Chapter Two

Managerial Planning
 Chapter Objectives
After completing this chapter, students will be
able to:
• Understand concepts and need for planning
• Explain types of plans
• Know the planning process
• Be acquainted with objectives
• Know the planning techniques
 2.1 Concepts and Needs of Planning

2.1.1 The Meaning of Planning

• Planning – is the dynamic process of making
decisions today about future actions; and it is a
selection or choice among alternatives as to:
What missions or objectives be achieved,
What actions should be taken,
What organizational positions be assigned,
How the end can be achieved,
When to achieve it,
Who is to do it,
Where to do it
• Generally, answers the following six basic
questions in regard to any intended activity:
√ What (the goal or goals)
√ When (the time frame in which it will be
accomplished)
√ Where (the place or places where the plans or
planning will reach its conclusion).
√ Who (which people will perform the tasks).
√ How (the specific steps or methods to reach the
goals).
√ What resources (resources necessary to reach
the goals).
•
2.1.2 Nature of Planning
a. The contribution of planning to purpose and objectives
• Every organization is established (exists) for the accomplishment
of group purpose or objective
• So, the purpose of any plan and its derivatives or supporting
plans is to facilitate the accomplishment of organizational
objectives.
b. The primacy of planning
• All the five managerial functions - planning, organizing, staffing,
directing and controlling- are designed to support the
accomplishment of organizational objectives.
• However, planning precedes the execution of all other
managerial functions, because all other managerial functions
must be planned if they are to be effective.
• This does not mean that planning is the most important of all
other managerial functions, because to be important or useful all
other functions have to accompany it.
c. The pervasiveness /Universality of planning
• All managers plan: top level, middle level, and first
level
• Even for personal life we plan. “It is difficult to call
a person a manager if he or she doesn't plan
“Koontz
• All organizations in all countries plan
d. Planning and information
• Basically no plan exists without information
• To plan managers have to gather relevant
information from around the environment.
• Information is one of the valuable resources for
planning to exist
• Research, information, prediction, planning
e. Planning is a continuous process
• Planning deals with the future and the future is
full of uncertainties
• Hence, planning is subject to revision.
• It needs frequent revision in response to changes
in the internal and external environments of the
organization.
 As there is dynamism, there is need of revision of plan
• Therefore, so for as the organization is in
operation, planning is in continuous process.
• The more continuous the planning is, the higher its
efficiency is.
f. Planning is a means to an end
• Planning is not an end by itself.
• It is a means to an end (meeting objectives).
• Planning is an instrument that pushes people towards
the achievement of objectives.
g. Plans are arranged in a hierarchy
• The corporate plan
• divisional,
• departmental, and
• sectional plans
• Each of these organizational components sets its plans,
programs, projects, budgets, resource requirements, etc.
2.1.3 Characteristics of a Good Plan
a. Objectivity
• Planning should, first all, be based on objective thinking
• It should be factual, logical and realistic
• It should be directed to achieving organizational goals, not
personal objectives.

b. Futurity
• Since a plan is a forecast of some future action, it must
have the quality of futurity; otherwise, it has little value as
a basis for future action.
• The inability to foresee future events, a human limitation
that we cannot overcome, is the weak link in planning
process
c. Flexibility
• Because no one can foresee the future, plans must
have flexibility.
• They must adjust smoothly and quickly to changing
conditions without seriously losing their effectiveness.
• The more difficult it is to predict the future, the more
flexible the plans must be.
d. Stability
• Stability is related to flexibility.
• A stable plan will not have to be abandoned because
of long-term changes in the company’s situation.
• It may be affected by long-range developments, but it
should not be changed materially from day to day.
e. Comprehensive
• A plan must be comprehensive enough to provide
adequate guidance, but not so detailed as to be unduly
restrictive
• It should cover everything required of people, but not in
such detail that it inhibits initiative.
f. Simplicity and clarity
• Although a good plan must be comprehensive, it should
also be simple.
• A simple plan seeks to attain its objective with the fewest
components, forces, effects and relationships.
• A plan should not be ambiguous.
• Lack of clarity makes understanding and
implementation difficult.
2.1.4 The Importance of Planning
a. It provides direction and sense of purpose
• It is through planning that we can establish our
objectives (e.g. profit maximization, cost
minimization, quality improvement, increasing
production level)
• Plans focus attention on specific targets and direct
employees effort toward important outcomes
 Every member of the organization will go to the same direction to
achieve organizational objectives)
• This shared purpose enables both employees and
managers to coordinate, unite, and guide their
actions.
b. It reduces uncertainties and anticipates the future/
preparing for change
• Planning is based on systematic and careful forecasts of
future states of the economy, markets, technology, etc. to
reduce uncertainties to the extent they occur according to
expectation.
• Managers should cope with changes in their own
organizations and functions in their environment through
planning.
• Anticipating and preparing for possible future changes
enables managers to control their environment.
• In planning, managers develop several "what if" questions
in order to reduce the risk of unpredictable future, so far
as we plan for the future.
• By asking what if questions managers develop alternatives.
c. It provides basis for controlling
• Standards /controlling mechanisms/ are developed during
planning.
• It specifies what is to be accomplished and provides a standard
for measuring progress.
 The objectives are used as standards

