Chapter # 3 : Planning and Control
“ Planning involves making choices between alternatives and is primarily a decision making activity”
2 approaches to planning:
Top-down approach means strategic management starts from top management and flows down the structure.
Bottom-up approach means information is accumulated at lower level and presented to top management along with summary
and options available.
1. Identify objectives
2. Identify available strategies
3. Evaluate each strategy
4. Choose strategy (course of action)
5. Implement long-term plan in the form of annual budgets
Risk factors in planning:
Types of risks:
Accounting for Risk:
Required rate of return, adjusted by
Finance (strict rules of financing i.e. out of profits)
Rule of Thumb (best estimate of value within worst to best possible range)
Probability Theory (likelihood of occurrence of a forecast result)
Standard Deviation (calculate Standard Deviation of Expected Value, the higher it is the higher risk is)
“Control is comparing actual results with planned performance and taking appropriate actions”
1. Actual results are recorded and analyzed for each responsibility center.
2. Feedback is reported to management.
3. Management compares actual results with plans or targets.
4. Do one of three things
i. Decide to do nothing
ii. Take control actions
iii. Alter the plan or target
“ The process of reporting back control information to management and the control information itself”
It may be Single Loop or Double Loop.
It may be Positive or Negative. Feed forward Control:
Control actions taken in advance.
Actual results are compared with Budgeted (i.e. adjusted by past results)
Well organized system of control should have:
Hierarchy of budget center.
Clearly defined responsibilities.
Responsibilities for Cost, Revenue, and Capital Employed.
“Each section of the organization for which budget is prepared”
Objectives of budgeted planning and control: