Planning

Chapter 3: Planning1

What is Planning?Is a logical and systematic approach of formulating the objectives, programs, policies, procedures, budgets, rules and regulations, and other types of plans.

Considered the most basic of all managerial functions. Without this, other functions of a manager cannot be tackled efficiently and effectively.

- Managers organizes, staffs, directs, and controls in order to guarantee the attainment of objectives and the other types of plans made.

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Nature of Planning 4 Major FactorsContribution to Purpose and Objectives planning is required to facilitate accomplishment of business purpose and objectives. This statement is taken from the nature of organized business.

Planning as the First Basic Function logically performed before the execution of all other managerial functions. All managerial functions must be planned if they are to be effective and efficient.

Planning as a Function of All Managers the character and scope of planning will differ from one authority to another.

Planning for Efficient Organization evaluated by the amount it contributes to purpose and objectives as offset by the expenses and other things required to formulate and implement it.3

Major Types of Plans

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Major Types of PlansObjectives or GoalsGoal prescribes definite scope and suggests direction to maximize the efforts of a manager. Synonymous to aim, purpose.Objectives have to do with the direction in which an individual or organization wants to move. Planning involved determination of desired future events. These results or events are objective and go by the name of targets.

MissionIt is the purpose or reason for the existence of an organization. Can be defined in terms of an organizations products/service or markets/customers.

Long-Range and Short-Range ObjectivesLong-range generally go beyond the current fiscal or calendar year of the organization. Ex. Increase sales to a specific level within the next four years.Short-range should be derived form an in-depth evaluation of the organizations long-range objectives. Ex. Listing of priorities.-Objectives should be clear, concise ad quantified when possible. Next level higher.5

Major Types of PlansGuidelines in Implementing Management by Objectives (MBO)Adapt your objectives directly to organizational goals and strategic plans.Quantify and target the results whenever possible.Test your objectives for challenge and achievability.Adjust the objectives to the availability of resources and realities of organizational life.Establish performance reports and milestones that measure profess toward the objective.Put your objectives in writing and express them in clear, concise, and unambiguous statements.Limit the number of statements of objectives to the most relevant key result aread of your job.Communicate you objectives to your subordinates so as they can formulate their own.Review your statements with others to assure consistency and mutual support.Modify your statements to meet changing conditions and priorities.Do not continue to pursue objectives which have become obsolete.6

Major Types of PlansSimplest form of MBO:Individual objectives are jointly set by the subordinate and the superior.

Individuals are periodically evaluated and receive feedback concerning their performance.

Individuals are evaluated and rewarded on the basis of objective attainment.

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Major Types of PlansProgram- The actual course of action designed to carry out the established objective. Indicated use of different resources in an integrated pattern and establishes a sequence or required actions and time schedules for each in order to achieve stated objectives.

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Major Types of PlansPoliciesThese are basic guidelines for action. The indicated what is permitted and what is not permitted. Policies are broad, general guides for action which constrain or direct objective attainment. Ex. Promotion policy.ProceduresSeries of related steps expressed in chronological order for a specific purpose. It outlines precisely how a recurring activity must be accomplished.RulesRequire specific and definite actions for a given situation. It permit no flexibility and deviation. Do not have to specify sequence.BudgetPlan stated in financial terms. Estimate of income and expenditures for a future period.PhilosophyThe values and beliefs an organization holds as the guiding light is the companys philosophy. Usually passed on by the founder of the organization.Strategy- Method of shaping a companys future and involves determining the long-run direction of the organization.9

Basic Steps in Business PlanningDefine the Business Idea writing the description of the idea. The most important and most difficult part of the business plan.Establish Goals and Objectives identification of goals for individuals, group, and for the entire organization. Use of MBO, can be a process for explicitly teaching the objectives of the organization.Evaluate the Ideas, Goals, and Objectives determine whether or not specific idea makes sense, it can work, it can fulfil the series of goals and objectives.Forecast Cash Needs indicates the cash investment, funding or investment requirements.Identify Sources of Funds from personal equity, borrowing from financial institutionsWrite a Business Plan summary and evaluation of the business idea. Written result of the planning process.

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Basic Steps in Business Planning11

Other Types of Plans12Standing Plans serve as guidelines to managerial action, brings consistency to the operations.Single-Use Plans designed for specific purpose or period. Ex. BudgetLong-Range Plans these are strategic plans of the organization. It takes time to achieve this goal.Intermediate Plans follow once the long-range plans are formulated and made for the its realization.Short-Range Plans provide guidelines for day-to-day actionsMarketing Plans to increase their present market share and develop new products.Production Plans producing the desired amount of goods demanded at the market place.Financial Plans tells the managers how well they are doing, the need for working capital, need for expansion and sources of funds.

Other Types of Plans13Manpower Plans determining types of personnel needed in the long and short-range for the organization.Strategic Plans determining the major goals of the entire organization and the policies to guide the achievement of these goals.Tactical Plans determination of the short term-specific utilization of the resources of the org. in achieving its strategic goals.Functional Plans classified by function or use.

