Identify the goals and constraints encompassed in a manageri

Identify the goals and constraints encompassed in a managerial decision

Solution

Managers are the persons entrusted with the responsiility of managing day to day functioning of the organization. Usually they are professional employees having expertise in different areas of work.

Primary objective of owner in most cases, is maximization of profit. Manager is expected to function to fulfill this objective.But very often a significant variation is observed. They are aware that profit maximization will inflate the pocket of owners. They are employees. So they will function in a manner to maximize their own benefits. According to economist Baumol, instead of maximizing profit, they try to maximize sales. It has been observed that a portion of their remmuneration is fixed and balance is linked with sales. They try to maximize sales subject to achieving a reasonable profit. In an attempt to do so, sometimes goods are sold on credit without properly considering creditworthiness. Result is non recovery of dues. Thus a conflict is very often observed between owner and managers. It is known as agency problem.

In an attempt to achieve their objective, managers encounters many constraints. They are-

1. Profit maximization is the key objective of owners. They will not mind if profit is maximized without increasing sales significantly.

2. Maximization of sales depends upon many key factors like demand of product, availability of any key factor of production, government restrictions, working capital constraints etc.

3. Their are many other stakeholders in the organization like customers, laborers, government, investors. Their objectives are varied. It is necessary to satisfy them to a reasonable level, so that organization can operate smoothly and effeciently.

Thus basic task of the managers is to take decisions in such a manner that all interested parties can be satisfied so that organization can operate smoothly and effeciently. Modern economist suggest that managers should try to maximize value of the firm. It will ultimately help the concern to achieve all such objectives.