Abstract

Objective Planning in Co-operative Banks

The use of planning as an instrument of management raises special problems in co-operative banks, because on the one hand it requires substantial research expenditure, while on the other hand a very large number of co-operative banks have balance sheet totals of less than DM 100 mill. A way out of this conflict is offered by co-operation, which may also take the form of support from the pertinent associations. The objective system of a bank is developed in a two-stage decision process. In the first stage, the prime objective of the bank is formulated from its basic object. In the second stage, divisional or departmental objectives are derived from the prime objective for all spheres of banking activity by way of agreement, in order to develop a closed, conflict-free objective system, to coordinate all sub-decisions and orient them to the prime objective. Under $ 27, para. 1 of the Co-operatives Act, responsibility for laying down the prime objective of co-operative banks rests exclusively with the managing board, though its management activities are subject to the control of the supervisory board. The supervisory board must assess managerial planning according to whether the planned measures are suitable to achieve the basic co-operative object. Under $ 1 of the Co-operatives Act, that object consists in “promoting the gainful activity or business of its members by means of a collectively owned business undertaking”. This basic object must be translated by the management into operational objectives. In the long run, however, that basic object can be achieved only if the existence of the institution is secured. Hence additional security objectives must be formulated. In the second phase of objective planning, specification of divisional objectives (budgeting), exactly quantified objective agreements must be reached with the division managers. Essentially, such budgeting consists in estimating planned objectives and specifying them for the various spheres, comparison with the results achieved, i.e. actual figures compared with target figures, and analysıs of deviations from the budget. Either special planning departments or planning comittees can be entrusted with elaborating the budgeting system. A single drafting, once and for all, of such a system by a planning committee should be possible also in small banks, as the organizational effort is limited.