1 Planning

PLANNING

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 3–1

• Steps,Dimensions,Nature of Planning• Types of Plans• Planning Tools

BudgetsMBO

• Merits,Limitations,Barriors in Planning• Types of Strategies

Forcasting Decision Making


The roles of planning and controlling in the management process


Plans: A Definition

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Planning Defined

• Defining the organization’s objectives or goals• Establishing an overall strategy for achieving

those goals• Developing a comprehensive hierarchy of plans

to integrate and coordinate activities

Planning is concerned with ends (what is to be done) as well as with means (how it is to be done).

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Reasons for Planning

EXHIBIT 3.1

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How do managers plan?

Benefits of planning: Improves focus and flexibility.

Improves action orientation.

Improves coordination.

Improves time management.

Improves control.

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Criticisms Of Formal Planning

• Planning may create rigidity.• Plans can’t be developed for a dynamic

environment.• Formal plans can’t replace intuition and

creativity.• Planning focuses managers’ attention on today’s

competition, not on tomorrow’s survival.• Formal planning reinforces success, which may

lead to failure.

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Planning and Performance

• Formal planning generally means higher profits, higher return on assets, and other positive financial results.

• Planning process quality and implementation probably contribute more to high performance than does the extent of planning.

• When external environment restrictions allowed managers few viable alternatives, planning did not lead to higher performance.

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What types of plans do managers use?Short-range and long-range plans

Short-range plans = 1 year or less Intermediate-range plans = 1 to 2 yearsLong-range plans = 3 or more years

People vary in their capability to deal effectively with different time horizons.

Higher management levels focus on longer time horizons.

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What types of plans do managers use?

Strategic and operational plansStrategic plans — set broad, comprehensive, and

longer-term action directions for the entire organization.

Operational plans — define what needs to be done in specific areas to implement strategic plans. Production plans Financial plans Facilities plans Marketing plans Human resource plans

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What types of plans do managers use?Policies and procedures

Standing plans Policies and procedures that are designed for repeated

use.Policy

Broad guidelines for making decisions and taking action in specific circumstances.

Rules or procedures Plans that describe exactly what actions are to be taken

in specific situations.

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What types of plans do managers use?Budgets and project schedules

Single-use plansOnly used once to meet the needs and objectives of a well-

defined situation in a timely manner.Budgets

Single-use plans that commit resources to activities, projects, or programs.

Fixed, flexible, and zero-based budgets.Projects

One-time activities that have clear beginning and end points. Project management and project schedules.

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Types of Plans

BREADTH TIME SPECIFICITY FREQUENCY OF USE FRAME OF USE

Strategic Long term Directional Single use

Tactical Short term Specific Standing

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Planning: Focus and Time

• Strategic plansPlans that are organization-wide, establish overall

objectives, and position an organization in terms of its environment

• Tactical plansPlans that specify the details of how an organization’s

overall objectives are to be achieved• Short-term plans

Plans that cover less than one year• Long-term plans

Plans that extend beyond five years

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Strategic Planning

• Strategic plans Apply broadly to the entire organizationEstablish the organization’s overall objectivesSeek to position the organization in terms of its

environment Provide direction to drive an organization’s efforts to

achieve its goals.Serve as the basis for the tactical plans.Cover extended periods of timeAre less specific in their details

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Tactical Planning

• Tactical plans (operational plans)Apply to specific parts of the organization.Are derived from strategic objectivesSpecify the details of how the overall objectives are to

be achieved.Cover shorter periods of timeMust be updated continuously to meet current

challenges

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Directional versus Specific Plans

EXHIBIT 3 .3

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Specific and Directional Plans

• Specific plansPlans that have clearly defined objectives and leave

no room for misinterpretation “What, when, where, how much, and by whom”

(process-focus)

• Directional plansFlexible plans that set out general guidelines

“Go from here to there” (outcome-focus)

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Single-Use and Standing Plans

• Single-use plansA plan that is used to meet the needs of a particular

or unique situation Single-day sales advertisement

• Standing planA plan that is ongoing and provides guidance for

repeatedly performed actions in an organization Customer satisfaction policy

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Management by Objectives

• Management by Objectives (MBO)A system in which specific performance objectives are

jointly determined by subordinates and their supervisors, progress toward objectives is periodically reviewed, and rewards are allocated on the basis of that progress.

