Balancing Objectives

In addition to balancing the immediate and the long range future, management also has to balance objectives. More important factors are,

* An expansion in markets and sales volume, or a higher rate of return;

* Time, effort and energy should be expended on improving manufacturing productivity;

* Amount of effort or money brings greater returns if invested in new product design.

There are few things that distinguish competent from incompetent management quite as sharply as the performance in balancing objectives. There is no formula for doing the job. Each business requires its own balance and it may require a different balance at different times. The only thing that can be said is that balancing objectives is not a mechanical job, is not achieved by “budgeting.” The budget is the document in which balance decisions find final expression; but the decisions themselves require judgment; and the judgment will be sound only if it is based on a sound analysis of the business. The ability of a management to stay within its budget is often considered a test of management skill. But the effort to arrive at the budget that best harmonizes the divergent needs of the business is a much more important test of management’s ability. Any average individual can learn to stay within his budget. But only a handful of managers can draw up a budget that is worth staying within.

Objectives in the key areas are the “instrument panel” necessary to pilot the business enterprise. Without them management flies by the “seat of its pants” – without land marks to steer by, without maps and without having flown the route before.

However, an instrument panel is no better than the pilot’s ability to read and interpret it. In the case of management this means ability to anticipate the future. Objectives that are based on completely wrong anticipations may actually be worse than no objectives at all. The pilot who flies by the “seat of his pants” at least knows that he may not be where he thinks he is. Our next topic must therefore be the tools that management needs to make decisions today for the results of tomorrow.

A managed expenditure budget for a five year period should show the expenditure considered necessary in each area to attain business objectives within the near future up to five years or so. It should show the additional expenditure considered necessary in each area to maintain the position of the business beyond the five year period for which concrete objectives are being set. This brings out the areas where expenditure is to be raised first it business gets better, and those where they are to be cut first if business turns down; it enables management to plan what to maintain even in bad times, what to adjust to the times, and what to avoid even in a boom. It shows the total impact of these expenditures on short range results. And finally it shows what to expect from them in the long range.

Decisions concerning managed expenditure themselves are of such importance for the business as a whole over and above their impact on individual activities that they must not be made without careful consideration of every item in turn and of all of them jointly. It is essential that management know and consciously decide what it is doing in each area and why. It is essential that management know and consciously decide which area to give priority, which to cut first and how far, which to expand first and how far. It is essential finally that management know and consciously decide what risks taking in the long run future for the sake of short term results, and what short term sacrifices to make for long run results.