Planning and decision making
Planning has been labeled the primary management function because it sets the stage for all other aspects of management. Recent research has uncovered the following trends in corporate planning: more planners with actual management experience; greater teamwork, customizing, and flexibility; and more translation of broad strategies into how-to-do-it plans. Along with many other practical reasons for planning, two conceptual reasons for planning are limited resources and an uncertain environment. To cope with environmental uncertainty, organizations can respond as defenders, prospectors, analyzers, or reactors.
A properly written plan tells what, when, and how something is to be accomplished. Clearly written organizational mission statements tend to serve as a useful focal point for the planning process. Strategic, intermediate, and operational plans are formulated by top, middle, and lower-level management, respectively. Objectives have been called the single most important feature of the planning process. Well-written objectives spell out in measurable terms what should be accomplished and when it is to be accomplished. Good objectives help managers by serving as targets, acting as measuring sticks, encouraging commitment, and strengthening motivation. Objective setting begins at the top of the organization and filters down, thus forming a means-ends chain. Priorities affect resource allocation by assigning relative importance to objectives. Plans are formulated and executed as part of a more encompassing planning/control cycle.
Management by objectives (MBO) is an approach to planning and controlling that is based on measurable and participatively set objectives. MBO basically consists of four steps: (1) set objectives participatively, (2) develop action plans, (3) periodically reevaluate objectives and plans and monitor performance, and (4) conduct annual performance appraisals. Objective setting in MBO flows from top to bottom. MBO has both strengths and limitations and requires a supportive climate favorable to change, participation, and the sharing of authority.
Break-even analysis, or cost-volume-profit analysis, can be carried out algebraically or graphically. Either way, it helps planners gauge the potential impact of price changes and profit objectives on sales volume. A major limitation of break-even analysis is that specialized accounting knowledge is required to identify relevant fixed and variable costs.