principles of business planning and control

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15 Principles of Planning in Management (With Examples)

Principles of Planning in Management is the fundamental function of every management. It lays the foundation for the success of an organization. Effective planning helps organizations allocate resources efficiently, enhance decision-making, and reduce uncertainties.

Just as every systematic knowledge is based on some important principles, management and managerial functions are also dependent upon some principles of planning.

The 15 Principles of Planning in Management

The 15 Principles of Management view an organization from a top-down approach and help managers get the best out of their employees and run the business with ease. Let’s take a look at each of these principles and understand them in detail.

Principle 1: Division of Work

This principle states that if an employee is given the same, specific task to do again and again, they will become more efficient and skilled in it. This is opposed to the concept of multi-tasking. Segregating work amongst the workers will also enhance the quality of the product.

This principle of division of work improves the productivity, efficiency, accuracy and speed of the workers and also makes them skilled. It is appropriate for both the technical as well as managerial work level.

Example – At an office, every department has a different responsibility, like IT, administration, human resources, marketing etc. These responsibilities are taken care of by employees specializing in that particular department, thus increasing productivity, efficiency and making them specialists in their field.

Principle 2: Authority and Responsibility

Authority and responsibility are the two key aspects of management. A manager needs to have authority to ensure that his instructions are carried out by the employees. This authority should come along with responsibility, and there needs to be a balance between authority and responsibility.

If managers did not have any authority, they would lack the ability to get any work done. However, if there is more authority than responsibility, the employees will get frustrated.

Principle 3: Discipline

Without discipline, nothing can be achieved. It is the core value for any management or any project. In order to achieve discipline in an organization, there is a need for good supervision and impartial judgment. Good and disciplined behavior of the employees also helps them smoothly build and progress in their professional careers.

Principle 4: Unity of Command

According to this principle, there should be a clear chain of command in the organization.

Employees should be clear whose instructions to follow, and a particular employee ought to receive orders from only one manager. If an employee works under two or more managers, then the stability, authority, and discipline are threatened. This will even cause a breakdown in management structure and employees will burn out.

Example- If an employee has been given a task, and the immediate superior asks him/her to finish it within 3 to 4 hours,but the head of the department orders him/her to deliver that task within 1 hour – in such a case, having no unity of command can not only create confusion but also pressure in the workplace.

Principle 5: Unity of Direction

The work to be done in an organization or management should be organized in such a way that employees work in harmony towards the same objective, under the direction of one manager, and using one plan. When all the employees have a unified goal and motive, it makes the work easier and achieves the set goal easily.

Example – For a range of marketing activities such as advertising, sales promotion, budgeting, etc., there should be only one manager who should be using one plan for all these marketing activities. The different activities can, however, be broken down for different sub-managers, but they should all work towards the common goal under the direction of the main person in charge of the whole thing.

Principle 6: Subordination of Individual Interest

This principle states that an organization should work unitedly towards the interest of the company rather than personal interest. The interest of the company should not be disrupted by the interest of an individual. This refers to the whole chain of command in an organization.

Principle 7: Remuneration

This principle plays an important role in motivating the workers of a management. It states that workers should be paid fair wages for the efforts and work they carry out. If an organization underpays its workers, it will struggle to motivate and keep quality workers. Remuneration can be monetary or non-monetary. There also needs to be a structure in place to reward good performance to motivate employees.

Principle 8: Centralization

Centralization means the concentration of power in the hands of the authority. This follows a top-bottom approach in management. Decentralization Is when this authority is distributed to all the levels of management.

Complete centralization means that people at the bottom will have no authority over their responsibilities. Contrarily, complete decentralization will mean no superior authority to control the organization.

Therefore, no organization can be completely centralized or decentralized. To use this principle effectively in the modern context, there should be a balance of centralization and decentralization. The degree to which this balance needs to be achieved will differ from organization to organization.

Principle 9: Scalar Chain

Scalar chain implies that there needs to be a clear chain of communication between employees and their superiors. Employees should know where they stand in the hierarchy of the organization and who their immediate senior is, and to whom they should be able to contact, if needed.

Example – Every company has a specific scalar chain. Right from the highest level of superiors, like the founder or CEO, to the lowest level of subordinates, it follows a hierarchy for maximum productivity.

Principle 10: Order

According to this principle, there should be an orderly placement of resources in the right place at the right time (money, manpower, materials, etc.) This ensures proper use of resources in a structured fashion. Misplacement of any of these resources might lead to misuse and disorder in the organization.

Example – Employees should be given a designated space and the right equipment or tools to complete their work efficiently.

Principle 11: Equity

All employees should be treated equally and respectfully, irrespective of gender, religion, race, and sexuality. They must feel safe, seen, and heard. All employees should be given equal opportunities to flourish and grow in their careers within the organization. It’s the responsibility of the manager to see that no employees face discrimination.

Principle 12: Stability of Tenure

An organization should work to minimize their staff turnover and maximize efficiency. A new employee doesn’t get used to the culture of an organization right away. He/She should be given enough time to settle into their new jobs and become efficient. Old and new employees alike, should also be ensured job security as instability can lead to work inefficiency.

There needs to be a clear and effective method to handle vacancies as it takes time and expense to train new workers.

Principle 13: Initiative

The management should encourage and support their employees to take initiatives in the business organization. They should listen to the concerns of their employees and also encourage them to develop and carry out plans for improvement.

Taking suggestions from employees regarding certain issues in the organization can make them feel seen and heard in an authoritative position. This will give them a sense of achieving something for the team.

Principle 14: Cost-Benefit Analysis

This principle states that the allocation of resources should be optimized as they are finite. Cost-benefit analysis helps determine the potential costs of implementing a plan against the benefits that it is expected to generate. This evaluation makes sure that the organization’s resources are utilized judiciously and that the benefits outweigh the expenditures.

Principle 15: Esprit de Corps

Esprit de Corps simply means “Team Spirit”. Every management should strive to create morale, unity, and cooperation among the employees. Team spirit is a great source of strength in any organization. Happy and motivated employees are more likely to be efficient and productive.

Example – While discussing a new plan of action for achieving next month’s targets, using the word ‘We’ instead of ‘I’ brings a teamwork spirit to the group.

Objectives of Planning in Management

The objectives of planning in management can be summarized in the following points:

• Planning helps in Achievement of Organizational Objectives
• Planning helps in fulfillment of Organizational Commitments
• Planning helps in Decision Making
• Planning provides Stability to Organizations
• Planning gives an Overall View of Coordination
• Planning helps in Optimum Utilization of Resources or Efficiency of Operations
• Planning aids in Development of Managers
• Planning promotes Innovation and Creativity
• Planning provides a Basis for Control
• Planning helps in Reduction of Risk
• Planning provides Morale Boost Up or Motivation
• Planning facilitates Delegation
• Planning helps in identifying Future Opportunities and Threats

Types of Planning in Principles of Management

The different types of planning in principles of management fall under different classifications. In this part, we will look into the different categories and the types of plans that fall under them.

