Goal setting as the essential part of strategic business planning

“Good grief, it is business planning or budgeting time again” is a common refrain among many managers. Business planning and budgeting can cause stress and conflict and is extremely time-consuming. However, good business plans that are properly budgeted are worth the time and trouble.

If one is the owner or manager of a small company with few cash resources, a good business plan can be the difference between financial success and the business’s inability to expand to its full potential, which may ultimately result in insolvency. The business planning and budgeting process forces the management team to estimate how many individual goods and services the company will sell, the cost of these item, the rate at which receivables will be collected, general expenses, and lastly taxes. These figures provide a forecast of the months or year ahead. A good business plan and budget helps the management team to assess whether the business will have adequate financial resources to stay the course. Business planning and budgeting for business as a whole can be a powerful control mechanism. It is also an action plan that guides organisations to reach their strategic goals.

Goal setting is a process for defining targets one plans to achieve. It is one of the essential functions of the management team. When one sets goals, one commits to outcomes that can be accomplished personally or through one’s subordinates. Goal setting makes it possible to focus limited resources and time on the things that matter the most. It sets the course of action. A goal is a precise and measurable aim that a company must desire to realise. In this context, the purpose of goals is to precisely specify what must be done if the company is to attain its mission or vision.

Key characteristics of well-constructed goals:

• Precise and measurable – this is to provide a yardstick or standard against which managers can judge the performance.

• Address crucial issues – this is to maintain focus. Managers should select a limited number of major goals to assess the performance of the company.

• Challenging but realistic – this is to provide employees with incentives for improving operations of the organisation. If a goal is unrealistic in the challenges it poses, employees may give up. A goal that is too easy may fail to motivate managers and other employees.

• Specify a time period – this is to motivate and inject a sense of urgency into attaining that particular goal. Time constraints remind employees that success requires a goal to be attained by, and not after, a given date. However, not all goals are constrained by time.

By setting the goals and measuring their success, one can focus on what is most important, waste less energy on non-critical tasks, and achieve greater results. The manager is responsible for setting personal goals and subsequently organisational goals for the department. Although most companies operate with a variety of goals, the central goal of most companies is to maximise shareholders’ returns, and doing this requires both high profitability and sustained profit growth.

However, it is important than top managers do not make the mistake of over-emphasising current profitability to the detriment of long-term profitability and profit growth. Therefore, some companies are more driven by the satisfaction, profit and wealth creation it brings than others and some are better at managing capacity and capital constraints and risks than others.

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