Links individual and unit performance objectives at all levels with overall organizational objectives

Focuses operational efforts on organizationally important results.

Motivates rather than controls

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Management by objectives as an integrated planning and control framework.

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What are the common organizational controls?MBO involves a formal agreement specifying …

Workers’ performance objectives for a specific time period.

Plans through which performance objectives will be accomplished.

Standards for measuring accomplishment of performance objectives .

Procedures for reviewing performance results.

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Cont..

The MBO process:Supervisor and workers jointly set objectives,

establish standards, and choose actions.Workers act individually to perform tasks; supervisors

act individually to provide necessary support.Supervisor and workers jointly review results, discuss

implications, and renew the MBO cycle.

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Types of MBO performance objectives ImprovementPersonal developmentMaintenance

Criteria for effective performance objectivesSpecificTime definedChallengingMeasurable

Cont..

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Cont..

Pitfalls to avoid in using MBOTying MBO to pay.

Focusing too much attention on easily quantifiable objectives.

Requiring excessive paperwork.

Having managers tell workers their objectives.

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Cont..Advantages of MBO

Focuses workers on most important tasks and objectives.

Focuses supervisor’s efforts on important areas of support.

Contributes to relationship building.Gives workers a structured opportunity to participate

in decision making.

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Cascading of Objectives

EXHIBIT 3.4

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Elements of MBO

• Goal specificity• Participative decision making• Explicit time period for performance• Performance feedback

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Setting Employee Objectives

• Identify an employee’s key job tasks.• Establish specific and challenging goals for each

key task.• Allow the employee to actively participate.• Prioritize goals.• Build in feedback mechanisms to assess goal

progress.• Link rewards to goal attainment.

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Strategic Management

• Strategic Management ProcessA nine-step process that involves strategic planning,

implementation, and evaluation• The organization’s current identity

Mission statement Defines the purpose of the organization

ObjectivesStrategic plan

A document that explains the business founders vision and describes the strategy and operations of that business.

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The Strategic Management Process

EXHIBIT 3.5

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Analyze the Environment

• Environmental scanningScreening large amounts of information to detect

emerging trends and create a set of scenarios• Competitive intelligence

Accurate information about competitors that allows managers to anticipate competitors’ actions rather than merely react to them

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SWOT: Identifying Organizational Opportunities

EXHIBIT 3.6

SWOT analysisAnalysis of an organization’s strengths, weaknesses, opportunities, and threats in order to identify a strategic niche that the organization can exploit


SWOT :SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture.

It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective

• Strengths: attributes of the person or company that are helpful to achieving the objective.

• Weaknesses: The absence of certain strengths maybe considered a weakness.

• Opportunities: external conditions that are helpful to achieving the objective.

• Threats: changes in the external conditions which could do damage to the objective.

Creative use of SWOT

• How can we Use and Capitalize on each Strength?

• How can we Improve each Weakness? • How can we Exploit and Benefit from each

Opportunity? • How can we Mitigate each Threat ?

Environmental Scan

• Internal Analysis External Analysis

Strengths Weaknesses Opportunities Threats

SWOT Matrix

SWOT analysis framework

Strengths :• Strong brand name • Good reputation among customers • Exclusive access to high grade natural

resources • Favourable access to distribution networks

Weakness:

• A weak brand name • Poor reputation among customers • High cost structure • Lack of access to best natural resources

Opportunities:

• An unfulfilled customer need • Arrival of new technologies • Loosening of regulations • Removal of international trade barriers

Threats:

• Shift in consumer tastes away from the firm’s products

• Emergence of substitute products • New regulations • Increased trade barriers

SWOT MATRIX

Strengths Weakness

Opportunities

S-O Strategies

W-O Strategies

Threats S-T Strategies

W-T Strategies

The SWOT matrix

• S-O Strategies: Pursue opportunities that are a good company’s fit to the company’s strengths

• W-O Strategies: Overcome weaknesses to pursue opportunities

• S-T Strategies: Identify ways to use strengths to reduce vulnerability to external threats

• W-T Strategies: Establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats

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SWOT Analysis• Strengths (strategic)

