wrong assumptions
about the expected environmental conditions at the time of plan execution.
Planning assumptions or premises often go wrong due to inept forecasting of
the future. Managers must improve their forecasting skills and techniques to
make more accurate planning assumptions and premises.

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DECISION MAKING
Decision making is the logical response of managers to any problem situation. It
involves the process of evaluation and selection of the best option from the available
options for solving the problem with due regard to the internal and external
environmental constraints. Decision making pervades all managerial functions of the
organization. However, there are usually differences in the nature, scope and pattern
of decisions made at different levels of management.
“Decision making is the process of identifying and selecting a course of action to solve
a specific problem.” — James Stoner
“Decision making is the process of identifying and choosing among alternative courses
of action in a manner appropriate to the demands of the situation.” — Robert Kreitner
We may define managerial decision making as the process of identifying the best
solution to an organizational problem after giving due consideration to all possible
solutions and environmental constraints.

STEPS IN DECISION MAKING

Six steps in the decision making process with diagram are discussed below.

1. Defining and Analysing the real problem: The manager should first find out what
is the real problem. The problem may be due to bad relations between management
and employees, decrease in sales, increase in cost, etc. After finding out the true
problem manager must analyse it carefully. He should find out the cause and effect of
the problem.

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2. Developing Alternative Solutions: After defining and analysing the real problem,
the manager should develop (make) alternative (different) solutions for solving the
problem. Only realistic solutions should be considered. Group participation and
computers should be used for developing alternative solutions.
3. Evaluating the Alternative Solutions: The manager should carefully evaluate the
merits and demerits of each alternative solution. He should compare the cost of each
solution. He should compare the risks involved. He should also compare the feasibility
of each solution. He should find out which solution will be accepted by the employees.
4. Selecting the best Solution: After evaluating all the solutions, the manager should
select the best solution. He should select a solution which is less costly and less risky.
He should select a solution which is most feasible and which is accepted by the
employees. In short, the manager should select a solution which has the most merits
and least demerits. The best solution is called the "Decision".
5. Implementing the Decision: After making the decision, the manager should
implement it. That is, he should put the decision into action. He should communicate
the decision to the employees. He should persuade the employees to accept the
decision. This can be done by involving them in the decision making process. Then
the manager should provide the employees with all the resources, which are required
for implementing the decision. He should also motivate them to implement the
decision.
6. Follow Up: After implementing the decision, the manager must do follow up. That
is, he must get the feedback about the decision. He should find out whether the
decision was effective or not. This is done by comparing the decision with the action,
finding out the deviations (differences) and taking essential steps to remove these
deviations. So, follow-up is just like the control function. It helps to improve the quality
of future decisions.

TYPES OF DECISION MAKING

Decision making may be classified under various categories based on the scope,
importance and the impact. Decisions have been classified by various authorities in
various ways. Some of the types of decision making are:
1. Programmed and Non-Programmed Decisions: Programmed decisions are
repetitive in nature. Such decisions deal with simple, common, frequently
occurring problems that have established procedures. These decisions are
taken based on the existing policy, rule or procedure of the organization. For
example: making purchase orders, sanctioning of different types of leave,
increments in salary, etc. Managers in dealing with such issues of routine
nature, follow the established procedures.
Non-programmed decisions are not routine in nature. They are related to
exceptional situations for which there are no established procedure. For
example- Issues relating to declining market share, increasing competition, etc.
fall in this category. These problems have to be handled in a different way.

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 Many of the decisions that managers at top levels make are non-programmed
decisions.
2. Organizational and Personal Decisions: Decisions taken by managers in the
ordinary course of business in their capacity as managers are organizational
decisions. Organisational decisions are those which a manager takes in his
official capacity. Such decisions can be delegated. For example: decisions
regarding introducing a new incentive system, transferring an employee,
reallocation or redeployment of employees etc. are taken by managers to
achieve certain objectives.
On the other hand, managers do take some decisions which are purely
personal in nature. However, their impact may affect the organization also. For
example: the manager’s decision to quit the organization, though personal in
nature, may create some problems for the organization. But personal decisions,
which relate to the manager as an individual and not as a member of the
organisation, cannot be delegated.
3. Routine and Strategic Decisions: Tactical or routine decisions are made
repetitively following certain established rules, procedures and policies. They
neither require collection of new data nor conferring with people. Thus, they can
be taken without much deliberation. They may be complicated but are always
one-dimensional. They do not require any special effort by the manager. Such
decisions are generally taken by the managers at the middle and lower
management level.
Strategic decisions, on the other hand, are more important and so they are
taken generally by the top management and middle management. The higher
the level of a manager, the more strategic decisions he is required to take. The
strategic decisions relate to policy matters and so require a thorough fact finding
and analysis of the possible alternatives.
4. Policy and Operating Decisions: Policy decisions are of vital importance and
are taken by the top management. They affect the entire enterprise. But
operating decisions are taken by the lower management in order to put into
action the policy decisions. For instance, the bonus issue is a policy matter
which is to be decided by the top management, and calculation of bonus is an
operating decision which is taken at the lower levels to execute the policy
decision.
5. Individual and Group Decisions: If a decision is taken by an individual as a
member of an organisation, it is known as individual decision. On the other hand
when a number of persons collectively take the decisions they are known as
group decisions. Individual decisions are, often, taken in small organisation of
small size owned by a single individual. On the other hand large organisations
like companies, are managed not by an individual but by group of individuals
like board of directors. Naturally strategic decisions are taken by the group.

