Planning is concerned with bridging the gap between where the organization is now and where it wants to be in the future. This involves two distinct processes measuring the current "state of play" of the organization and then predicting the future in a quantifiable way. The plan acts as a target to aim for and a yardstick for controlling operations - deviations from the plan give feedback signals for corrective action if necessary.

Techniques work with figures of some kind - accounting/financial ratios and statistical abstractions. Techniques are attempts to rationalize data as the sheer size and complexity of modern organization and their operations no longer allow managers to proceed by trial and error - this can so easily become trial and catastrophe. More advanced techniques, such as operational research and P.E.R.T. demand the building of models.

It is to be remembered that all techniques are aids and no matter how sophisticated the methods it is the manager himself who is ultimately has to make the decisions.


Forecasts - usually for comparatively short periods of time of 6-12 months - are extensively used by commerce and industry especially within the context of sales forecasting and production planning/stock control.
By using statistical methods of smoothing out predictable fluctuations (monthly seasonal, non recurring random variations), it is possible to predict a future pattern to be compared with a trend line, which itself may be up or down according to demand in the market place.
The trend is an extrapolation from past actual figures. As with any prediction, the immediate future contains more certainties than the long distance future - the daily weather forecast as compared with the long range forecast.

Long term planning (forecasts) are, however, increasingly used by large companies to cover any period from five to fifteen years, depending to a certain extent on the type of industry (the oil industry for example, works on very long term plans because of the length of time needed for exploration of oil-fields and the commissioning of refineries).

A long term plan is the only way to:

  1. Ensure the most efficient use of existing production facilities
  2. Enable cash resources to be planned to the best advantage
  3. Assess the capital expenditure requirements over the period
  4. Assess manpower requirements (both management and labour) for the period so that the necessary programmes can be developed
  5. Define the kind and size of acquisitions needed to complement the existing companies or units within a group
  6. Determine which products are declining and which are expand
  7. Assess what sort of group or company it will be in five years time

The essence of such plans are:

  1. A soundly based plan with defined standards of performance (i.e. not necessarily base on the organization's previous performance) in all aspects of the business
  2. Speedy reporting, preferably monthly, so that variations in the plan are brought out as early as possible.
  3. Early remedial action to rectify as far as possible divergencies from the plan

Budgets (plans, forecasts) are pre-determined statements of management policy during a given period which provides a standard for comparison with the results actually achieved.

Budgetary Control is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with that budgeted and acting upon results to achieve maximum profitability

  1. The establishment of a plan or target of performance which co-ordinates all the activities of the business
  2. The recording of actual performance
  3. The comparison of the actual performance with that planned
  4. The calculation of the difference, or variances and an analysis of the reasons for these differences
  5. The action - immediately if necessary - to remedy the situation

The objectives of Budgetary Control are to:

  1. Combine the ideas of all levels of management in the preparation of the budget
  2. Co-ordinate all the activities of the business
  3. Centralise control
  4. Decentralise responsibility on to each manager involved
  5. Act as a guide for management decisions when unforeseeable conditions affect the budget
  6. Plan and control income and expenditure so that maximum profitability is achieved
  7. Direct capital expenditure in the most profitable direction
  8. Ensure that sufficient working capital is available for the efficient operation of the business
  9. Provide a yardstick against which actual results can be compared
  10. Show management where action is needed to remedy a situation