Budgeting Basics and Beyond

5.3. Objectives in the Profit Plan

An objective states what is going to be done. The objective must be clear, quantifiable, compatible, practical, strong, realistic, and attainable. The objective should be in writing. Objectives changed too often become meaningless. Further, objectives must not conflict with each other.

The objective must be specific. For example, an objective of increasing sales should state by how much, where, and when. It may take this form: "The divisional objective is to increase sales by 50,000 units of product X in territory A for 20XX." The manager should clearly communicate objectives to subordinates.

Objectives should be established in priority order. An example is a marketing department that should give primary emphasis to the existing, successful product line and secondary emphasis to unproven, high-risk new products. Another example is the R&D manager who should give first priority to basic research to improve the existing products and a lower level of priority to research on new products.

Objectives should be ranked in terms of those having the highest return. The progress toward meeting the objective should be measured at regular intervals (e.g., quarterly).