chapter 6 - the basics of planning

6 | 1© 2009 South-Western, Cengage Learning

Principles of Management 11e

Kreitner

Chapter 6The Basics of Planning


Chapter Objectives

• Distinguish among state, effect, and response uncertainty.

• Identify and define three types of planning.• Write good objectives and discuss the role of

objectives in planning.• Describe the four-step management by

objectives (MBO) process and explain how it can foster individual commitment and motivation.


Coping with Uncertainty

• Planning– Coping with uncertainty by formulating courses of

action to achieve specified results.– Management function that involves defining goals,

establishing strategies for achieving those goals, and developing plans to integrate and coordinate activities.

• Three Types of Uncertainty• State uncertainty: Occurs when the environment, or a portion of

the environment, is considered unstable• Effect uncertainty: Occurs when impacts of environmental

change are unpredictable• Response uncertainty: Arises when the consequences of

decisions are unpredictable


Coping with Uncertainty (cont’d)

• Organizational Responses to Uncertainty– Defenders: Relying on a primary technology and

narrow product line to remain competitive– Prospectors: Also called Pioneers, seeking first-

mover advantage by aggressively making things happen and not waiting for them to happen

– Analyzers: Following the market leader and imitating what works, avoiding expensive R&D mistakes. Example, generic drug companies.

– Reactors: Waiting for adversity (e.g., declining sales) to occur before taking corrective action. The exact opposite of Prospectors.


The Essentials of Planning

• A Plan:– Is a specific documented intention consisting of an

objective (end) and an action statement (means). It is a document that outline how goals and objectives are going to be met.

– States what, when, and how something is to be done

• Essentials of Sound Planning– Organizational mission– Types of planning– Objectives– Priorities– The planning/control cycle


Organizational Vision & Mission

• Vision is what the organization wants in the future.• Mission is a statement of the purpose of an

organization. A clear, formally written, and publicized statement that guides the organization by:– Defining the organization for key stakeholders– Outlining how the vision will be accomplished– Establishing key priorities– Stating a common goal and fostering togetherness– Creating a philosophical anchor for the organization– Empowering organization members


Organizational Mission

NASA’S VISION (1961):

“To improve life here, to extend life to there, to find life beyond.”

NASA’S MISSION (1961):

“Achieving the goal before this decade is out of landing a man on the moon and returning him safely to earth.”


Types of Planning

1. Strategic planning: Determining how to pursue long-term goals with available resources. It is organization wide, establish overall objectives, and position an organization in terms of its environment.. It covers a broader view of the organization, deals less with specific areas and where the objectives are being formulated. It has an extended time period of one year to ten years.

2. Intermediate planning or Tactical Planning: Determining subunits contribution with allocated resources. It is created and implemented by middle managers that specify how the company will use resources, budgets, and people over the next six months to two years to accomplish specific goals within its mission. It is the process of making detailed decisions about what to do, who will do it, and how to do it. Covers a period of six months to two years.


Types of Planning

3. Operational planning: Determining how to accomplish specific tasks with available resources. It specifies details on how overall objectives are to be achieved. It covers shorter periods of time as weekly, monthly up to one year.


• Action plan: defines the objective by expressing it in terms of specific actions or operations. It helps the supervisor stay organized, coordinate his teams activities and keep projects on schedule. The action plan states specifically what steps or tasks will be accomplished to achieve the objective. It includes a schedule with deadlines for significant actions, resources necessary to achieve the objective, and methods to measure the objective.


Budget

• A numerical plan for allocating resources to specific activities.

• It is basically the translation of the organization’s carefully developed plans and programs to financial and other quantitative data.

• It includes an estimate of expected income and expenditures of the company drawn up in detail, showing where the money is coming from and where it will go.


Figure 6.2: Types of Planning


Planning Horizon

• The elapsed time between the formulation and the execution of a planned activity– Planning horizon length corresponds to the type of

plan with which it is associated; lengths shorten as the planning process evolves from strategic to intermediate to operational plans.


Objectives

• An objective is a commitment to achieve a measurable result within a specified period. It is the statement about the desired accomplishments expressed in more specific and measurable terms. It is a statement of what is to be done and stated in terms of results.

• Writing Good Objectives– Objectives should be expressed in quantitative,

measurable, and concrete terms.• What specific result is to be achieved?• When is the result to be achieved?• How is the result to be measured?• Who will be responsible for achieving the result?