Internal resources that are available or things that an organization does well Core competency: a unique skill or resource that

represents a competitive edge• Weaknesses

Resources that an organization lacks or activities that it does not do well

• Opportunities (strategic) Positive external environmental factors

• Threats Negative external environmental factors

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Grand Strategies• Growth strategy

A strategy in which an organization attempts to increase the level of its operations;

• Retrenchment strategy A strategy characteristic of a company that is reducing its

size, usually in an environment of decline• Combination strategy

The simultaneous pursuit by an organization of two or more of growth, stability, and retrenchment strategies

• Stability strategy A strategy that is characterized by an absence of significant

change

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Growth Strategies

• MergerOccurs when two companies, usually of similar size,

combine their resources to form a new company• Acquisition

Occurs when a larger company buys a smaller one and incorporates the acquired company’s operations into its own

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Competitive Strategies

• Strategies that position an organization in such a way that it will have a distinct advantage over its competitionCost-leadership strategy

Becoming the lowest-cost producer in an industryDifferentiation strategy

Attempting to be unique in an industry within a broad market

Focus strategy Attempting to establish an advantage

(cost/differentiation) in a narrow market segment

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Benchmarking

• BenchmarkingThe search for the best practices among competitors

or noncompetitors that lead to their superior performance

• ISO 9000 seriesStandards designed by the International Organization

for Standardization that reflect a process whereby independent auditors attest that a company’s factory, laboratory, or office has met quality management standards

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Attaining Six Sigma Quality

• Six sigmaA philosophy and measurement process developed in

the 1980s at Motorola.To design, measure, analyze, and control the input

side of a production process to achieve the goal of no more than 3.4 defects per million parts or procedures.

A philosophy and measurement process that attempts to design in quality as a product is being made.


Six Sigma 12-Process Steps• Select the critical-to-quality characteristics.• Define the required performance standards.• Validate measurement system, methods, and procedures.• Establish the current processes capability.• Define upper and lower performance limits.• Identify sources of variation.• Screen potential causes of variation to identify the vital few variables needing

control.• Discover variation relationship for the vital variables.• Establish operating tolerances on each of the vital variables.• Validate the measurement system’s ability to produce repeatable data. • Determine the capability of the process to control the vital variables.

Implement statistical process control on the vital variables.

Source: Cited in D. Harold and F. J. Bartos, “Optimize Existing Processes to Achieve Six Sigma Capability,” reprinted with permission from Control Engineering, March 1998, p.87, © Cahners Business Information.


Identifying A Competitive Advantage

• Environmental sources of entrepreneurial opportunityThe unexpectedThe incongruousThe process need Industry and market structuresDemographicsChanges in perceptionNew knowledge


Planning Tools

What is forecasting?

Forecasting is a tool used for predicting future demand based onpast demand information.

Why is forecasting important?

Demand for products and services is usually uncertain.

Forecasting can be used for…

• Strategic planning (long range planning)

• Finance and accounting (budgets and cost controls)

• Marketing (future sales, new products)

• Production and operations

What is forecasting all about?

Demand for Mercedes E Class

TimeJan Feb Mar Apr May Jun Jul Aug

Actual demand (past sales)

Predicted demand

We try to predict the future by looking back

at the past

Predicted demand looking back six months

From the March 10, 2006 WSJ:

Ahead of the Oscars, an economics professor, at the request of Weekend Journal, processed data about this year's films nominated for best picture through his statistical model and predicted with 97.4% certainty that "Brokeback Mountain" would win. Oops. Last year, the professor tuned his model until it correctly predicted 18 of the previous 20 best-picture awards; then it predicted that "The Aviator" would win; "Million Dollar Baby" won instead.

Sometimes models tuned to prior results don't have great predictive powers.

What’s Forecasting All About?

Some general characteristics of forecasts• Forecasts are always wrong• Forecasts are more accurate for groups or families

of items• Forecasts are more accurate for shorter time

periods• Every forecast should include an error estimate• Forecasts are no substitute for calculated demand.

