Principles of profit planning;

              The Principles of Profit Planning
by GORDON L. MURRAY Partner, Executive Office
Presented before the American Management Association orientation seminar on Profit Planning with Budgetary Control, New York City—February 1963
OUR OBJECTIVE here is to consider the broad subject of Profit Plan­ning,
as well as its various techniques, in such a context that profit planning as an approach comes into focus. A good point of departure would seem to be to raise the question, "Profit planning— what is it?"—and then proceed to attempt to answer that question. It seems to me that there is quite a bit of confusion about what profit planning really is. We all observe such terms as forecasting, budget­ing,
standard costs, responsibility accounting, responsibility report­ing,
long-range planning, and the like. When profit planning, as a term, came into vogue this term certainly confused me. In checking into the matter I found instances where profit planning was defined as budgeting, and budgeting was defined as profit planning, and all sorts of combinations in terminology. What helped resolve this mat­ter
in my mind was the realization that profit planning encompassed all these things—budgets, forecasts, responsibility reporting, stand­ards,
and so on.
In this perspective profit planning comes into focus as a structure or modus operandi for bringing together the sales forecast; a pro­duction
plan designed to meet this demand, converted to production costs; and planned or budgeted engineering, distribution, and admin­istrative
expenses necessary to support this sales and production activity. The result is planned profit, earnings per share, and return on investment. The scope of the structure may be extended to en­compass
cash requirements, inventory levels, capital asset controls, and other factors dependent on planned profits as well as the elements of sales and production underlying a profit result.
In this context profit planning is not a technique per se; rather budgets, forecasts, standards, and other elements within the structure are techniques contributing to profits and thus to a profit plan. Budgeting is not a term synonymous with profit planning but is a technique for predetermining and controlling expenses; standard costing is a technique for predetermination and control of production costs; sales forecasting is a technique or series of alternative tech­niques
for predetermining expected sales. These and other techniques may all have particular applications in a profit-planning structure.
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