1. On the Basis of Hierarchy or Levels in the Organization

a)   Strategic Plan

b)   Tactical Planning

c)    Operational Planning

2. On the Basis of Use

a)   Single Use Plans

b)   Standing Plans

3. On the Basis of Flexibility

a)   Flexible Plan

b)   Specific Plan

4. On the Basis of Time

a)   Short-term Plans

b)   Medium-term Plans

c)    Long-term Plans

5. On the Basis of Functional Areas

a)   Production Plans

b)   Marketing Plan

c)    Financial Plan

d)   Human Resource Plan

The Final Word

In conclusion, these 15 Principles of Management are the pillars of any organization. These principles are integral for planning, prediction, process management, decision-making, control and coordination, and hence, should be implemented in every aspect of management.

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1.1 Introduction to Principles of Management

Managers make things happen through strategic and entrepreneurial leadership.

Unsplash – CC0 Public Domain.

What’s in It for Me?

Reading this chapter will help you do the following:

• Learn who managers are and about the nature of their work.
• Know why you should care about leadership, entrepreneurship, and strategy.
• Know the dimensions of the planning-organizing-leading-controlling (P-O-L-C) framework.
• Learn how economic performance feeds social and environmental performance.
• Understand what performance means at the individual and group levels.
• Create your survivor’s guide to learning and developing principles of management.

We’re betting that you already have a lot of experience with organizations, teams, and leadership. You’ve been through schools, in clubs, participated in social or religious groups, competed in sports or games, or taken on full- or part-time jobs. Some of your experience was probably pretty positive, but you were also likely wondering sometimes, “Isn’t there a better way to do this?”

After participating in this course, we hope that you find the answer to be “Yes!” While management is both art and science, with our help you can identify and develop the skills essential to better managing your and others’ behaviors where organizations are concerned.

Before getting ahead of ourselves, just what is management, let alone principles of management? A manager’s primary challenge is to solve problems creatively, and you should view management as “the art of getting things done through the efforts of other people.” 1 The principles of management , then, are the means by which you actually manage, that is, get things done through others—individually, in groups, or in organizations. Formally defined, the principles of management are the activities that “plan, organize, and control the operations of the basic elements of [people], materials, machines, methods, money and markets, providing direction and coordination, and giving leadership to human efforts, so as to achieve the sought objectives of the enterprise.” 2 For this reason, principles of management are often discussed or learned using a framework called P-O-L-C, which stands for planning, organizing, leading, and controlling.

Managers are required in all the activities of organizations: budgeting, designing, selling, creating, financing, accounting, and artistic presentation; the larger the organization, the more managers are needed. Everyone employed in an organization is affected by management principles, processes, policies, and practices as they are either a manager or a subordinate to a manager, and usually they are both.

Managers do not spend all their time managing. When choreographers are dancing a part, they are not managing, nor are office managers managing when they personally check out a customer’s credit. Some employees perform only part of the functions described as managerial—and to that extent, they are mostly managers in limited areas. For example, those who are assigned the preparation of plans in an advisory capacity to a manager, to that extent, are making management decisions by deciding which of several alternatives to present to the management. However, they have no participation in the functions of organizing, staffing, and supervising and no control over the implementation of the plan selected from those recommended. Even independent consultants are managers, since they get most things done through others—those others just happen to be their clients! Of course, if advisers or consultants have their own staff of subordinates, they become a manager in the fullest sense of the definition. They must develop business plans; hire, train, organize, and motivate their staff members; establish internal policies that will facilitate the work and direct it; and represent the group and its work to those outside of the firm.

1 We draw this definition from a biography of Mary Parker Follett (1868–1933) written by P. Graham, Mary Parker Follett: Prophet of Management (Boston: Harvard Business School Press, 1995). Follett was an American social worker, consultant, and author of books on democracy, human relations, and management. She worked as a management and political theorist, introducing such phrases as “conflict resolution,” “authority and power,” and “the task of leadership.”

2 The fundamental notion of principles of management was developed by French management theorist Henri Fayol (1841–1925). He is credited with the original planning-organizing-leading-controlling framework (P-O-L-C), which, while undergoing very important changes in content, remains the dominant management framework in the world. See H. Fayol, General and Industrial Management (Paris: Institute of Electrical and Electronics Engineering, 1916).

Principles of Management Copyright © 2015 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

Module 15: Control

Introduction to control in the business setting, what you’ll learn to do: explain what control means in a business setting and why it is needed.

Control can mean a lot of things to different people. In a business setting, it means guiding the activities, employees, and processes of an organization to reach goals, prevent errors, and abide by the law. There are various styles, types, and levels of organizational control. A good manager applies the best combination of these elements, based on the needs and culture of the company, to successfully run the organization.

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• Introduction to Control in the Business Setting. Authored by : Talia Lambarki and Lumen Learning. License : CC BY: Attribution

Lean Business Planning

Get what you want from your business.

5 Principles of Business Planning

These 5 principles of business planning apply especially well to lean business planning and lean business plans. We focus on lean planning here but you can see, if you have experience with business, that they apply to all good business planning. Charles Darwin wrote:

“It is not the strongest of the species that survive, not the most intelligent, but the one most responsive to change.” Tweet

• Business planning is a Continuous Process, Not Just a Plan . One business plan is of very little use, but the lean business planning process is essential. Keep the plan small and review and revise often.
• Good business planning Assumes Constant Change . Lean business planning helps to manage change. You don’t plan on long time frames and then stick to the plan regardless. Instead, your business planning process helps to manage change.
• Good business planning Empowers Accountability . Good business planning establishes specific responsibilities, dates, deadlines, activities, and performance metrics. The process includes tracking and following up to manage.
• Understand that It’s Planning Not Accounting . Financial projections in business planning are educated guesses, summarized and aggregated to optimize their use in decision making, tracking, and managing. They are not statements, but projections. A projected profit-and-loss table does look like the output of accounting, and that confuses people. It is never exact. It is predicting the future. It is guessing.

Keep these five principles of business planning in mind from the beginning.

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principlesofaccounting.com

Planning, Directing, And Controlling

• Goals Achievement
• Fill in the Blanks
• Multiple Choice

What does it mean to manage? Managing requires numerous skill sets. Among those skills are vision, leadership, and the ability to procure and mobilize financial and human resources. All of these tasks must be executed with an understanding of how actions influence human behavior within, and external to, the organization. Furthermore, good managers must have endurance to tolerate challenges and setbacks while trying to forge ahead. To successfully manage an operation also requires follow through and execution. Because each management action is predicated upon some specific decision, good decision making is crucial to being a successful manager.

Decision Making

Good decision making is rarely done by intuition. Consistently good decisions result from diligent accumulation and evaluation of information. Managerial accounting provides the information needed to fuel the decision-making process. Managerial decisions can be categorized according to three interrelated business processes: planning, directing, and controlling. Correct execution of each of these activities culminates in the creation of business value. Conversely, failure to plan, direct, or control is a road map to failure. The central theme is this: (1) business value results from good decisions, (2) decisions must occur across a spectrum of planning, directing, and controlling activities, and (3) quality decision making can only consistently occur by reliance on information.

