How does planning facilitate control in business?

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Planning facilitates control in business in that it defines parameters or boundaries in which a business should and often must operate within to remain viable. These parameters impose controls on the business because they compel operating managers to not go beyond these boundaries as they operate their businesses on a...

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Planning facilitates control in business in that it defines parameters or boundaries in which a business should and often must operate within to remain viable. These parameters impose controls on the business because they compel operating managers to not go beyond these boundaries as they operate their businesses on a day-to-day basis.

Planning involves budgeting. A company sets forth an operational budget and for example, a retail business may have an operating budget of $500,000 for a fiscal year. If it goes beyond this figure it may cause erosion of their profits and even endanger the viability of the business if the situation is not rectified.

Therefore, this planning – this budget that was planned – is to make sure management stays within the budget boundary, at the risk of being penalized personally as managers in the form of no bonuses or pay raises. Also, it is to ensure the financial health of the overall business. So, this budget controls the activities of the operating managers.

In addition, planning involves human resource decisions. A business may have a limit on how many employees it can afford to pay. Therefore, it directs its human resources department to hire only so many employees in a given year. This again, involves budgeting, knowing how much money can be allocated to staffing. Accordingly, staffing planning controls the human resource function as they cannot make decisions that result in too many hires.

Furthermore, planning involves inventory control in manufacturing, wholesale, and retail businesses. A company will only allocate so much funds to inventory on hand. It doesn’t want too much inventory of materials, or products on hand that sit in backrooms too long not earning money via sales. Therefore, this planning of inventory leads to operating mangers having controls placed on them as to how much inventory they can buy – they may want to buy more – but are directed not to because of decisions made in the planning process.

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