Although management has been practiced throughout human history, it has been studied for only about seventy years. It is now seen to be an orderly system composed of various coordinated and integrated functions. Of these the most commonly accepted are:
1. Planning
3. Actuating
2. Organizing
4. Controlling
Other functions such as staffing, directing, coordinating, and review are thought by some to be equally basic, but these will be taken up here as sub-functions of the four listed above.
The practice of management is a continuous process of problem-solving and decision-making. The functions of management are based on the ability to make decisions and then to carry out all the implications of those decisions. Too often managers are thought of as decision-makers only, and too little consideration is given to their role in implementing the decisions made. The four management functions listed above take both of these aspects of management into account.
Planning is a rational approach to the future. A more formal definition, given by Terry, is “the selecting and relating of facts and the making and using of assumptions regarding the future in the visualization and formulation of proposed activities believed necessary to achieve desired results.” The essence of the process is consideration of the problem at hand and how it may best be solved with the given resources.
Planning begins with the awareness of opportunities. Awareness is itself the product of decision-making, and may preclude further planning. Suppose you are considering organizing a new television station. A thorough awareness of the pros and cons is necessary. Perhaps even more important is the question whether the Federal Communications Commission is likely to license a new station in the particular area. Before any more plans are made, you must decide whether opportunities exist which warrant further planning.
Planning starts when it has been found that opportunity exists. It starts with determination of objectives. Any plan must be directed toward definite objectives and specific goals. The first step is to define what is being sought, so that a master plan and all derivative plans contribute positively to accomplishing the objectives. These principles shown lead to a view of goal-setting as having three dimensions: priority, time, and structure.
Not only must the objectives be predetermined, they must also be ordered by priority one may take precedence over others, such as the ultimate objective of survival. Here we also see the importance of timing Survival is a long-range goal, and many short and intermediate-range objectives will have to be met to attain it. Priority and timing also go hand-in-hand as the enterprise, business or otherwise, exists in a dynamic environment subject to slow and fast change. Structure involves the roles of every subsystem within the overall system. When objectives are determined, then each subsystem must function to establish its goals and plan its functions as an integral part of the greater order. In this we find the essence of management discussed earlier, coordination and integration. Once objectives are defined, ordered, and structured, the manager can get the information needed to devise means to reach the end result.
A budget is a financial plan. In a business system as in any other where capital is a scarce resource (limited in quantity regardless of how much or how little there is of it) the budget coordinates planning and control. The budget is a way of determining what capital will be required to attain goals. Not only is the budget a link between planning and control, but it helps set the stage for two intermediate functions, organizing and actuating. Depending on objectives, an organization may be developed, redesigned, modified, or preserved. In relation to objectives, it may be necessary to increase facilities, equipment, manpower, or supervision. The budget as a tool of planning establishes the restrictions within which ultimate goals must be reached.
We can see how the budget serves the system through this case: a firm has the goal of increasing profits by adding a new product or product line. It is estimated that it will take two years to develop the new product, test it, and establish production facilities. Once this is done, it will take another six months to distribute and stock the product for continuous distribution. Once the product has been introduced to the market, it will take another year and a half for sales to grow to the point where the production and distribution costs are recovered and there is a profit. The budget or financial plan is a guide to all those in management concerned with attaining this goal. The financial managers will have to find means to finance the plan; the production managers will determine what facilities and personnel they will need to meet their goals; the distribution or marketing managers will be able to plan and budget to meet the goals. As budgeting filters through the system, each unit is in a position to plan their activities in line with the direction the firm in taking.
Budget planning begins with some estimate of the future. Forecasting enables managers to estimate or predict what can be expected at some later date. Forecasting will be discussed at greater length in later chapters, but briefly, it is a process by which managers can, and with some accuracy, predict what can be expected in the short run (1 year), the intermediate (1 to 5 years), and the long run (5 to 10 years). To accommodate and compensate for change, two approaches to budgeting can be used.
Flexible budgeting allows for changes in any given future period. Recognizing that the actual may vary from the expected for one or many reasons, a contingency fund may be set up to cover changes. The flexible budget is thus realistic and conservative.
Another device for dynamic planning is the moving budget for a given period of a month, a year, or even two years. After any segment of this time, the budget is re-examined and updated. A budget may be planned for a year, from January through December. It may be revised at the end of January to take into account anything important that occurred in that month. The budget is thus updated for the period from February through January. This form of budgeting is very systematic and has the merit of always being up-to-date but may be too time consuming and costly. Perhaps the ideal would be a flexible moving budget that could be updated on perhaps a quarterly basis. This is a common usage in business and other enterprises.
Management implements planning through policy-making. Policies are statements which reflect the basic objectives of the firm, and which provide guidelines for action throughout the firm. Policy establishes how goals are to be met and thus directs the behavior of all involved in attaining them.
Policies should be tested and revised if ineffective. They must be constantly re-examined so that they do not become dated and fail to reflect changes in planning. Planning is the first function of management. It recognizes courses of action and avenues of approach to obtainable goals. It uses rational specific materials to define objectives and to decide upon ways to attain them. It focuses broad areas of information on the problem of reaching a desired end, and distinguishes alternate choices. Planning embodies the essence of integration and leads to the next function of management, organization.
Organization is the means by which management coordinates material and human resources through the design of a formal structure of tasks and authority. It can be defined in many ways, but in essence it is the creation of the framework for the performance of all activities necessary to attain goals in the most efficient manner. The organization holds related parts together, and established lines of authority and responsibility give direction and coordination. An organization has two kinds of ingredients-parts and relationships. The manager coordinates and integrates these to accomplish the objectives of the enterprise.
An organization may be formal or informal. The ideal organization meets all the needs of all involved, but this seldom happens. Informal organization generally arises when the formal structure fails to meet all the needs of the groups. The formal organization, the “ideal” structure, should be given every consideration, but since it can seldom meet all needs, the manager should also give thought to less formal but often equally important informal structures. In formal organization, authority is delegated from the top down and responsibility flows from the bottom up. The president of the firm, the General of the Army, the director of the government agency, the coach of the team, delegates authority to his subordinates. They in turn are accountable for the actions of those beneath them. Responsibility goes with authority, and conversely, one held responsible should have authority to see that his responsibility is properly executed. The president of the company is ultimately responsible for the activities of all employees. The president may hold others accountable, but he cannot shake the yoke of ultimate responsibility, since through him all authority flows. The concepts of responsibility and authority in an organization imply a system of mutual obligation among its members. There must be absolute reliability between superior and subordinate. Decisions, and the responsibility for them, should be made at the appropriate levels and not referred either upward or downward. Once plans are drawn up, management is faced with the responsibility of putting them to work.