A business must plan for success. What does it mean to plan? It is about deciding on a course of action to reach a desired outcome. Planning must occur at all levels. First, it occurs at the high level of setting strategy. It then moves to broad-based thought about how to establish an optimum “position” to maximize the potential for realization of goals. Finally, planning must give thoughtful consideration to financial realities/constraints and anticipated monetary outcomes (budgets).

A business organization may be made up of many individuals. These individuals must be orchestrated to work together in harmony. It is important that they share and understand the organizational plans. In short, “everyone needs to be on the same page.” As such, clear communication is imperative.

A business should invest considerable time and effort in developing strategy. Employees, harried with day-to-day tasks, sometimes fail to see the need to take on strategic planning. It is difficult to see the linkage between strategic endeavors and the day-to-day corporate activities associated with delivering goods and services to customers. But, strategic planning ultimately defines the organization. Specific strategy setting can take many forms, but generally includes elements pertaining to the definition of core values, mission, objectives, and sustainability.

Core Values — An entity should clearly consider and define the rules by which it will play. Core values can cover a broad spectrum involving concepts of fair play, human dignity, ethics, employment/promotion/compensation, quality, customer service, environmental awareness, and so forth. If an organization does not cause its members to understand and focus on these important elements, it will soon find participants becoming solely “profit-centric.” This behavior leads to a short-term focus and potentially dangerous practices that may provide the seeds of self-destruction. Remember that management is to build business value by making the right decisions, and decisions about core values are essential.

The globally-based Chartered Institute of Management Accountants (CIMA) joined with the American Institute of Certified Public Accountants (AICPA) to establish the Chartered Global Management Accountant (CGMA) designation in 2012. The CGMA designation distinguishes professionals who have advanced proficiency in finance, operations, strategy and management. The Institute of Management Accountants (IMA) is another representative group for the managerial accounting profession. IMA‘s overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Many IMA members have earned the Certified Management Accountant (CMA) and Certified Financial Manager (CFM) designations. These certificates represent significant competencies in managerial accounting and financial management skills, as well as a pledge to follow the ethical precepts of the IMA.

Mission — Many companies attempt to prepare a pithy statement about their mission. For example:

Overall, the strategic structure of an organization is established by how well it defines its values and purpose. But, how does the managerial accountant help in this process? At first glance, these strategic issues seem to be broad and without accounting context. But, information is needed about the “returns” that are being generated for investors; this accounting information is necessary to determine whether the profit objective is being achieved. Actually, though, managerial accounting goes much deeper.

For example, how are core values policed? Consider that someone must monitor and provide information on environmental compliance. What is the most effective method for handling and properly disposing of hazardous waste? Are there alternative products that may cost more to acquire but cost less to dispose? What system must be established to record and track such material? All of these issues require “accountability.” As another example, ethical codes likely deal with bidding procedures to obtain the best prices from capable suppliers. What controls are needed to monitor the purchasing process, provide for the best prices, and audit the quality of procured goods? All of these issues quickly evolve into internal accounting tasks.

Most would agree that management has a fiduciary responsibility to shareholders to strategically deploy and manage the assets of the business to generate profit, but not at the expense of the well-being of its people or the environment. Beginning in the early 1980’s the United Nations (UN) engaged in multi-national debates resulting in the creation of the Brundtland Commission whose mission was to unite countries to pursue sustainable development together. The report of the commission identified the interrelated nature of  the environment, society, and the economy. Currently most companies consider these three components of sustainable development as a strategic part of the core values and mission of the corporate structure.

Today companies convey progress toward their goals of economic profit along with care for the environment and responsibility to society in a report often called the Environmental, Social, and Governance (ESG) Report or Corporate Social Responsibility (CSR) Report . Guidelines for reporting have been developed by an international independent standards organization known as the Global Reporting Initiative . These reports can be far ranging, including discussions of reductions in greenhouse gas emissions, water consumption, and the like. Some companies additionally comment on volunteerism efforts, donations, worker safety, and other such matters. While the sustainability reporting guidelines are not mandatory, many large corporate reports are produced after having been audited by independent CPA firms.

Positioning

An important part of the planning process is positioning the organization to achieve its goals. Positioning is a broad concept and depends on gathering and evaluating accounting information.

Cost/Volume/Profit Analysis and Scalability — A subsequent chapter will cover cost/volume/profit (CVP) analysis. It is imperative for managers to understand the nature of cost behavior and how changes in volume impact profitability. Methods include calculating break-even points and determining how to manage to achieve target income levels. Managerial accountants study business models and the ability (or inability) to bring them to profitability via increases in scale.

Branding / Pricing / Sensitivity / Competition — In positioning a company’s products and services, considerable thought must be given to branding and its impact on the business. To build a brand requires considerable investment with an uncertain payback. Frequently, the same product can be “positioned” as an elite brand via a large investment in up-front advertising, or as a basic consumer product that will depend upon low price to drive sales. What is the correct approach? Information is needed to make the decision, and management will likely enlist the internal accounting staff to prepare prospective information based upon alternative scenarios. Likewise, product pricing decisions must be balanced against costs and competitive market conditions. And, sensitivity analysis is needed to determine how sales and costs will respond to changes in market conditions.

Decisions about positioning a company’s products and services are quite complex. The prudent manager will need considerable data to make good decisions. Management accountants will be directly involved in providing such data. They will usually work side-by-side with management in helping correctly interpret and utilize the information. It is worthwhile for a good manager to study the basic principles of managerial accounting in order to better understand how information can be effectively utilized in the decision process.

A necessary planning component is budgeting. Budgets outline the financial plans for an organization. There are various types of budgets. A company’s budgeting process must take into account ongoing operations, capital expenditure plans, and corporate financing.

Operating Budgets — A plan must provide definition of the anticipated revenues and expenses of an organization, and more. Operating budgets can become fairly detailed. The process usually begins with an assessment of anticipated sales and proceeds to a detailed mapping of specific inventory purchases, staffing plans, and so forth. These budgets oftentimes delineate allowable levels of expenditures for various departments.

Capital Budgets — The budgeting process must also contemplate the need for capital expenditures relating to new facilities and equipment. These longer-term expenditure decisions must be evaluated logically to determine whether an investment can be justified and what rate and duration of payback is likely to occur.

Financing Budgets — A company must assess financing needs, including an evaluation of potential cash shortages. These estimates enable companies to meet with lenders and demonstrate why and when additional financial support may be needed.

The budget process is quite important (no matter how tedious the process may seem) to the viability of an organization. Several of the subsequent chapters are devoted to the nature and elements of sound budgeting.