Objectives

STATEMENT OF OBJECTIVE:

“Earning per share will grow at a compounded rate of 20% in the next five years.”


Objectives (cont’d)

• The Importance of Objectives (Uses of)– Target: Sets specific goals to achieve– Measuring stick: Gauges how much was achieved– Commitment: Encourages pursuit of the objective– Motivation: Provides a challenge for achievement

• The Means-Ends Chain of Objectives– Achievement of lower-level objectives creates a

means for achieving higher-level objectives.


Figure 6.3: A Typical Means-Ends Chain of Objectives


Priorities• Priorities are a ranking of goals, objectives, or

activities in order of importance to guide the order and timing of decisions.

• Management looks at its priorities when deciding how to allocate resources.

• The 80/20 Principle (Pareto Analysis by Joseph M. Juran)– A majority of causes, inputs, or effort tends to

produce a majority of results, outputs, or rewards.

• Avoid the busyness trap. Activities and speed, without results are an energy-sapping waste of time.


The Planning/Control Cycle

• Planning sets in motion activities to accomplish the planned objectives.

• Control functions direct and monitor activities for deviations from plans (i.e., attainment of objectives).

• Planning uses feedback from controls to improve/alter plans and implement corrective actions where necessary.


The Planning and Control Processes

Define Vision

Identify Mission

Set Goals & Objectives

Develop & Implement Strategic Plans with Budget

Develop & Implement Tactical Plans with Budget

Develop & Implement Operational/Action Plans with Budget

Determine Areas to Control

Establish Standards

Measure Performance

Compare Performance

Against Standards

Standards met?

Recognize Performance

Take Corrective Action as necessary

Adjust Standards & Measures as necessary

YES

NO


Management by Objectives

• Management by Objectives (Peter Drucker)– A comprehensive management system based on

measurable, participatively set objectives

• The MBO Cycle– Step 1: Setting objectives– Step 2: Developing action plans– Step 3: Periodic review– Step 4: Performance appraisal


End of Chapter 6


Name: Midterm Seatwork#01:Section: Date:

You are presently a first year college student taking up Accountancy/Marketing/HRM. Your ambition is to be a successful CPA/Marketing executive/Hotel/Restaurant Manager and see the world. You wish to have a successful career in order to help your family and be rich in the future.

Prepare your Vision, Mission, Objective and Action Plan in the following format:

VISION:MISSION:OBJECTIVE:ACTION PLAN:

1.

2.3.4.5.


Figure 6.4: The Basic Planning/Control Cycle


Figure 6.5: MBO’s Strengths and Limitations


Project Planning and Management

• Project– A temporary endeavor to achieve a particular aim.– A one-time only set of activities that has a definite

beginning and ending point in time.

• The Project Life Cycle– Conceptualization: Setting project goals and

objectives– Planning: Organizing facilities and equipment,

personnel and task assignments, and scheduling– Execution: Beginning actual work on the project – Termination: Turning the project over to the end user

and phasing out project resources


Figure 6.6: The Project Life Cycle and Project Planning Activities


Project Management Software

• Important attributes: flexibility and transparency– Identify and schedule need-to-do activities.– Dynamically shift priorities and schedules.– Provide critical path analysis.– Provide flexibility for plan modifications.– Set priority levels.– Manage all resources flexibly.– Merge plans.– Issue manager alerts for project slippage.– Automatically record time to map against project.– Identify time spent on activities.


Project Management Guidelines

• Projects are schedule-driven and results-oriented.

• The big picture and the little details are of equal importance.

• Project planning is a necessity, not a luxury.• Project managers know the motivational power

of a deadline.


Graphic Planning/Scheduling/Control Tools

• Flow Charts– Arrange events in the order of their actual or desired

occurrence (flow)– Eliminate wasted steps and activities (work

simplification)– Are useful for identifying task components and in

Total Quality Management (TQM)– Potential problems:

• They do not indicate the time dimension of tasks.• They are not practical for complex operations where several

activities occur at once.


Figure 6.7: A Sample Flow Chart


Graphic Planning/Scheduling/Control Tools (cont’d)

• Gantt Charts– A graphic scheduling technique historically used in

production operations• Useful for scheduling large projects where time for each

activity can be specified and progress assessed• Potential problem: Overly complex endeavors are too

cumbersome for Gantt charts.


