Business Laws and Management · Introduction to Management

Management by Objectives and Decision Making for CSEET

Updated 11 October 2026 · Fact-checked

Management by Objectives (MBO) is a system where managers and subordinates agree on goals, work towards them, and review results against them. Decision making is choosing the best option from alternatives. For MCQs, learn the MBO steps, its limits, the types of decisions and the order of the decision process.

Understand Management by Objectives and Decision Making

Management by Objectives (MBO) is a method of managing in which the manager and the employee together set clear, measurable goals for a fixed period. The employee then works to achieve them. Performance is reviewed against those goals. The idea was popularised by Peter Drucker, who wrote about it in 1954.

Why does it work? People work better when they know exactly what is expected and have a say in setting it. Goals become shared, not just orders from above. Appraisal also becomes fairer because it is based on results, not on the boss's impression.

MBO runs in a cycle. The top level sets organisational goals. These are broken down into departmental and individual goals. Each person agrees on targets, works on them, and gets feedback. At the end of the period results are reviewed and new goals are set.

Decision making is the process of choosing one course of action from several alternatives. A manager decides all day: what to produce, whom to hire, which supplier to pick. It is needed only when there is more than one option. If there is a single option, there is nothing to decide.

Decisions are classified in many ways. Programmed decisions are routine and follow set rules, such as issuing stationery. Non-programmed decisions are new and unstructured, such as entering a new market. Strategic decisions are taken by top management and affect the whole firm. Tactical (administrative) decisions are taken by middle management. Operational decisions are daily decisions by lower management. Decisions can also be individual or group, and policy or operating.

Key formulas to remember

MBO process (typical order): Set organisational goals → Set individual/departmental goals → Participative agreement on targets → Action plans → Monitoring and feedback → Performance appraisal; Textbooks vary slightly in wording. The logic stays the same: goals first, review last, then the cycle repeats.
Decision-making process (typical order): Identify the problem → Gather information and analyse → Develop alternatives → Evaluate alternatives → Select the best → Implement → Follow up and evaluate; Identifying the problem always comes first. Follow-up comes last.
Good objectives (SMART): Specific, Measurable, Achievable, Realistic, Time-bound; Some books use Relevant for R. Use the version given in your study material.
Decision types by level: Strategic = top level; Tactical = middle level; Operational = lower level; A common matching question in MCQs.
Programmed vs non-programmed: Programmed = routine, rule-based; Non-programmed = new, unique, needs judgement; Programmed decisions suit lower levels. Non-programmed ones are more common at top levels.

How to solve Management by Objectives and Decision Making questions

Most questions on this topic ask you to define, list in order, match, or tell benefit from limitation. Use this method.

1Read the question and mark the keyword: MBO, objective, decision, programmed, strategic, step, benefit, limitation.
2Decide what is asked: a definition, a sequence, a type, or an advantage or drawback.
3For sequence questions, recall the order from the first step to the last. Goal setting comes first in MBO. Problem identification comes first in decision making.
4For type questions, look for clues. Routine and rule-based means programmed. New and unusual means non-programmed. Whole-firm and long-term means strategic.
5For benefit or limitation questions, ask whether it helps or hurts. Clarity, motivation and fair appraisal are benefits. Time, rigidity and short-term focus are limitations.
6Remove options that clearly contradict the concept, then pick the best match.
7For written answers, give a one-line definition, then points in order, then a short example.

Quickest way: Keyword matching for MCQs

When to use it: Use it in the OMR paper when you have under a minute per question.

Link each term to one clue word: MBO to participation and results; programmed to routine; non-programmed to new; strategic to top level.
For order questions, check the first and last steps in the options. Wrong options usually break these.
Watch for words like only, always and never. They often make an option wrong.
If two options look close, choose the one that fits the level of management or the nature of the problem.

Common mistakes in Management by Objectives and Decision Making

Thinking MBO means the boss sets targets and the employee follows.
Students confuse it with ordinary target setting.
Fix: Remember that participation is the core of MBO. Goals are agreed jointly.
Placing performance review before action or goal setting in the MBO steps.
Students memorise the steps without understanding the logic.
Fix: Ask what must exist before you can review. Goals and action come first.
Starting the decision process with alternatives instead of problem identification.
Students jump to solutions.
Fix: You cannot list alternatives until you know the problem. Define the problem first.
Mixing up programmed and non-programmed decisions.
The names sound technical and similar.
Fix: Programmed means a pre-set programme or rule exists. Non-programmed means no rule exists yet.
Listing a benefit as a limitation, such as saying MBO improves motivation as a drawback.
Students read quickly and miss the direction of the statement.
Fix: Sort points into helps or hurts. Motivation and clarity help. Time cost and short-term focus hurt.
Treating decision making as only a top-level job.
Students link decisions with senior managers.
Fix: Every manager decides. Only the type and scale differ by level.

Worked examples

Example 1

Arrange these MBO steps in the correct order: (A) Review performance against goals, (B) Agree individual targets with subordinates, (C) Set organisational objectives, (D) Monitor progress and give feedback.

Show the solution

Goals start at the top, so C comes first.
Individual targets are then agreed with subordinates, so B is second.
Work then proceeds and progress is monitored with feedback, so D is third.
The final review against goals is A.

Answer: C → B → D → A

Example 2

A manager at an Indian retail company, Sharma Traders, must decide whether to open a branch in a new city, where the company has never operated. Classify the decision and justify your answer.

Show the solution

The situation is new. There is no standard rule, so it is a non-programmed decision.
It affects the direction and resources of the whole firm for a long time, so it is a strategic decision.
Such decisions are usually taken by top management, often as a group after analysis.
Apply the process: identify the problem, gather market data, develop alternatives such as a new branch, franchise or online sales, evaluate them, select, implement and follow up.

Answer: It is a non-programmed, strategic decision, taken by top management using the full decision-making process.

Exam tips

Learn the MBO steps and decision-process steps as ordered lists. Sequence questions are easy marks if you know the order.
Prepare one-line benefits and one-line limitations of MBO. Questions often ask which is a limitation.
Make a small table in your head: strategic, tactical, operational against top, middle and lower level.
For written answers, add a short Indian example. It makes the answer clear and easy to mark.
There is no negative marking in the OMR paper, so attempt every question.

Practice questions from Introduction to Management

Management by Objectives and Decision Making in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Management by Objectives and Decision Making: frequently asked questions

Who gave the concept of Management by Objectives?

Peter Drucker introduced it in his 1954 book The Practice of Management. Later writers such as George Odiorne and John Humble developed it further.

What are the main limitations of MBO?

It takes time and paperwork. It may stress short-term, measurable goals over long-term or qualitative ones. It can fail if top management does not support it or if goals are set unrealistically. Frequent change in conditions can make agreed goals outdated.

What is the difference between programmed and non-programmed decisions?

Programmed decisions are routine and follow set rules or procedures. Non-programmed decisions are new and unstructured, so they need judgement and analysis. The first are common at lower levels and the second at higher levels.

What is the first step in the decision-making process?

The first step is to identify and define the problem. Only after that can you collect information, develop alternatives and choose among them.