There are many good plans that are never realized. To realize a plan requires the initiation and direction of numerous actions. Often, these actions must be well coordinated and timed. Resources must be ready, and authorizations need to be in place to enable persons to act according to the plan. By analogy, imagine that a composer has written a beautiful score of music. For it to come to life requires all members of the orchestra, and a conductor who can bring the orchestra into synchronization and harmony. Likewise, the managerial accountant has a major role in moving business plans into action. Information systems must be developed to allow management to maneuver the organization. Management must know that inventory is available when needed, productive resources (people and machinery) are scheduled appropriately, transportation systems will be available to deliver output, and so on. In addition, management must be ready to demonstrate compliance with contracts and regulations. These are complex tasks which cannot occur without strong information resources provided by management accountants.

Managerial accounting supports the “directing” function in many ways. Areas of support include costing, production management, and special analysis.

A strong manager must understand how costs are captured and assigned to goods and services. This is more complex than most people realize. Costing is such an extensive part of the management accounting function that many people refer to management accountants as “cost accountants.” But, cost accounting is only a subset of managerial accounting applications.

Cost accounting can be defined as the collection, assignment, and interpretation of cost. Subsequent chapters introduce alternative costing methods. It is important to know the cost of products and services. The ideal approach to capturing costs is dependent on what is being produced.

Costing Methods — In some settings, costs may be captured by the job costing method . For example, a custom home builder would likely capture costs for each house constructed. The actual labor and material would be tracked and assigned to that specific home (along with some amount of overhead), and the cost of each specific home can be expected to vary.

Some companies produce homogenous products in continuous processes. For example, consider production of paint or bricks used in building a home. How much does each brick or gallon of paint cost? These types of items are produced in continuous processes where costs are pooled together and output is measured in aggregate quantities. It is difficult to identify specific costs for each unit. Yet, it is important to make a cost assignment. For these situations, accountants might utilize process costing methods .

The firm might consider tracing costs and assigning them to activities (e.g., training, client development, etc.). Then, an allocation model can be used to attribute selected activities to a job. Such activity-based costing (ABC) systems are particularly well suited to situations where overhead is high, and/or a variety of products and services are produced.

Costing Concepts — In addition to alternative methods of costing, a good manager will need to understand different theories or concepts about costing. In a general sense, these approaches can be described as “absorption” and “direct” costing concepts. Under the absorption concept, a product or service would be assigned its full cost, including amounts that are not easily identified with a particular item, such as overhead items (sometimes called “burden”). Overhead can include facilities depreciation, utilities, maintenance, and many other similar shared costs.

With absorption costing, this overhead is schematically allocated among all units of output. In other words, output absorbs the full cost of the productive process. Absorption costing is required for external reporting purposes under generally accepted accounting principles. Some managers are aware that sole reliance on absorption costing numbers can lead to bad decisions.

As a result, internal cost accounting processes in some organizations focus on a direct costing approach. With direct costing, a unit of output will be assigned only its direct cost of production (e.g., direct materials, direct labor, and overhead that occurs with each unit produced). Future chapters examine differences between absorption and direct costing.

Successfully directing an organization requires prudent management of production. Because this is a hands-on process, and frequently involves dealing with the tangible portions of the business (inventory, fabrication, assembly, etc.), some managers are especially focused on this area of oversight. Managerial accounting provides numerous tools for managers to use in support of production and logistics (moving goods through production to a customer).

To generalize, production management is about running a “lean” business model. This means that costs must be minimized and efficiency maximized, while seeking to achieve enhanced output and quality standards. In the past few decades, advances in technology have greatly contributed to the ability to run a lean business. Product fabrication and assembly have been improved through virtually error-free robotics. Accountability is handled via comprehensive software that tracks an array of data on a real-time basis. These enterprise resource packages (ERP) are extensive in their power to deliver specific query-based information for even the largest organizations.

Machine to machine (M2M) enables connected devices to communicate information without requiring human engagement. These developments ultimately enhance organizational efficiency and the living standards of customers who benefit from better and cheaper products. But, despite their robust power, they do not replace human decision making. Managers must pay attention to the information being produced, and be ready to adjust business processes in response. M2M is also becoming known as IOT (internet of things).

Inventory — For a manufacturing company inventory may consist of raw materials, work in process, and finished goods. The raw materials are the components and parts that are to be eventually processed into a final product. Work in process consists of goods that are actually under production. Finished goods are the completed units awaiting sale to customers. Each category will require special consideration and control.

Failure to properly manage any category of inventory can be disastrous. Overstocking raw materials or overproduction of finished goods will increase costs and obsolescence. Conversely, out-of-stock situations for raw materials will silence the production line. Failure to have goods on hand might result in lost sales. Subsequent chapters cover inventory management. Popular techniques include JIT (just-in-time inventory management) and EOQ (economic order quantity).

Responsibility Considerations — Enabling and motivating employees to work at peak performance is an important managerial role. For this to occur, employees must perceive that their productive efficiency and quality of output are fairly measured. A good manager will understand and be able to explain to others how such measures are determined.

Direct productive processes must be supported by many “service departments” (maintenance, engineering, accounting, cafeterias, etc.). These service departments have nothing to sell to outsiders, but are essential components of operation. The costs of service departments must be recovered for a business to survive. It is easy for a production manager to focus solely on the area under direct control and ignore the costs of support tasks. Yet, good management decisions require full consideration of the costs of support services.

In addition, techniques must be utilized to capture the cost of quality, or perhaps better said, the cost of a lack of quality. Finished goods that do not function as promised cause substantial warranty costs, including rework, shipping, and scrap. There is also an extreme long-run cost associated with a lack of customer satisfaction.

Understanding concepts of responsibility accounting will also require one to think about attaching inputs and outcomes to those responsible for their ultimate disposition. In other words, a manager must be held accountable, but to do this requires the ability to monitor costs incurred and deliverables produced by defined areas of accountability (centers of responsibility). This does not happen by accident and requires extensive systems development work, as well as training and explanation, on the part of management accountants.

Certain business decisions have recurrent themes: whether to outsource production and/or support functions, what level of production and pricing to establish, whether to accept special orders with private label branding or special pricing, and so forth.

Managerial accounting provides theoretical models of calculations that are needed to support these types of decisions. Although such models are not perfect in every case, they certainly are effective in stimulating correct thought. The seemingly obvious answer may not always yield the truly correct or best decision. Therefore, subsequent chapters will provide insight into the logic and methods that need to be employed to manage these types of business decisions.

In addition, a recent trend is for enhanced internal controls and mandatory certifications by CEOs and CFOs as to the accuracy of financial reports. These certifications carry penalties of perjury, and have gotten the attention of corporate executives. This has led to greatly expanded emphasis on controls of the various internal and external reporting mechanisms.

Most large organizations have a person designated as controller (sometimes termed “comptroller”). The controller is an important and respected position within most larger organizations. The corporate control function is of sufficient complexity that a controller may have hundreds of support personnel to assist with all phases of the management accounting process. As this person’s title suggests, the controller is primarily responsible for the control task; providing leadership for the entire cost and managerial accounting functions.

In contrast, the chief financial officer (CFO) is usually responsible for external reporting, the treasury function, and general cash flow and financing management. In some organizations, one person may serve a dual role as both the CFO and controller. Larger organizations may also have a separate internal audit group that reviews the work of the accounting and treasury units. Because internal auditors are reporting on the effectiveness and integrity of other units within a business organization, they usually report directly to the highest levels of corporate leadership.