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 6. Major and Minor Decisions: Major decision relates to the purchase of fixed
assets with more value. The purchase of land and building is an example of
major decision. This decision is taken by the top management. Minor decision
relates to the purchase of current assets with less value. Purchase of pencil,
pen, ink, etc., are some of the examples of minor decision. This decision is
taken by lower level management people.

MANAGEMENT BY OBJECTIVES (MBO)

Management by objectives (MBO) is a popular management technique. This concept
was popularized by the renowned management thinker, Peter F. Drucker, in his book,
Practices of Management, published in the year 1954. MBO is now extensively used
for goal setting, planning and performance evaluation. MBO involves the joint setting
of specific and measurable goals by managers in consultation with the employees and
achieve the objectives of the organization, the department and the individual. They
also subsequently examine the employees’ progress toward those goals. The
uniqueness of MBO is that it enables the subordinates to get involved in the planning
and evaluation process.
“Management by objectives is a process of setting mutually agreed upon goals and
using those goals to evaluate employee performance.” — Stephen P. Robbins
“Management by objectives is a motivation technique in which managers and
employees collaborate in setting goals.” — William M. Pride
Features of MBO
Based on the definitions of MBO, the following features are surmised:
1. MBO is a system or process designed for supervisory managers who directly
deal with employees.
2. It places relatively more emphasis on goal formulation (what should be
accomplished) than goal execution (how it is to be accomplished).
3. In MBO, discussions and agreements are inherent features of the goal setting
and planning process. In traditional planning, goals are passed down from the
managerial levels to lower levels and the employees are directed to accomplish
those goals.
4. Managers and subordinates jointly set specific goals that are to be
accomplished within a specific time frame.
5. Subordinates are held directly responsible for the goal outcomes.
6. Goal progress reviews and revaluation meetings between superiors and
subordinates are essential for MBO.
7. Mutually-agreed objectives act as yardsticks or standards on which the
performance of subordinates is evaluated.

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 8. In MBO, goal accomplishment becomes the sole basis for assessing and
rewarding subordinates.

Steps/Phases in MBO
The philosophy behind MBO is to enable subordinates to have a clear understanding
of their roles and responsibilities in their job. They should also understand how their
activities lead to the accomplishment of the organization’s goals. In a narrow sense,
the MBO philosophy involves joint goal setting with subordinates and its periodic
review by the superior. In a broader sense, MBO involves the following phases.

1. Projecting goals — Subordinates are asked by their superiors to propose their

own preliminary goals for a given period of time, in harmony with the corporate
and department goals.
2. Discussing goals — Superiors and subordinates elaborate on the goals and,
if necessary, modify them before reaching an agreement regarding the specific
goals.
3. Developing yardsticks — Superiors, in consultation with the subordinates,
develop yardsticks for measuring performance to determine how far the
objectives have been met.
4. Executing performance reviews — Superiors review the employees’ actual
and agreed performance periodically to assess the progress and problems in
goal accomplishment.
5. Providing feedback — After assessing the progress, superiors should discuss
with the subordinates the ways and means for improving performance, if
needed.

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Benefits of MBO

MBO, as a modern management technique, brings many benefits to the organizations

practising it. The chief benefit of MBO is that it can increase organizational
effectiveness through optimum utilization of human and physical resources. The other
important benefits are:
 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
 It empowers employees to make decisions and improves their motivation and
job satisfaction.
 It also makes employees feel that they are an important part of their
organization.
 Encouragement of commitment to personal and organizational goals
 It helps maintain harmony in the employer – employee relationship through
periodic reviews and interactions between the managers and employees.
 Development of effective controls that measure results and lead to corrective
actions

Limitations/Drawbacks of MBO

Though MBO is a complete system of planning and control and a complete philosophy
of management, it suffers from a few limitations. They are:
 MBO is a time-consuming process since it involves continuous goal setting,
frequent reviews and constant feedback.
 This method is found to work well for managerial jobs only as goal setting for
employees at non-managerial levels is usually not feasible.
 MBO remains a non-starter unless the process begins at the top managerial
levels of the organization
 Failure to give guidelines to goal setters is often another problem
 Difficulty of setting verifiable goals with the right degree of flexibility
 Emphasis on short-run at the expense of the longer-range health of the
organization
 Managers hesitate to change objectives, even if a changed environment would
require such adjustments.

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