d. It forces managers to see the organization as a system

• While planning managers have to consider parts because the plan
of one part (department) affects the operation of the whole
organization so far as parts of an organization are interdependent
e. It promotes efficiency
• Planning provides the opportunity for a greater utilization of the
available organizational resources - because in planning we
determine how many resources are necessary to reach the goals,
and how to use these resources.
f. It provides the base for cooperative and
coordinated efforts
• Management exists because the work of
individuals and groups in organizations must be
coordinated, and planning is one important
technique for achieving coordinated effort.
• Planning provides the basis for organized and
coordinated effort by defining the objectives of the
organization and the means for their achievement.
• As a system, different organs of the organization
should work together; organs under one work unit
should be coordinated
g. Developing managers
• The act of planning involves high level of intellectual activity.
• Those who plan must be able to deal with abstract and
uncertain ideas and information.
• Planners must think systematically about the present and the
future.
• Through planning, the future state of the organization can be
improved if its managers take an active role in moving the
organization toward that future.
• Planning then implies that managers should be proactive and
make things happen rather than reactive and let things
happen.
• Through act of planning, managers not only develop their
ability to think futuristically but, to the extent that their
plans are effective, their motivation to plan is reinforced
h. It provides guideline for decision making
• Decisions in an organization will be made in
alignment with the plans and in accordance with
desired outcomes.
• Managers make decisions on problems of
recurring nature based on strategies and policies of
the organization.
• Through specifying the actions necessary to
accomplish the goals of the organization, planning
serves as a framework for decision-making.
• It forces managers to make analytical thinking and
evaluate alternatives through improved decisions.
2.1.5 Limitations of Planning
a. Planning is risky
• This is because of uncertainties in the future and
absence of accurate and adequate data.

b. It is a difficult and complicated task

• Planning involves complex and interdependent
decisions.
• Rapid changes in technology and customers’ tastes
and preferences will also make planning difficult
and exceptionally complex.
c. It is expensive and time consuming
• Planning requires financial, physical, human, and
time resources.
 The collection of the necessary data from various sources,
 the analysis,
 organizing and
 interpreting data consume time and requires a huge
amount of financial outlay.
d. It is affected by external factors
 government intervention,
 natural calamities/disaster,
 import-export policies,
 taxation and
 labor laws that can limit the success of planning
2.2 Types of Plans
• Plans can be classified on different bases or
dimensions. These are:
Scope/breadth dimension,
 Time dimension, and
 Use/repetitiveness/ frequency