Begin by thinking about controlling a car (aka “driving”)! Steering, acceleration, and braking are not random; they are careful corrective responses to constant monitoring of many variables like traffic, road conditions, and so forth. Clearly, each action is in response to having monitored conditions and adopted an adjusting response. Likewise, business managers must rely on systematic monitoring tools to maintain awareness of where the business is headed. Managerial accounting provides these monitoring tools and establishes a logical basis for making adjustments to business operations.

Standard Costs — To assist in monitoring productive efficiency and cost control, managerial accountants may develop standards . These standards represent benchmarks against which actual productive activity is compared. Importantly, standards can be developed for labor costs and efficiency, materials cost and utilization, and more general assessments of the overall deployment of facilities and equipment (the overhead).

Flexible tools — Great care must be taken in monitoring variances. For instance, a business may have a large increase in customer demand. To meet demand, a manager may prudently authorize significant overtime. This overtime may result in higher than expected wage rates and hours. As a result, a variance analysis could result in certain unfavorable variances. However, this added cost was incurred because of higher customer demand and was perhaps a good business decision. Therefore, it would be unfortunate to interpret the variances in a negative light. To compensate for this type of potential misinterpretation of data, management accountants have developed various flexible budgeting and analysis tools. These evaluative tools “flex” or compensate for the operating environment in an attempt to sort out confusing signals. Business managers should become familiar with these more robust flexible tools, and they are covered in depth in subsequent chapters.

The traditional approach to monitoring organizational performance has focused on financial measures and outcomes. Increasingly, companies are realizing that such measures alone are not sufficient. For one thing, such measures report on what has occurred and may not provide timely data to respond aggressively to changing conditions.

In addition, lower-level personnel may be too far removed from an organization’s financial outcomes to care. As a result, many companies have developed more involved scoring systems. These scorecards are custom tailored to each position, and draw focus on evaluating elements that are important to the organization and under the control of an employee holding that position.

For instance, a fast food restaurant would want to evaluate response time, cleanliness, waste, and similar elements for the front-line employees. These are the elements for which the employee would be responsible; presumably, success on these points translates to eventual profitability.

Processes relate to items like delivery time, machinery utilization rates, percent of defect free products, and so forth. Customer issues include frequency of repeat customers, results of customer satisfaction surveys, customer referrals, and the like. Betterment pertains to items like employee turnover, hours of advanced training, mentoring, and other similar items.

If these balanced scorecards are carefully developed and implemented, they can be useful in furthering the goals of an organization. Conversely, if the elements being evaluated do not lead to enhanced performance, employees will spend time and energy pursuing tasks that have no linkage to creating value for the business. Care must be taken to design controls and systems that strike an appropriate balance between their costs and resulting benefits. This means that the managerial accountant must also be skilled in helping an organization avoid creating bureaucratic processes that do not lead to enhanced results and profits.

Normally, TQM-based improvements represent incremental steps in shaping organizational improvement. More sweeping change can be implemented by a complete process reengineering. Under this approach, an entire process is mapped and studied with the goal of identifying any steps that are unnecessary or that do not add value. In addition, such comprehensive reevaluations will help to identify bottlenecks that constrain the whole organization.

So far, this chapter has provided snippets of how managerial accounting supports organizational planning, directing, and controlling. As one can tell, managerial accounting is surprisingly broad in its scope of involvement. The remaining chapters of this book will examine all of these subjects in detail. First, however, this chapter concludes by introducing key managerial accounting concepts and terminology.

Management Notes

Principles of Planning – Concept of Planning | Principles of Management

Principles of planning, principle of contribution to objective.

Developing and facilitating the realization of organizational goals and objectives is the aim and purpose of plans, and their components. To accomplish organizational objectives more effectively and economically, long-term plans need to be interwoven with medium-term ones, which, in turn, need to be linked to short-term ones.

Principle of Limiting Factors 

The factors that limit the development of alternative plans, strategies, policies, procedures, and standards must be taken into consideration when developing alternative plans, strategies, policies, procedures and standards.

Principle of Pervasiveness of Planning

All levels of management are involved in planning. Long-range planning and strategic planning are the responsibility of top management, while intermediate and short-range planning are the concerns of middle and operative management.

Principle of Navigational Change

• To maintain a course towards a desired goal, managers should periodically check on events and redraw plans. Navigators must continuously check whether their ships are following the right path in the vast ocean to reach the destination in time. A manager should also ensure that his plans are being implemented properly.
• When unexpected events occur, he should change the direction of his plans. Plans are more effective if they contain a certain degree of flexibility. Managers are responsible for adapting and changing plans in response to a constantly changing environment that cannot be predicted in advance.

Principle of flexibility 

• Organizational plans should incorporate flexibility. The possibility of error in forecasting and decision-making, as well as the uncertainty of the future, force managers to be flexible in their planning.
• Flexibility means management should be able to modify a plan as circumstances change, without delay or cost, so that activities keep moving towards established goals. An unexpected slump in demand for a product will therefore require changes to both the sales plan and the production plan.
• Only when these plans possess the characteristics of flexibility can they be changed. Planning with flexibility in mind makes it easier to adjust plans to future uncertainties or changing environments.

People Also Ask:

Proper planning prevents poor performance.

When you plan your actions carefully, you are less likely to make mistakes or get poor results. Planning ahead allows you to anticipate potential problems and prepare solutions. By avoiding costly errors and missing deadlines, you’ll be able to achieve better performance as a result. Planning will help you achieve your goals more effectively and set yourself up for success.

Budgeting supports the planning process by encouraging all of the following activities except

• a. increasing the motivation of managers and employees by providing agreed-upon expectations
• b. requiring all organizational units to establish their goals for the upcoming period
• c. directing and coordinating operations during the period
• d. improving overall decision making by considering all viewpoints, options, and cost reduction possibility.

Following are some activities that budgeting encourages as part of the planning process:

• Preparing a budget for the period and setting financial goals.
• The allocation of resources to achieve these objectives and goals.
• Finding out how much it will cost to achieve these goals and objectives.
• Establishing goals and objectives and monitoring their progress.
• Assessing potential financial risks and addressing them.
• Staying on track with financial goals and objectives by adjusting plans and strategies as needed.

Budgeting does not typically support the coordination and management of operations during the period. Operational management is typically responsible for this.

In order to reach financial goals and objectives, budgeting is an integral part of any organization’s planning process. The purpose of a budget is to allocate resources and track progress towards reaching financial goals within an organization. Budgeting allows the budget to be adjusted in order to address possible financial challenges and risks throughout the period. By doing so, the financial goals and objectives of the organization can be maintained even in the face of unexpected obstacles.

Further, budgeting encourages the tracking and monitoring of financial performance, which makes it possible to quickly identify areas of underperformance or overperformance. In order to optimize the organization’s financial performance, plans and strategies must be adjusted timely.