Figure 6.8: A Sample Gantt Chart


Graphic Planning/Scheduling/Control Tools (cont’d)

• Program Evaluation and Review Technique (PERT) Networks– Developed in 1958 for use in the development of the

U.S. Navy’s Polaris submarine-launched missile project

– Graphic sequencing and scheduling tool for large, complex, and nonroutine projects


PERT Networks

• PERT Terminology– Event: Denotes a performance milestone– Activity: Work (jobs) in process– Time: Estimated weighted times for completion of an

activity—optimistic (most likely) and pessimistic– Critical path: The most time consuming (longest)

chain of required activities and events in a PERT network that must be completed on time or else the entire project will be delayed


PERT Networks (cont’d)

• Formula for Calculating Estimated PERT Times

Te = Time estimate (average)

To = Time estimate (optimistic)

Tm = Time estimate (most likely)

Tp = Time estimate (pessimistic)

6

4 pmoe

TTTT


PERT Networks (cont’d)

• Positive and Negative Aspects of PERT– Excellent scheduling tool for large, nonroutine

projects– Requires envisioning projects in their entirety– Provides a tool for predicting resource needs,

potential problem areas, and the effect of delays– Inappropriate for repetitive assembly-line operations– Only as good as its underlying assumptions about

event completion times– Can be too time-consuming if not computerized


Figure 6.9: A Sample PERT Network


Break-Even Analysis

• Break-Even Point– The level of sales at which there is no loss or profit– The point at which the total of fixed and variable

costs is equal to total sales revenues

• Fixed Versus Variable Costs– Fixed costs: Contractual costs that must be paid

regardless of output or sales– Variable costs: Costs that vary directly with

production and sales


Break-Even Analysis (cont’d)

• The Algebraic Method

• The difference between unit selling price P and unit variable costs VC is the contribution margin that can be applied to recovering fixed costs.

VCP

FCBEP

)unitsin(

FC = total fixed costs

P = selling price (per unit)

VC = variable costs (per unit)

BEP = break-even point (in units)



• Price Planning– Determining the impact of changes in unit selling

price on the break-even point in units• Rising prices decrease the break-even point; lower prices

increase the break-even point.

000,1047

000,30)unitsin(

BEP

000,1546

000,30)unitsin(

BEP



• Profit Planning– Determining the required level of output to achieve a profit

objective

VCP

FCBEP

profitdesired)unitsin(

000,2047

000,30000,30)unitsin(

BEP


Figure 6.10: Graphic Break-Even Analysis


Break-Even Analysis: Strengths and Limitations

• Planners are forced to interrelate cost, volume, and profit in a realistic way.

• Planners are able to ask what-if questions concerning the impact of price, costs, and profit objective changes.

• A neat separation of fixed and variable costs is difficult to achieve.

• Complex factors in supply and demand interfere with the linear projections (point estimates) of the analysis.


Summary

• Planning is the primary management function.• A properly written plan tells what, when, and

how something is to be accomplished.• Objectives are the single most important feature

of the planning process.• Management by objectives (MBO) is based on

measurable and participatively set goals.


Summary (cont’d)

• Project planning occurs throughout the project life cycle.

• Flow charts, Gantt charts, and PERT networks are graphical tolls for planning, scheduling, and controlling operations.

• Break-even analysis gauges the impact of price changes and profit objectives on sales volume.


Terms to Understand

• Planning• State uncertainty• Effect uncertainty• Response uncertainty• Plan• Strategic planning• Intermediate planning• Operational planning• Planning horizon• Objective• Priorities• 80/20 principle• Management by objectives

(MBO)

• Project • Gantt chart• Program Evaluation and

Review Technique (PERT)• PERT event• PERT activity• PERT times• Critical path• Break-even analysis• Fixed costs• Variable costs• Contribution margin


Name: Midterm Seatwork#1Section: Date:

Fernando is presently a 4th year high school student. He would like to have a career in business, have a good job and earn enough income to help his family and for himself to live comfortably.

Prepare Fernando’s Vision, Mission, Goal, Objective, and the Strategies he must do to realize his dream in the following format:

VISION / MISSION:GOAL / OBJECTIVE:STRATEGY:TACTICS:OPERATIONS:


A PAPER ON THE BEST MANAGED ORGANIZATION(30%)

Format:

Brief background / profile of the company selected.

I. Discuss the practices in application of the functions of management such as Planning, Organizing, Leading and Controlling.

II. In this discussion, identify ELGA as indicated in the syllabus.

III. Recommendation, if any / Conclusion

chapter 6 - the basics of planning

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