2.2.1 Types of plans by scope dimension

• Based on scope/breadth we can classify plans into
 Strategic Plan
 Tactical Plan
 Operational Plan
a. Strategic Plan
• It is organization wide plan that is formulated or
developed by top-level management in consultation
with the board of directors and middle level
management.
• It applies to the entire organization
• Looks ahead over the next two, three, five or more
years.
• Is primarily concerned with solving long-term
problems associated with external environmental
influences.
• Establishes overall objectives and positions for an
organization in terms of its environment
• The following are distinguishing characteristics of
strategic plan.
– It requires looking outside the organization for
threats and opportunities.
– It requires looking inside the organization for
strengths and weaknesses
SWOT Analysis
– It takes a longer view, i.e. it covers a relatively
long time horizon > 5 years.
– It tends to be top management responsibility, but
it reflects a mentality useful at all levels.
– It is expressed in relatively general non-specific
terms.
• Strategic plans address such questions as:
 What business are we in?
 What business should we be in?
 Where will we be in ten years if we continue doing what
we are now doing?
b. Tactical Plan
• It is an intermediate plan that helps to reduce long range
planning into intermediate one by increasing the amount of
specificity and making the actions goal oriented.
• This type of plan refers to the implementation of activities
and the allocation of resources necessary for the
achievement of the organization’s objectives.
• Tactical plans are specific and more goal oriented than
strategic plans.
• Middle level management in consultation with lower level
management develops them.
• Tactical plans are the means charted to support the
implementation of the strategic plans and achievement of
tactical goals.
• They are concerned with shorter time frames and cover a
narrower scope (narrower range of activities).
• It is concerned with:
 what the lower level units within each division must do,
 how they must do it, and
 who will have the responsibilities for doing it.
• Tactical plans make premises for operational plans.
• It is narrower in scope than strategic plan and
wider than operation plan; but more detailed than
strategic plan and less detailed than operational
plan
• E.g.
what is the best pricing policy?
Which city or town is suitable for marketing our
products?
c. Operational Plan
• It is concerned with the day to day activities of the
organization and is made at the lower level management
in consultation with middle level management.
• Operational plans spell out specifically what must be
accomplished to achieve specific/operational goals.
• It is concerned with the efficient, day-to-day use of
resources allocated to a department manager’s area of
responsibility.
• Operational plans have relatively short time frame (< 1
year).
• It is the most detailed (more specific) and narrowest plan
compared to the above two; because it is to be
implemented day-to-day.
• Typical operational plans are:
Production plans: - deal with the methods and
technology needed by people in their work
Financial plans. – deal with the money required
to support various operations
Facility plans:- deal with facilities and layout
required to support task activities
Marketing plans:- deal with the requirements of
selling and distribution of goods or services
Human resource plans: - deals with
recruitment, selection and placement of people
in to various jobs.
 2.2.2 Types of plans by duration /Time dimension/
• They are:
 Long range plans
 Medium term plans
 Short range plans
• Time dimension and scope dimension are the same
except:
 the former is about the length of time that the plan
covers and
 the later is about the level of management where the
plan is formulated.
• All strategic plans are long-range plans.
• All tactical plans are medium-range plans.
• All operational plans are short-range plans.
a. Short range plans:- a plan for a year or less one
year
• e.g. Annual plan of sales, revenue, production
material requirement, operating expenses budget.
b. Intermediate range plans:- plan between a year
and five years. P5 years
 e.g. Development of new products,
modernization of facilities.
c. Long range plans:- Plan for more than five years
• e.g. Long term leases on production or
warehouse facilities
2.2.3 Types of plans by Use/repetitiveness/ frequency
• Based on this dimension we do have two types of
plans:
standing plans and
single use plans
a. Standing plans
• They are on-going guidelines for action.
 Policies, procedures and rules are part of standing plans.
• For example, policy is standing use plan that
communicates broad guidelines for making
decisions and taking actions
• In human resource matters, policy often covers:

 Hiring  Layoffs,  Smoking,  Employee

 Terminatio  Illness,  Alcohol and discipline,
n drug abuse  etc
• Moreover, procedures or rules are standing plans that
describe what actions are to be taken in support of
policies.
• This helps to ensure that daily actions are consistent with
organizational values, strategies and objectives.
i. Policy
• It is a general guideline that specifies the broad
parameters within which organization members are
expected to operate in pursuit of organizational
goals.
• Policies are general statements or understandings
which guide or channel thinking and actions in
decision-making to achieve organizational
objectives.
• Policies have the following characteristics:
 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.
 Policies tell us what to do in a general sort of way.
 Policies provide discretion within limits since they
are guides to decision-making.
 Policy is a means of encouraging discretion and
initiative, but within limits.
 The amount of freedom will naturally depend up
on the policy and in turn will reflect position and
authority in the organization.
 Policies must be flexible
• Examples of policy:
Except for token gifts of purely nominal or
advertising value, no employee shall accept any
gift from any supplier at any time.
Hiring university trained engineers
To promote from within
We accept returned merchandise
ii. Rules
• They spell out specific required action or non-
actions, i.e., actions that must be or must not be
taken, allowing no discretion, in a given situation
E.g. No smoking, cheating is prohibited
• A rule is an ongoing, specific plan for controlling
human behavior and conduct at work.
• Rules allow no discretion in their application.
• Rules are the most explicit of standing plans and
are not guides for thinking or decision-making
iii. Procedures
• They are statements that detail the exact manner in which
certain activities must be accomplished.
• They put the precise order of activities to be carried out to
do a task and thus, procedures are chronological sequences
of required actions.
• They provide detailed step-by-step instructions as to what
should be done.
• Procedures prescribe exactly what actions are to be taken
in a specific situation and specify the chronological
sequence of activities.
 For example:
 material procurement,
 university admission,
 bidding system are procedures.
• policies, procedures and rules are directives to
guide people’s behavior to the desired ends
• While procedures and rules are guides to action,
policies are guides to thinking
• While rules guide actions without specifying a
time sequence, which spell out that a certain
action must or must not be taken, procedures,
however, specify a time sequence.
• In fact a procedure may be looked upon as a
sequence of rules; a rule, however, may or may not
be part of a procedure
b. Single use plans
• such plans are used only once to meet the needs of
unique situations.
• They are plans aimed at achieving a specific goal that,
once reached, will most likely not recur in the future
and dissolved when these have been accomplished.
• Are designed to accomplish a specific objective
usually in a relatively shorter period of time and
it is non-repetitive
• They are detailed courses of action that
probably will not be repeated in the same form
in the future
•
• The major types of single use plans are:
programs,
projects, and
budgets
• A firm planning to build a new warehouse:
location,
construction costs,
labor availability,
zoning restrictions are examples of single use
plan
i. Program
• it is a comprehensive plan that coordinates a complex
set of activities related to a major non-recurring goal.
• It is a complex of:
 goals,
 policies,
 procedures,
 rules,
 task assignments,
 steps to be taken,
 resources to be employed and
 other elements necessary to carryout a given course
of action
• A program may be as large in scope as placing a
person on the moon or as comparatively small as
improving the reading level of fourth grade
students in a school district.
• Whatever its scope, it will specify many activities
and allocations of resources within an overall
scheme that may include such other single use
plans as projects and budgets.