Using a budget to establish financial goals and objectives, allocate resources, track progress, and identify and address potential financial risks or challenges is a key part of the planning process.

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17.1 Is Planning Important

• Understand the importance of planning and why organizations need to plan and control.

Planning is the process by which managers establish goals and specify how these goals are to be attained. Plans have two basic components: outcome or goal statements and action statements. Outcome or goal statements represent the end state—the targets and outcomes managers hope to attain. Action statements reflect the means by which organizations move forward to attain their goals. British prime minister Theresa May is determined to change the way that public companies’ boards are comprised by advocating that employees be part of every board. As a part of her action statement, she advocated putting an employee representative in every boardroom, just like Mick Barker, a railway worker since the 1970s, has been quietly helping to shape decision-making as a member of the board of directors at the top of transport giant First Group. 2

Planning is an intellectual activity. 3 It is difficult to see managers plan, because most of this activity unfolds in the mind of those doing the planning. While planning, managers have to think about what has to be done, who is going to do it, and how and when they will do it. Planners think both retrospectively (about past events) and prospectively (about future opportunities and impending threats). Planning involves thinking about organizational strengths and weaknesses, as well as making decisions about desired states and ways to achieve them. 4

Planning for organizational events, whether in the internal or external environment, should be an ongoing process—part of a manager’s daily, weekly, and monthly duties and a routine task for all members of high-involvement organizations. Plans should be continually monitored. Managers and other organizational members should check to see if their plans need to be modified to accommodate changing conditions, new information, or new situations that will affect the organization’s future. Plans need to be administered with flexibility, as organizations learn about new and changing conditions. Clearly, the Calico Candy Company failed to monitor its plans in this way. By thinking of planning as a continuous activity, methods can be formulated for handling emerging and unforeseen opportunities and threats. Planning is one process through which organizational activity can be given meaning and direction.

Why Should Managers Plan?

Managers have several reasons for formulating plans for themselves, their employees, and various organizational units: (1) to offset uncertainty and change; (2) to focus organizational activity on a set of objectives; (3) to provide a coordinated, systematic road map for future activities; (4) to increase economic efficiency; and (5) to facilitate control by establishing a standard for later activity.

Several forces contribute to the necessity for organizational planning. First, in the internal environment, as organizations become larger and more complex, the task of managing becomes increasingly complex. Planning maps out future activities in relation to other activities in the organization. Second, as the external environment becomes increasingly complex and turbulent, the amount of uncertainty faced by a manager increases. Planning enables organizations to approach their environment systematically.

A study out of Cornell University and Indiana University found that absenteeism cost companies $40 billion per year; the absence of planning was one of the biggest problems businesses face. Firms that follow a clearly defined plan in their day-to-day operations will be more successful than those that do not. The authors state, “organizational controlled consequences that would tend to deter absenteeism.” Interestingly, this may be as simple as inspecting the organizational policies that provide the “rules” for employee absenteeism. 5

Do Managers Really Plan?

Managers should plan formally, but do they? Some observers contend that managers typically are too busy to engage in a regular form of systematic planning. McGill University management professor Henry Mintzberg notes:

When managers plan, they do so implicitly in the context of daily actions, not in some abstract process reserved for two weeks in the organization’s mountain retreat. The plans of the chief executives I have studied seemed to exist only in their heads—as flexible, but often specific, intentions. . . . The job of managing does not breed reflective planners; the manager is a real-time responder to stimuli. 6

Others disagree. After reviewing a number of studies focused on the degree to which planning and other managerial activities are inherent parts of managing, management professors J. Carroll and J. Gillen state that “the classical management functions of Fayol, Urwick, and others are not folklore as claimed by some contemporary management writers but represent valid abstractions of what managers actually do and what managers should do.” 7 Barbara Allen, president of Sunbelt Research Associates, notes that she did a considerable amount of planning before launching her new business. Now that she is operating successfully, she reviews and updates her plans periodically. 8

Managers often are very busy people. Some act without a systematic plan of action; however, many managers do plan systematically. 9 For example, many managers develop systematic plans for how their organization will react to a crisis. United Airlines, for example, created a crisis planning group. The group developed United’s crisis contingency plan book, which specifies what the airline’s crisis management team should do in the event of a crisis. Keri Calagna, principal, Deloitte Risk and Financial Advisory, Deloitte & Touche LLP, comments that up to 20.7% of a firm’s value resides in reputation but that CEOs and 77% of board of directors members identified reputation risk as the area about which they felt most vulnerable and that only 39% had a plan to address it. 10

The question about whether managers really plan and the observation that many times they are simply too busy to retreat to the mountaintop and reflect on where the organization should be going and how it should get there miss the point: there are different types of planning.

Concept Check

• What is the process where managers establish goals and outline how these goals will be met called?.
• How do the internal and external environments of the organization and its strengths and weaknesses impact the planning process?
• Why should managers plan?

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Planning and control are the two of management functions. Planning involves setting the organization's goals and control, otherwise known as controlling process , involves ensuring that performance does not deviate from standards, that means it involves checking whether processes in the organization run in line with the plans. Controlling is about using organization's resources in extremely optimal, economical way and with checking if the resources are used according to the strategic plan of the organization. Planning provides predeterminated goals against which actual performance is compared. We cannot think of an effective system of controlling without existence of well thought plans (Dr.S.V. Shinde, 2018). A production planning and control system is the core and key technology of production management systems. As excellent production planning and control system is an important tool to improve the overall automation level of enterprise and provide significant economic benefits for enterprises. A production planning and control system can directly determine whether the manufacturer can complete specific tasks in accordance with the expected demand . Its core function is to manage production tasks and resource allocation and utilization in manufacturing systems, and to meet customer 's demands in the best possible way. A production planning and control system should contain the following processes:

• decomposing product tasks,
• analyzing resource demands,
• determining the operation sequence of a job,
• allocating machines
• and monitoring real-time task progress.

Meanwhile, this system should be able to deal with sudden changes in the actual manufacturing environment , such as lack of material, random machine breakdown, order changeover and rush orders (Jie Zhang, 2017).

• 1 Production planning and controlling mode
• 2 Just-In-Time system
• 3 Examples of Planning and control
• 4 Advantages of Planning and control
• 5 Limitations of Planning and control
• 6 Other approaches related to Planning and control
• 7 References

Production planning and controlling mode

In a complicated and volatile production environment, the production planning and control strategy determines the information interaction and organization in the implementation of the production planning, scheduling and control activity so as to effect the efficiency and flexibility of the production planning and to control activity to a large extend. The typical production planning and control strategies include push and pull (Jie Zhang, 2017).

Push - a kind of production, which is developed on the basis of future demand predicted and actual orders received. It is a strategy, which is often used in a make-to-stock manufacturing system with a single product, stable demand and long delivery due date. Using this strategy can improve production efficiency, strengthen system stability and shorten the product delivery due date. This system cannot be applied in make-to-order and make-to-assembly manufacturing systems.