Planning Horizon: Short-Range Versus Long-RangeShort-Range Plans covers up to one year.Long-Range Plans extends into the future

Operational Versus Strategic PlansStrategic Planning analogous to top-level long-range planningOperational or Tactical Plans a short-range planning and concentrate on the formulation of functional plans done by managers at all levels in the organization.

Decision Making14This is the process of choosing a specific procedure or course of action from among several possible alternatives.Judgment is important in decision making.Can be determined by non-quantitative means, such as intuition, facts, experiences, and opinions.Can also be determined by quantitative means such as operations research, linear programming, simulation, PERT, etc.Other Techniques:

Marginal AnalysisUsed to figure out how much more output will result if one more variable worker is added while other factors are being held constant.

Financial AnalysisUsed for estimating the profitability of an investment, calculation the payback period and analyzing cash inflows and outflows.

Break-Even Analysis- Total revenue equals total cost and there is no profit.

Decision Making (other techniques)15Ratio AnalysisAn accounting tool used for the interpretation of accounting information. Basic financial ratios compare costs and revenue for a particular period:

Operation Research TechniqueDefined by Miller and Starr as Applied Decision Theory, which seeks scientific, logical, or mathematical means. Observation, analysis, hypothesis formulation, and experimentation.

Queuing or Waiting-Line MethodBalancing waiting lines and services provided. When people in queues are not going to be provided quick service, they may go elsewhere.

Decision Making (other techniques)162. Linear ProgrammingUsed in involving the allocation of resources or limited resources to reach a particular objective such as least cost, highest margin and so on. 3. Game TheoryInvolves selecting the best strategy, taking into consideration ones actions and the action of ones competitors. When one individual wins, the other losses. 4. Simulation-Involves the building of a model that represents a real or an existing system in evaluating and selecting the best one.5. Decision Tree-Through a graphic illustration, alternative solutions can be identified

The Decision Making Environment17Most companies have three levels of management:

Strategic-Level Determine long-term strategies and set corporate objectives and policy consistent with these objectives.

Tactical-Level Charged with the responsibility of implementing the objectives and policies set fort at the strategic level of management.

Operational-Level-Complete specific tasks as directed by tactical-level managers.

As a rule of thumb, the higher the decision maker is in the organization, the more complex and difficult he has to make. Also, the number of people affected by the decision increases at the level of the decision maker.

The Decision Making Process18Steps in Decision Making Process:

Set ObjectivesDecision maker sets the objectives for the decision.2. Identify ConstraintsConstraints in some way limit the decision makers choices. Defined by legal, economic, or political considerations.3. Identify AlternativesMaking a choice between two or more alternatives. Most cases alternatives are chosen as solution to the problem.4. Gather Appropriate InformationDecision maker gathers information that may provide insight as to which alternative to choose.5. Evaluate AlternativesDecision maker evaluates each alternative.6. Choose the Most Acceptable AlternativeExamines the ranking of alternatives and selects the most acceptable alternative, which is often the top-ranked alternative.

Planning Techniques and Tools19ForecastingAn attempt to foretell or predict future trends, events or conditions from known data and to prepare for the expected changes in business or industry.Many decisions are based on estimates of what is likely to happen in the future.Methods in ForecastingSurvey Method involves probing the customer or respondents through questionnaires or interviews.Trent Method or Time-Series Analysis future predicted using past data or information.Econometric Models Based on statistical methods of analyzing data and making predictions.

Break-Even Analysis- Through the use of break-even chart.

Planning Techniques and Tools203. SchedulingTerm used for planning time for various activities in an organization.Program Evaluation Review Technique (PERT) and Critical Path Method (CPM)Two basic concepts: Events identifiable accomplishments that occurs at a definite point in time. Activities the work required to complete the event.Three Types of Timing: Optimistic Time (minimum time if could take), Pessimistic Time (maximum), and the most probable time. An average of these times (expected) is computed.

4. Management by Objectives- The boss and the subordinates function as a team in setting objectives and accomplishing those objectives through cooperation.

Why Managers Fail in Planning21Lack of Real Commitment in Planning lack real commitment by managers from the top level down to the lowest supervisor.Interchanging Planning Studies with Plans nothing is planned unless it includes a decision of some kind.Failure to Develop and Implement Sound Strategies without sound strategy, plans go in the wrong direction. Unless implemented by action plan, it becomes only a statement of wishes and hopes.Lack of Meaningful Objectives and Goals clear and attainable?Tendency to Underestimate the Importance of Planning Premises plans and decisions should be consistent and implemented.

Why Managers Fail in Planning22Failure to See the Scope of Plans neglecting other types of plansFailure to See Planning as a Rational Process requires clear goals, knowledge of alternatives, ability to analyze alternatives to come up with the best possible answer.Too Much Reliance on Experience what happened in the past may not likely fit a future situation.Failure to Use the Principle of Limiting Factor anticipating the worst, most problem situationLack of Top Management Support top management does not support, believe and encourageLack of Clear Delegation do not know what the jobs are, how their jobs relate to others, no clear authority to make decisions.Lack of Adequate Control Techniques and Information knowing how well they are doing with the plan.