* program may be repeated with modification but

not as it is.
ii. Project
• Projects are the smaller and separate portions of programs
• Each project has limited scope and distinct directives
concerning assignments and time.
• Each project will become the responsibility of designated
personnel who will be given specific resources and
deadlines.
Project is subset of program [ specific time and place]
• E.g.
 Building a warehouse can be taken as a program
 In the warehouse example, typical projects might
include the preparation of layout drawings, a report on
labor availability, etc
iii. Budgets
• They are statements of expected results expressed in
numerical terms
• Are statements of financial resources set aside for specific
activities in a given period of time.
• Budget is a single use plan that commits resources to an
activity over a given period.
• It may be expressed in:
 Birr,
 labor hours,
 units of product,
 machine hrs, or
 any other numerically measurable term
• It may be referred to as a “numberize” program
2.3 Planning Process
• The planning process follows the following steps:
 Gathering of information/situation audit
 Setting purpose
 Developing mission
 Setting goals/objcetives
 Identifying alternatives courses of action
 Evaluating alternative courses of action
 Selecting the best course of action and communicating
the plan Evaluating results
 Numbering Plans by Budgeting
 Implementing the plan
 Controlling & evaluating
2.3.1 Gathering of information/situation audit
• The following activities should be included:
Past performance
Environmental analysis
Customer and market analysis
SWOT Analysis
Forecasting
a. Past performance
• Analysis of past performance is used:
 to evaluate an organization’s recent
achievements and/or failures,
 to study trends in its different products and
markets and
 the profit performance of each division, etc
• By analyzing the past performance, it is possible
to identify the strengths and weaknesses of each,
and understand their evolution
• The information used to evaluate past
performance can include the following:
profitability rations, liquidity
sales volume
earnings and cash flow
share of market
productivity indicators
research and development investments
b. Environmental analysis
• Economic
 gross national product,
 interest rate,
 inflation,
 cost of raw materials
• Technological: - trends related to:
 new product,
 new manufacturing process,
 distribution methods
• Social
 consumer expectations,
 consumer pressure groups,
• Government regulations
• Demographic
 population growth,
 population distribution,
 age distribution,
 mortality rates,
 fertility rates
c. Customer and market analysis
• It is related to customers and major competitors
• Typical questions focusing on customer and market analysis are:
 Who are the major competitors?
 What are their marketing strategies?
 What are their strengths and weaknesses
 Is the market dominated by one or two competitors?
• How many are there?
• What is the influence of each major competitor?
 What is the nature of competition in terms of price,
advertising, promotion, and distribution?
 What are the technological ideas?
 What are the new products?
 Are they gaining consumer acceptance? Why?
 How difficult is it for new firm to start in this market?
d. SWOT Analysis
• At strategic level, planning usually combines an
analysis of external environment factors with
internal analysis of the organization’s strength
and weaknesses.
• This needs SWOT analysis.
• SWOT analysis is a way of summarizing the
organization’s strengths and weaknesses relative
to external opportunities and threats
Internal What are the strengths?
assessment of Manufacturing efficiency?
the organization Skilled work force?
Good market share?
Strong financing?
Superior reputation?
External What are our opportunities?
assessment of Possible new markets?
the environment Strong economy?
Weak market rivals?
Emerging technologies?
Growth of existing markets?
What are the weaknesses?
Outdated facilities?
Inadequate R&D?
Obsolete technologies?
Weak management?
Past planning failure?
What are our threats?
New competitors?
Shortage of resources?
Changing market tastes?
New regulations?
Substitute products?
e. Forecasting
• Forecasts or predictions of the future are often based
on analysis of past trends in factors such as input
prices (wages, components), sales patterns or
demographic characteristics.
• All forecasts are based on assumptions.
• In relatively simple environments people can
reasonably assume that past trends will continue, but
in uncertain conditions they need alternative
assumptions.
• Generally, to forecast the future, it is important to
review the past performance of the organization,
conducting environmental analysis, and customer and
market analysis.
2.3.2 Setting purpose
• Based on the gathered information, managers will
understand the situation of the environment in
which they are going to do business
• Accordingly, managers will set purpose of the
business or firm.
• This gives the context in which a business
operates.
• For example:
the purpose of hospital can be ‘to provide
health care’;
the purpose of university can be ‘to develop and
transmit knowledge’.
2.3.3 Developing a mission
Once the purpose of firm is set, next, the mission statement
comes, which outlines:
 why a business exists and
 in what industry it wants to compete.
• A mission statement is a broad definition of an organization’s
operations and scope, aiming to distinguish it from similar
organizations.
• Mostly, mission includes three elements:
 the products that will be produced;
 the targeted customers who are going to be served;
 the location of the market where the firm will work on.
• For example,
 the mission of hospital can be ‘to offer wide range of medical services
to the residents of Mekelle and its surroundings’;
 the mission of university can be ‘to provide full range of academic
programs in English to serve the needs of Ethiopian citizens’.
2.3.4 Setting goals/objectives
• The factors that should be included:
Goals/objectives
Critical success factors
Benchmarking
Sensitivity analysis/ contingency plans
A hierarchy of goals
Criteria for assessing objectives
a. Goals/objectives
• Most plans include quantified objectives like:
 quantify sales targets,
 cost reductions, and
 R&D expenditure
• The following are some examples of goals:
– Annual earnings growth of at least 10%;
restructure manufacturing operations
– Pre-tax profit target of birr 5.1 billion in the
coming year.
– The company will produce highest quality product
at the lowest possible cost
b. Critical success factors
• In considering whether to enter in a new business,
a widely used planning technique is to assess the
critical success factors.
• Critical success factors are those aspects of a
strategy that must be achieved to secure
competitive advantage
• These are things which customers in particular
market most value about a product or service
 Some value price,
 others quality, etc;
but in all cases, company must be able to do well to
succeed in the market.
c. Benchmarking
• The frame of reference used as a starting point can
contribute for the success or failure of benchmarking.
• All too often, planners have only limited awareness of
what is happening outside the immediate work setting.
• Successful planning must challenge the status quo
• One way to do this is through benchmarking, a technique
that makes use of external comparisons to better evaluate
once current performance and identify possible actions for
the future.
• The purpose of benchmarking is to find out what others-
people and organizations-are doing very well, and to plan
how to incorporate these ideas in to one’s own operations.
• It is a way for progressive companies to learn from other
“excellent” companies, not competitors.
d. Sensitivity analysis/ contingency plans
• A plan may assume that the company will attain
10% share of a market within a year:
 what will be the effect on the calculations if they secure
5% or 15%?
 What if interest rate rises?
• This enables those making the decisions to
compare the robustness of the options they are
examining and so be better able to assess the
relative risks.
• It gives people greater confidence in the decision,
or alternatively may show that it is too risky to be
worthwhile.
e. A hierarchy of goals
• Away of relating goals to each other is to build
them in to hierarchy, in which the overall goals are
transformed in to more specific goals for different
parts of the organization- such as marketing,
finance, operations and human resources.
• Managers in these areas develop plans setting out
the actions they must undertake to meet the
overall goal
f. Criteria for assessing objectives
• Goals/objectives are good if they are SMART;
 SMART refers Specific, Measurable, Attainable, Rewarded and
Timed.
 Specific: - does the goal set specific target? For example, profit
maximization, cost reduction, market share expansion, etc
 Measurable: - some goals may be quantified (example, increase
sales of product ‘X’ by 5% per year over the next three years) but
others, equally important are more qualitative (example, to offer
congenial/pleasant working environment).
 Attainable: - goals should be challenging, but not unnecessarily
difficult. If people perceive goals are unrealistic, they will not be
committed. Equally goals should not be too easy, as that too
undermines motivation.
 Reward: - people need o see that attaining a goal will bring a
reward-this gives meaning and helps ensure commitment.
 Timed: - does the goal specify the time over which it will be
achieved, and is that also reasonable and acceptable standard.
2.3.5 Identifying alternatives courses of action
• Alternatives courses of action are list of possible ways that can help
to achieve the goal.
• In developing alternatives, a manager should try to create as many
roads to the objectives as practical.