Pull - a kind of production planning and control strategy, which is to respond rapidly to customer's demand. It is a strategy, which is usually used in make-to order and make-to-assembly manufacturing systems. With this strategy, the production execution activity is driven by the response to customers orders. It can reduce inventory, improve system flexibility and rapidly respond to customer's demand (Jie Zhang, 2017).

Just-In-Time system

Just-In-Time (JIT) system is the typical representative of a pull-based production planning and control strategy, which developed for a make-to-order manufacturing system. The basic idea of the system can be summarized as when it is a needed, according to the amount needed to produce the desired product. The core of Just-In-Time system is to pursuit either a non-inventory manufacturing system or minimum inventory factoring system. The successful application of a JIT system depends on four basic principles: waste elimination, participation of employees in making decisions, involvement of suppliers, and comprehensive quality management (Jie Zhang, 2017). The overall aim of JIT system is to obtain a balanced manufacturing system, and a smooth and rapid material handling flow throughout the entire system:

• To eliminate interruptions that are caused by low quality , machine breakdown, change of production schedule and delivery delay
• To be flexible, adapt to changes as variety and capacity
• To reduce production exchange time and production lead time
• To minimize inventory
• To eliminate waste

Examples of Planning and control

• *Resource Planning : Resource planning is a process of deciding how to allocate limited resources to meet the goals of the business. This involves assessing the current resources, estimating future needs and then balancing the supply and demand of resources in order to ensure that the organization is operating as efficiently as possible.
• *Production Scheduling : Production scheduling involves determining when and how to produce a product or service . It is important to ensure that resources are allocated efficiently to maximize the efficiency and profitability of production.
• *Quality Control : Quality control is the process of ensuring that products meet established standards of quality. This involves establishing quality standards, monitoring production processes and ensuring that products meet those standards.
• * Risk Management : Risk management is the process of identifying, assessing and managing potential risks that could impact the success of an organization. This involves assessing the potential risks and developing strategies to minimize or mitigate those risks.
• *Financial Planning : Financial planning is the process of setting financial goals and developing strategies to achieve those goals. This involves assessing the current financial situation and developing a plan to meet the organization’s financial goals.

Advantages of Planning and control

• Planning and control are essential for successful management of any organization. The advantages of planning and control can be summarized as follows:
• Planning allows for the development of strategies and processes that can be used to achieve organizational objectives. It helps to identify the resources needed to achieve these objectives and set the timeline for their accomplishment.
• Control allows for the monitoring of progress towards the goals and objectives set during the planning process . It provides feedback on the effectiveness of the strategies and processes implemented, and allows for the identification and resolution of any problems encountered.
• Planning and control can help to create a sense of accountability and responsibility amongst employees, as they will know that their performance is being monitored. This can help to ensure that everyone is doing their part to contribute to the organization’s success.
• Planning and control can also help an organization become more efficient, as it can help identify areas of waste and inefficiency that can be addressed. This can lead to cost savings and improved performance.
• Finally, planning and control can help to ensure that the organization is able to anticipate and respond to changes in the external environment . This can help the organization remain competitive and relevant in a rapidly changing world.

Limitations of Planning and control

• Planning and control can be limited by the lack of resources , such as time, money , personnel and materials.
• Planning and control can be limited by a lack of comprehensive information, such as accurate forecasting of customer demand.
• Planning and control can be limited by a lack of clear objectives, meaning that it is difficult to identify what success looks like.
• Planning and control can be limited by a lack of understanding of the environment in which the organization operates, such as changes in customer demand or competitive forces.
• Planning and control can be limited by a lack of communication between departments or teams.
• Planning and control can be limited by a lack of flexibility and responsiveness to changes, meaning that the organization is unable to adjust quickly to changing circumstances.
• Planning and control can be limited by a lack of accountability , meaning that there is no one to take responsibility for the success or failure of the plans.

Other approaches related to Planning and control

• Introduction : In addition to the Planning and Control, there are several other approaches that are useful to manage a business.
• Strategic Management : Strategic management involves setting the organization's vision and mission and defining the organization's goals and objectives. It is the process of analyzing the environment to understand the opportunities and threats , and making decisions and taking actions that will help the organization achieve its desired results.
• Financial Management : Financial management involves the use of financial resources to achieve the organization's objectives. It involves planning, budgeting, forecasting, and analyzing the financial performance of the business.
• Human Resource Management : Human resource management is the process of managing the organization's people. It involves recruiting, training , and managing employees, creating and implementing policies and procedures , and providing compensation and benefits.
• Operations Management : Operations management is the process of managing the operations of the business. It involves planning and scheduling activities, managing inventory and resources, and measuring performance.
• Quality Management : Quality management is the process of ensuring that products and services meet customer requirements . It involves defining quality standards, measuring product and service quality, and taking corrective action to improve quality.
• Project Management : Project management is the process of managing projects. It involves planning, organizing , and managing resources to achieve a specific goal.

Summary: Planning and Control are two of the most important management functions , but there are several other approaches that are useful in managing a business. These include Strategic Management, Financial Management, Human Resource Management, Operations Management, Quality Management, and Project Management. All of these processes are important in running a successful business.

• Shinde Dr.S.V. (2018) Functions of management , Laxmi Book Publication, page 24-50
• Zhang Jie (2017) Multi-Agent-Based Production planning Production Planning and Control , John Wiley & Sons, page 64-67
• Łopatowska Jolanta (2015) Improving the production planning and control process , Journal of Management and Finance, Vol. 13 No:4/1/2015, page 119-130
• Lahijanian M., Wasniewski J., Andersson S.B., Belt C. (2010) Motion Planning and Control from Temporal Logic Specifications with Probabilistic Satisfaction Guarantees , IEEE International Conference on Robotics and Automation Anchorage Convention District, no: May 3-8, page 3227-3232
• Krenczyk Damian, Olender Malgorzata (2014) Production Planning and control using advances simulation systems , International Journal of Modern Manufacturing Technologies ISSN 2067-3604, Vol. VI, No. 2 page, 38-43

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1.5: Planning, Organizing, Leading, and Controlling

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Learning Objectives

• Know the dimensions of the planning-organizing-leading-controlling (P-O-L-C) framework.
• Know the general inputs into each P-O-L-C dimension.

A manager’s primary challenge is to solve problems creatively. While drawing from a variety of academic disciplines, and to help managers respond to the challenge of creative problem solving, principles of management have long been categorized into the four major functions of planning, organizing, leading, and controlling (the P-O-L-C framework). The four functions, summarized in the P-O-L-C figure, are actually highly integrated when carried out in the day-to-day realities of running an organization. Therefore, you should not get caught up in trying to analyze and understand a complete, clear rationale for categorizing skills and practices that compose the whole of the P-O-L-C framework.

It is important to note that this framework is not without criticism. Specifically, these criticisms stem from the observation that the P-O-L-C functions might be ideal but that they do not accurately depict the day-to-day actions of actual managers (Mintzberg, 1973; Lamond, 2004). The typical day in the life of a manager at any level can be fragmented and hectic, with the constant threat of having priorities dictated by the law of the trivial many and important few (i.e., the 80/20 rule). However, the general conclusion seems to be that the P-O-L-C functions of management still provide a very useful way of classifying the activities managers engage in as they attempt to achieve organizational goals (Lamond, 2004).

