Which statement best defines Management by Objectives (MBO)?

• A. A method of budgeting where resources are allocated by department.
• B. A system where managers and employees set specific, measurable goals together.
• C. A process for external stakeholder engagement.
• D. An approach to performance appraisals focusing on outputs.

Answer: (B)

Management by Objectives centers on managers and employees working together to set clear, specific, and measurable goals that are aligned with the organization’s aims. The defining feature is joint goal setting, followed by planning, action, and regular reviews to monitor progress; success is judged by how well the agreed objectives are achieved. This participative process provides clarity, accountability, and motivation because everyone knows what to aim for and how their work contributes to broader results. The approach often uses SMART criteria and cascades goals from the top down to ensure alignment. By contrast, budgeting by department focuses on resource allocation rather than goal setting, external stakeholder engagement concerns relationships outside the organization, and evaluating performance solely on outputs misses the collaborative, goal-oriented, and measurement-driven nature that characterizes MBO.