2.3.6 Evaluating courses of action

• The manager or concerned bodies of the organization
must evaluate each alternative to know the best course of
action.
• To do this, there is need of listing of advantages and
disadvantages of each alternative.
• Some of the factors that are considered in evaluating the
advantages and disadvantages of the courses are like
financial resources, labour, policies, etc.
2.3.7 Selecting the best course of action and
communicating the plan
• Managers should select the course of action with
highest possible benefits for the organization
• Moreover, in larger enterprises, managers should
invest time and effort in communicating both the
objectives and actions required throughout the area
affected.
• They do this to:
 Ensure that everyone understands the plan
 Allow them to resolve any confusion and ambiguity
 Communicate the judgments and assumptions that
underlie the plan
2.3.8 Numbering Plans by Budgeting
• After decisions are made and plans are set, the final step is to give them
meaning that is to numberize plans by converting them to budgets, this helps
to establish verifiable targets of achievement, to facilitate control and hear.

2.3.9 Implementing the plan

• After selecting the optimum alternative, the manager develops an action plan
to implement it.
• To do so, the manager must decide the following and other issues:
 who will do what?
 By what date will the tasks be initiated and completed?
 What human and material resources will be available for the process?
 How?
 Generaaly, WH and How questions should be answered

2.3.10 Controlling and evaluating the results

• Having implemented the plan, the manager must monitor its progress,
evaluate reported results, and make any needed modifications.
• Changing environments require timely modification of plans; changes may
also improve plan that was not perfect when it was implemented.
2.4 Objectives
What is an Objective?
• An objective is an end result upon which the
existence of an organization depends.
• It is the desired outcome organizations hope to
attain eventually
• An objective provides a standard for the
measurement of success
• An objective helps determine technologies required
and set the basis for specialization of effort,
authority pattern, communication and decision
net- works and other structural relationships
• This sub-topic deals with:
Classification of Objectives
Characteristics of Sound Objectives
Conflicts among Objectives
Priority of Objectives
Management by Objectives (MBO)
2.4.1 Classification of Objectives
• Objectives may be classified as:
strategic, tactical and operational or
long-term, intermediate and short-term.
• These classifications are made based on the levels
of decision making authority and time the
objectives cover.
2.4.1.1 Hierarchy of Objectives

