Management By Objectives

From the foregoing discussion of the problem of controlling the activities of an organization and evaluating managerial performance, it follows that several conditions must be satisfied if the accounting function is to play a useful role.

(a) Divisional and departmental goals must be clearly identified and defined, and appropriate measurements selected by which to express them and evaluate managerial performance. Where objectives are too vague or too ambiguous to be susceptible to clear definition in conventional terms, surrogates should be sought which will enable them to be defined and measured.

(b) There should be participation by all levels of management in the control process, thereby ensuring good communication between supervisor and subordinate.

(c) A style of management is required which pays particular attention to the human element in organizations, and in so doing, provides an environment conducive to the employment of all resources.

The aim of management by objectives is to provide a framework for administering a control system which embraces the above-mentioned three conditions. By translating organizational objectives and goals in such a way that they become the personal objectives and goals of all management personnel, whether they be divisional or departmental managers, management by objectives seeks to create a high degree of goal congruence within an organization. The unity of personal and organizational objectives encourages managers to take actions which are in the best interest of the organization.

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Read on: The Need For Several Measures of Performance

The need for several measures of performance

Whilst the use of standard costs and variable budgets play an important role in the control of activities and in the evaluation of performance, undue attention to cost control tends to diminish the importance of other goals. For example, a factory manager is expected to maintain a high level of productive efficiency, to maintain the quality of the product, to meet production schedules on time, to minimize expenses and to maintain satisfactory relations with employees.

The evaluation of performance, therefore, requires both quantitative... see: The Need For Several Measures of Performance