In general, the term “Management” is the process of planning, organizing, directing and controlling the aspects of an organization. The main goal of any organization is to maximize profits and returns to the shareholders and the “management” has, inter-alia, the objective of achieving this goal successfully in particular.

The traditional management works out at the mechanism of fixing the budgets and targets and comparing them with the actual performance to find out the variations in each element of cost and revenues put together. While incorporating budgets, the history of the events is taken into consideration and the future events are projected accordingly. This exercise is okay when there is no change in the objectives and the concern is going on, on the same lines of business as was doing in the earlier years. On the contrary when the new and extra goals have been set in addition to or in modification to the existing goals, then the need to consider the new parameters are set in the process of managing the new and additional targets to be achieved.

Management by objectives aim at doing the budgeting process from the scratch on the existing or new or additional targets to be achieved. It will not consider any history of the facts and figures. It starts working out the targets and studying the various and all the elements of costs from the very beginning considering the current situation of the market prevailing as on the date. The budget process is the same but the method of projections does not consider historical figures any more lest the latest and currently applicable figures are considered while fixing the budgets to achieve the objectives.

This latest derivative of MBO has many benefits compared to the traditional budgeting process… The history may not be applicable in the current situation as various changes in the market like demand, supply and other key factors including the taxes and levies and the changes in the government regulations might be considered while fixing the targets. Close study and comparison process is necessary throughout and necessary amendments are to be effected considering the changes in the key factors if any during the process is very much necessary.

Hence, the new concept of budgeting has been adopted by the new management of the organizations to manage their objectives effectively through the process of Management by Objectives.

Written by:
M. K. MOEENUDDEEN, M.Com. AICWA.,