a. Strategic Objectives
• Strategic objectives are broad statements describing where the
organization wants to be in the future.
• They pertain to the organization as a whole rather than a
specific department or division.
• They focus on such issues as profitability, market positioning
and managerial performance and attitude and public
responsibility.
• Example:
 to achieve a 10% net profit
 to improve market share 15-20% over next three years.
• The top-level management has the responsibility and authority
to make strategic objectives.
b. Tactical Objectives
• Tactical objectives are set by the middle
management level.
• These objectives define the outcomes that major
departments and divisions must achieve in order for
the organization to reach overall objectives.
• For example, a company may have a tactical
objective of "communicating in writing with clients
and customers via, newsletter once a month."
• This tactical objective is one part of achieving the
strategic objective and of communicating effectively
with clients and employees
c. Operational Objectives
• Operational objectives are specified and
measurable results expected from departments,
first-level managers, work groups and individuals
within an organization. Examples:-
• Setting daily, weekly and monthly sales targets for
each product category,
• Process 200 sales applications each week, Reduce
overtime by 10% next month.
2.4.1.2 Time Frame Objectives
• Time frame objectives imply that an organization's
activities are guided by different objectives
depending on the duration of the action being
planned.
• Long-term Objectives These objectives for more
than five years . They must be accomplished to
ensure the long-term survival of the organization.
• Intermediate Objectives These objectives cover a
time period between the short-term objectives and
long-term objectives- probably 1-5 years.
• Short-term Objectives These objectives can be
accomplished within a year.
2.4.2 Characteristics of Sound Objectives
a. Specific and Measurable
• Not all objectives can be expressed in numeric
terms, but they should be quantified when
possible. Specific outcomes are easier to focus on
than general ones, and performance can be more
easily measurable when the task is defined
• Example:
 increasing profit by 5%
 decreasing scrap by 1%
 increasing average teacher effectiveness ratings from
3.5 to 3.7.
b. Challenging but Realistic
• Objectives should be challenging but not
unreasonably difficult, i, e, objectives should be
challenging but attainable, given the resources and
skills available.
• On the other hand, when objectives are
unrealistic, they set employees up for failure and
lead to decreasing employee morale causing
demotivation.
• However, if objectives are too easy, employees may
not feel motivated.
c. Cover Key Result Areas
• Objectives cannot be set for every aspect of
employee behavior or organizational
performance; if they were, their sheer number
would render them meaningless.
• Instead, managers should identify a few key result
areas.
• Key result areas are those activities that
contribute most to company performance.
• Example: focus on key results-sales, profits,
production, or quality-that affect overall
performance
d. Defined Time Period
• Objectives should specify the time period over
which they will be achieved.
• A time period is a deadline specifying the date on
which objective attainment will be measured.
• The period should be realistic and productive.
• Short-term objectives should complement long-
term objectives. For example tactical sales
objectives could be established on a three-year
time horizon with a 100, 000 target in year one,
150,000 in year two and 200,000 in year three.
e. Linked to Reward
• The ultimate impact of objectives depends on the
extent to which salary increases, promotions and
awards are on objective achievement.
• People who attain goals should be rewarded.
• Rewards given meaning and significance to
objectives and help commit employees to achieve
objectives.
• However, attainment of objectives may fail due to
variables outside of the control of the employees;
still reward may be appropriate if the employee
partially achieved objectives under difficult
circumstances.
2.4.3 Conflicts among Objectives
• The process of setting objectives must incorporate and integrate
the interest of the forces in the internal and external
environment.
• Some of the most common objective setting trade-offs faced by
managers in business organizations are:
 Short - term profits versus long - term growth
 Profit margin versus competitive position
 Direct sales effort versus development effort
 Greater penetration of present markets versus developing new
markets.
 Achieving long-term growth through related businesses versus
achieving it through unrelated businesses.
 Profit objectives versus nonprofit objectives (that is, social
responsibilities).
 Growth versus stability.
 Low-risk environment versus high-risk environment
2.4.4 Priority of Objectives
• The phrase priority of objectives implies that at a given time,
accomplishing one objective is more important than
accomplishing others.
• For example, to a firm having difficulty in meeting payrolls
and due date on accountants, the objective of maintaining
cash balance may be more important than achieving
minimum profitability.
• Priority of objectives also reflects the relative importance of
certain objectives regardless of time.
• For example, survival of the organization is a necessary
condition for the relation of all other objectives.
• Managers always face alternative objectives that must be
evaluated and ranked and they must establish priorities if
they want to allocate resources in a rational way.
2.4.5 Management by Objectives (MBO)