Key issues in forecasting

1. A forecast is only as good as the information included in the forecast (past data)

2. History is not a perfect predictor of the future (i.e.: there is no such thing as a perfect forecast)

REMEMBER: Forecasting is based on the assumption that the past predicts the future! When forecasting, think

carefully whether or not the past is strongly related to what you expect to see in the future…

• Forecasting (continued)Methods of Sales Forecasting

Jury of Executive Opinion Method

Delphi method:

Step 1— Experts are asked to answer, independently and in writing, a series of questions

Step 2— A summary of all the answers is then prepared

Step 3— Copies of the summary are given to the individual experts

Step 4— Another summary is made of these modifications

Step 5— Third summary made of opinions and justifications, and copies are again distributed

Step 6— Forecast generated from all of the opinions and justifications that arise from step 5

• Forecasting (continued)Methods of Sales Forecasting (continued)

Salesforce Estimation Method

Time Series Analysis Method

– Product Stages

Evaluating Sales Forecasting Methods

Planning Tools

• SchedulingGantt Charts

Coordinate organizational resources

Establish realistic worker output standards

PERT charts

Representing and Scheduling Project Plans• Gantt Charts

Useful for depicting simple projects or parts of large projects

Show start and completion dates for individual tasks• PERT Charts

PERT = Program Evaluation Review TechniqueShow order of activities or dependencies between

activities

UWO Computer Science Department

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Gantt Charts

•Graphical Representation of a schedule•Helps to plan, coordinate and track specific tasks in a project•Named after Henry Gantt who invented them in 1917•Depicts some of the same information as on a PERT chart•Also depicts new information

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Example Gantt ChartTASKS

A Study current email systemB Define end-user requirementsC Design Class diagramD Acquire computer technologyE Plan & code email modulesF Acceptance test new systemG Deliver new system

1 2 3 4 5 6 7 8 9 10 11 12 TodayQuestions: From the above, can you guess:

•Which, if any, tasks should have been completed by today and aren’t even started? ______

•Which, if any, tasks have been completed? ______

•Which, if any, tasks have been completed ahead of schedule:? ______

•Which, if any, tasks are on or ahead of schedule? _________

•Which, if any, tasks are behind schedule? ________

Figure 3-16Graphical diagrams that depict project plans (a) A Gantt Chart (b) A PERT chart

Planning Tools

April 6, 2006 LIS580- Spring 2006 70

FIGURE 4–8

Gantt Scheduling Chart for Acme Strategic Report Projects, Jan 1–15, 2003

G.Dessler, 2003


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PERT Charts

•PERT = Project Evaluation and Review Technique•PERT chart = graphical representation of the scheduling of events in a project•Sample PERT Chart:

•A PERT chart is a graph Edges are tasks/activities that need to be done Nodes are the events or milestones

•Task edge T from event node E1 to event node E2 signifies: Until event E1 happens, task T cannot be started Until task T finishes, event E2 cannot happen

•Events often simply represent completion of tasks associated with arrows entering it

1 00

2 44

3 106

4 77

A4

B2

C3 5 10

10D3

6 1313

E3

F 3


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PERT Chart Event Nodes

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Event Number:

Sequence number assigned

Only task edges indicate dependencies

Earliest Completion Time (ECT):

Earliest time this event can be achieved, given

durations and dependencies

Latest Completion Time (LCT):

Latest time that this event could be safely achieved

Sample PERT Chart

• Scheduling (continued) Program Evaluation and Review Technique (PERT)

Defining PERT

Features Critical Path

Steps in Designing a PERT Network

Step 1—List all the activities/events that must be accomplished and the sequence

Step 2—Determine how much time will be needed to complete each activity/event

Step 3—Design PERT network that reflects all of the information in steps 1 and 2

Step 4—Identify the critical path

Planning Tools

Comparison of Gantt and PERT Charts

• GanttVisually shows

duration of tasksVisually shows

time overlap between tasks

Visually shows slack time

• PERTVisually shows

dependencies between tasks

Visually shows which tasks can be done in parallel

Shows slack time by data in rectangles

© Lethbridge/Laganière 2005Chapter 11: Managing the Software

Process

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Bouncy Castle PERT Example using MS Project

© Lethbridge/Laganière 2005Chapter 11: Managing the Software

Process

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Bouncy Castle Gantt Example using MS Project

In MS Project set the task length to be 0 to get a milestone

Documents

1 Planning