Planning is the function of management that involves setting objectives and determining a course of action for achieving those objectives. Planning requires that managers be aware of environmental conditions facing their organization and forecast future conditions. It also requires that managers be good decision makers.

Planning is a process consisting of several steps. The process begins with  environmental scanning  which simply means that planners must be aware of the critical contingencies facing their organization in terms of economic conditions, their competitors, and their customers. Planners must then attempt to forecast future conditions. These forecasts form the basis for planning.

Planners must establish objectives, which are statements of what needs to be achieved and when. Planners must then identify alternative courses of action for achieving objectives. After evaluating the various alternatives, planners must make decisions about the best courses of action for achieving objectives. They must then formulate necessary steps and ensure effective implementation of plans. Finally, planners must constantly evaluate the success of their plans and take corrective action when necessary.

There are many different types of plans and planning.

Strategic planning  involves analyzing competitive opportunities and threats, as well as the strengths and weaknesses of the organization, and then determining how to position the organization to compete effectively in their environment. Strategic planning has a long time frame, often three years or more. Strategic planning generally includes the entire organization and includes formulation of objectives. Strategic planning is often based on the organization’s mission, which is its fundamental reason for existence. An organization’s top management most often conducts strategic planning.

Tactical planning  is intermediate-range (one to three years) planning that is designed to develop relatively concrete and specific means to implement the strategic plan. Middle-level managers often engage in tactical planning.

Operational planning  generally assumes the existence of organization-wide or subunit goals and objectives and specifies ways to achieve them. Operational planning is short-range (less than a year) planning that is designed to develop specific action steps that support the strategic and tactical plans.

Organizing is the function of management that involves developing an organizational structure and allocating human resources to ensure the accomplishment of objectives. The structure of the organization is the framework within which effort is coordinated. The structure is usually represented by an organization chart, which provides a graphic representation of the chain of command within an organization. Decisions made about the structure of an organization are generally referred to as  organizational design  decisions.

Organizing also involves the design of individual jobs within the organization. Decisions must be made about the duties and responsibilities of individual jobs, as well as the manner in which the duties should be carried out. Decisions made about the nature of jobs within the organization are generally called “job design” decisions.

Organizing at the level of the organization involves deciding how best to departmentalize, or cluster, jobs into departments to coordinate effort effectively. There are many different ways to departmentalize, including organizing by function, product, geography, or customer. Many larger organizations use multiple methods of departmentalization.

Organizing at the level of a particular job involves how best to design individual jobs to most effectively use human resources. Traditionally,  job design  was based on principles of division of labor and specialization, which assumed that the more narrow the job content, the more proficient the individual performing the job could become. However, experience has shown that it is possible for jobs to become too narrow and specialized. For example, how would you like to screw lids on jars one day after another, as you might have done many decades ago if you worked in company that made and sold jellies and jams? When this happens, negative outcomes result, including decreased job satisfaction and organizational commitment, increased absenteeism, and turnover.

Recently, many organizations have attempted to strike a balance between the need for worker specialization and the need for workers to have jobs that entail variety and autonomy. Many jobs are now designed based on such principles as empowerment,  job enrichment  and  teamwork . For example, HUI Manufacturing, a custom sheet metal fabricator, has done away with traditional “departments” to focus on listening and responding to customer needs. From company-wide meetings to team huddles, HUI employees know and understand their customers and how HUI might service them best (Huimfg, 2008).

Leading involves the social and informal sources of influence that you use to inspire action taken by others. If managers are effective leaders, their subordinates will be enthusiastic about exerting effort to attain organizational objectives.

The behavioral sciences have made many contributions to understanding this function of management. Personality research and studies of job attitudes provide important information as to how managers can most effectively lead subordinates. For example, this research tells us that to become effective at leading, managers must first understand their subordinates’ personalities, values, attitudes, and emotions.

Studies of motivation and motivation theory provide important information about the ways in which workers can be energized to put forth productive effort. Studies of communication provide direction as to how managers can effectively and persuasively communicate. Studies of leadership and leadership style provide information regarding questions, such as, “What makes a manager a good leader?” and “In what situations are certain leadership styles most appropriate and effective?”

Figure \(\PageIndex{2}\):Quality control ensures that the organization delivers on its promises. International Maize and Wheat Improvement Center –  Maize seed quality control at small seed company Bidasem  – CC BY-NC-SA 2.0.

Controlling

Controlling involves ensuring that performance does not deviate from standards. Controlling consists of three steps, which include (1) establishing performance standards, (2) comparing actual performance against standards, and (3) taking corrective action when necessary. Performance standards are often stated in monetary terms such as revenue, costs, or profits but may also be stated in other terms, such as units produced, number of defective products, or levels of quality or customer service.

The measurement of performance can be done in several ways, depending on the performance standards, including financial statements, sales reports, production results, customer satisfaction, and formal performance appraisals. Managers at all levels engage in the managerial function of controlling to some degree.

The managerial function of controlling should not be confused with control in the behavioral or manipulative sense. This function does not imply that managers should attempt to control or to manipulate the personalities, values, attitudes, or emotions of their subordinates. Instead, this function of management concerns the manager’s role in taking necessary actions to ensure that the work-related activities of subordinates are consistent with and contributing toward the accomplishment of organizational and departmental objectives.

Effective controlling requires the existence of plans, since planning provides the necessary performance standards or objectives. Controlling also requires a clear understanding of where responsibility for deviations from standards lies. Two traditional control techniques are budget and performance audits. An audit involves an examination and verification of records and supporting documents. A budget audit provides information about where the organization is with respect to what was planned or budgeted for, whereas a performance audit might try to determine whether the figures reported are a reflection of actual performance. Although controlling is often thought of in terms of financial criteria, managers must also control production and operations processes, procedures for delivery of services, compliance with company policies, and many other activities within the organization.

The management functions of planning, organizing, leading, and controlling are widely considered to be the best means of describing the manager’s job, as well as the best way to classify accumulated knowledge about the study of management. Although there have been tremendous changes in the environment faced by managers and the tools used by managers to perform their roles, managers still perform these essential functions.

Key Takeaway

The principles of management can be distilled down to four critical functions. These functions are planning, organizing, leading, and controlling. This P-O-L-C framework provides useful guidance into what the ideal job of a manager should look like.

• What are the management functions that comprise the P-O-L-C framework?
• Are there any criticisms of this framework?
• What function does planning serve?
• What function does organizing serve?
• What function does leading serve?
• What function does controlling serve?

Huimfg.com,  http://www.huimfg.com/abouthui-yourteams.aspx  (accessed October 15, 2008).

Lamond, D, “A Matter of Style: Reconciling Henri and Henry,”  Management Decision  42, no. 2 (2004): 330–56.

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Figure \(\PageIndex{1}\): The P-O-L-C Framework