• Management by objectives was first popularized by

management expert Peter Drucker.
• MBO addresses the need to involve managers at all levels
in the goals setting process.
• MBO may be defined as a process whereby:
 the superior and the subordinate managers jointly
establish objectives,
 define areas of responsibility in terms of expected
results, and
 use these measures as guides for operating the unit and
assessing the contribution of each member of the
organization.
• The essence of MBO is the practice of goal setting
at every level of management.
• MBO, programs are designed to improve
employees’ motivation through:
their participation in setting their objectives
and
knowing in advance precisely how they will be
evaluated.
• MBO usually results in employees more
committed to the achievement of the objectives
than they may be if they were not involved in
setting them.
• While employees are working toward the
accomplishment of their objectives, managers
(supervisors) should hold periodic review sessions.
• A supervisor may authorize modifications to:
 the objectives or
 their timetables as circumstance dictate
• At the end of agreed time period, the manager and
subordinate hold a final review session to evaluate the
results and repeat the process.
• The subordinate is evaluated on the basis of whether the
objectives were accomplished, how effectively and
efficiently they were achieved and what was learned in
the process.
• Rewards are usually linked to each of these elements.
2.4.5.1 Steps in MBO Process
a. Setting goals
• A goal that should be concrete, realistic that provide a
specific target and time frame and assign responsibility.
• Goals that can be quantitative – described in numerical
terms or qualitative expressed with the use of statements.
b. Developing action plans
• An action plan defines the course of action and resources
needed to achieve the stated goals.
• An action plan is a detailed plan made for both
departments and individuals.
c. Reviewing progress
• This review can occur informally between managers and
subordinates, where the organization may wish to conduct three,
six or nine month's review during a year.
• This periodic review allows managers and employees to see
whether they are on target or whether corrective action is
necessary.
d. Appraising overall performance
• Careful evaluation should be made to see whether annual goals
have been achieved for both departments and individuals.
• Success or failure to achieve goals can become part of the
performance appraisal system and the designation of salary
increases and other rewards.
• The specific application of MBO must fit the needs of each
company.
2.4.5.2 Problems with MBO
• MBO may fail due to one or more of the following problems.
 Lack of adequate resources: It has to be made sure that a person
who is held responsible for results has access to the resources needed
to achieve them.
 Since every manager at every level runs his/her own objectives, there
may not be support and involvement by top management.
 Lack of optimal coordination - because every one strive for the
attainment of his/her own unit goals.
 Over emphasis on appraisal
 Over emphasis of paper work
 Failure to teach the philosophy of MBO
 Failure to give guidelines to goal setters
 Difficulty of setting verifiable goals
 Emphasis on short-term objectives strategic goals may be displaced
by operational goals.
 Constant change prevents MBO from taking hold
2.5 Planning Techniques
• The skills required in planning are:
 forecasting and
 decision making
2.5.1 Forecasting
• In order to set realistic & achievable goals,
mangers must try to understand what the future
holds for them.
• In developing premises forecasting play a
determinant role.
• Identifying aids & barriers to an established goal
depends on understanding future events.
• The significant areas of forecasting may be grouped into
two:
 Forecasting for Economic and Sales Information and
 Forecasting Technological change

2.5.1.1 Forecasting for Economic and Sales Information

• Our discussion of forecasting techniques will concentrate
on these areas because of the importance of predicting
future economic and sales trends.
• They predict the economic wellbeing of the region, nation,
and / or world
• This technique can be performed either by qualitative or
quantitative forecasting or both.
a. Qualitative forecasting
• It is appropriate when hard data are scarce or
difficult to use.
• It involves the use of subjective judgments &
rating schemes to transform qualitative
information into quantitative estimates.
• Qualitative forecasting techniques use expert
opinions to predict the future.
• In some cases a single person of special expertise
or reputation may be consulted.
• Qualitative forecasting can’t be expressed simply
be numerical terms.
• For instance, when a new product or technology is
introduced, past experience is not a reliable guide
for estimating what the near-term effects will be.
• It uses experts opinion, subjective judgment.
• Examples include:
 jury of executive opinion,
 sales-force composite,
 survey of expert opinion,
b. Quantitative Forecasting
• It is used when there is sufficient “hard” or
statistical data to specify relationships between
key variable.
• These can be put into numbers, whether in birr,
dollars, labor hours, square feet of space, machine
hours, or units of product.
• It is simply extrapolating future trends with the
help of past & current data.
• Quantitative forecasting techniques use statistical
analyses and mathematics to predict future events.
2.5.1.2 Forecasting Technological change
• It is predicting what new technologies will be developed in
the future & how current technologies will change.
• The rapid pace of technological change has led many firms,
hospitals, government agencies & other institutions to
recognize the importance of predicting future technological
developments.
• As a manager, we may often have to as certain what
technological development are likely to occur in order to
prepare our institution (organization) for change.
• To conclude our forecasting should be accurate, up to date,
applicable and less costly as much as possible. These are the
four important considerations in forecasting
2.5.2 Decision Making
• Decision making is defined as the selection, based on some
criteria, of one best alternative from two or more possible
alternatives; or it is process of choosing a specific
procedure or course of action from among several possible
alternatives.
• In business or non-business organizations managers have
always to decide.
• They have to determine what is to be done, who is to do it,
when, where & how to do it, which is the core of their task.

• For details of the decision making processes, decision-

making Conditions, etc, refer chapter three.