Planning

“Planning before doing”

 What is planning?

• Planning
– Managerial function that involves:
• Defining the organization’s goals
• Establishing an overall strategy for
achieving those goals
• Developing a comprehensive set of plans
to integrate and coordinate organizational
work

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 Purposes of Planning
– Provides direction
– Reduces uncertainty
– Minimizes waste and redundancy
– Sets the standards for controlling

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 Planning and Performance
• The Relationship Between Planning and
Performance
– Formal planning is associated with:
• Higher profits and returns on assets
• Other positive financial results
– The quality of planning and implementation
affects performance more than the extent of
planning

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 How Do Managers Plan?
• Elements of Planning
– Goals (also objectives)
• Desired outcomes for individuals, groups, or entire
organizations
• Provide direction and performance evaluation criteria
– Plans
• Documents that outline how goals are to be
accomplished
• Describe how resources are to be allocated and
establish activity schedules

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 TYPES
OF
PLANS
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 INFORMAL
– not written down, short-term focus;
specific to an organization unit

FORMAL
– written, specific, long-term focus,
involved shared goals for the
organization

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 Types of
Plans

Breadth Time Frame Specificity Frequency of Use

Strategic Long term Directional Single use

• Should we expand
into overseas
markets?
• Should we develop
new products?
• How large would we
like the company to
be in five years?

Operational Short term Specific Standing

• Should we order new
equipment to produce
   our number-one
   product more
   efficiently?
• How many extra
   employees should we
   hire for the year-end
   sales rush?
• How can we improve
   quality control on the
   production line?

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 STRATEGIC PLANS
- plans that apply to the entire
organization, establish the organization’s
overall goals, and seek to position the
organization in terms of its environment

OPERATIONAL PLANS
- plans that specify the details of how the
overall goals are to be achieved

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 LONG-TERM PLANS
- plans with a time frame beyond three
years

SHORT-TERM PLANS
- plans covering one year or less

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 SPECIFIC PLANS
- plans that are clearly defined and
that leave no room for interpretation

DIRECTIONAL PLANS
- plans that are flexible and that set
out general guidelines

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 SINGLE-USE PLAN
- a one time plan specifically designed
to meet the needs of a unique
situation

STANDING PLANS
- ongoing plans that provide guidance
for activities repeatedly

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Planning
Process
 Planning Process
Identification of opportunities and threats

Valuation of Present situation

Goal Setting

Determination of Premises

Evaluation of alternatives and selection of course of action

Programming

budgeting

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 TECHNIQUES FOR ASSESSING
THE ENVIRONMENT

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 3 techniques:
1. ENVIRONMENTAL SCANNING
Screening of large amounts of information to anticipate and
interpret changes in the environment
a. COMPETITOR INTELLIGENCE
Process by which organizations gather information about their
competitors
b. GLOBAL SCANNING
Expanded scanning efforts to gain vital information on global
forces that might affect their organization

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 2. FORECASTING
- process of correct anticipations of future events or prediction
of outcomes
a. FORECASTING TECHNIQUES:
•QUANTITATIVE FORECASTING
Forecasting that applies a set of mathematical rules to a series
of past data to predict outcomes
•QUALITATIVE FORECASTING
Forecasting that uses judgment and opinions of
knowledgeable individuals to predict outcomes

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 b. FORECASTING EFFECTIVENESS
• Forecasting techniques are most accurate when
the environment is not rapidly changing
• Forecasting is relatively ineffective in predicting
unseasonable events
• Use simple forecasting methods
• Don not rely on single forecasting method
• Forecasting is a managerial skill

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 BENCHMARKING
Search for the best practices among competitors or non-
competitors that lead to their superior performance
STEPS:
•Form a benchmarking planning team
•Gather internal/ external data
•Analyze data to identify performance gaps
•Prepare and implement action plan

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 • TECHNIQUES FOR ALLOCATING RESOURCES

• Resource- assets of organization ( financial,

physical, human, intangible)

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 • 1. BUDGETING
• BUDGET
• numerical plan for allocating resources to specific
activities
• 2 TYPES OF BUDGET:
• VARIABLE BUDGET
• Take into account the costs that vary in volume
• FIXED BUDGET
• Assumes fixed level of sales of production

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 • 2. SCHEDULING
• Detailing what activities have to be done, the order to
which they are to be completed, who is to do each and
when they are to be completed

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 a. GANTT CHART
Scheduling chart developed by Henry Gantt that shows
actual and planned output over a period of time

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 • b. LOAD CHART
• Modified Gantt chart that schedules capacities by entire
departments or specific resources

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 • c. PERT NETWORK ANALYSIS
• Flowchart diagram showing the sequence of activities needed to
complete the project and the time and costs associated with it

• EVENTS
• End points that represent the completion of major activities
• ACTIVITIES
• Time of activities needed to progress form one event to another
• SLACK TIME
• Amount of time an individual activity cam be delayed without
delaying the whole project
• CRITICAL PATH
• Longest sequence of activities

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 • STEPS IN DEVELOPING A PERT NETWORK:
• Identify every significant activity that must be achieved
for a project to be completed
• Diagram the order in which these events must be
completed
• Diagram the flow of activities from start to finish,
identifying each activity and its relationship to other
activities
• Compute a time estimate for completing each activity
• Using a network diagram determine a schedule for the
start and finish dates of each activity and entire project

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• 3. BREAK-EVEN ANALYSIS
• Technique for identifying the point at which total revenue is just
sufficient to cover total costs
• BE = TFC / P – VC
• BE = break-even point P = unit price
• TFC = total fixed costs VC = variable costs

• EXAMPLE:
• Randy’s photocopying services charges $0.10 per photocopy
• FC= $ 27,000 a year
• VC= $0.04 a copy
• BE = $ 27,000 / ( $0.10 - $0.04 ) = 450,000
• Annual Revenue : $ 45,000 ( 450,000 x $ 0.10 )

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 4. LINEAR PROGAMMING
- Mathematical technique that solves resource allocation
problems
* It requires that there be limited resources, outcome optimization,
alternative ways of combining resources and linear relationship
between variables
Kinds of problems:
•Selecting transportation routes that minimize shipping costs
• Allocating limited advertising budget among various product
brands

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 4. LINEAR PROGAMMING
- Mathematical technique that solves resource allocation
problems
* It requires that there be limited resources, outcome optimization,
alternative ways of combining resources and linear relationship
between variables
Kinds of problems:
•Selecting transportation routes that minimize shipping costs
• Allocating limited advertising budget among various product
brands

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 * In order to ensure optimal health (and thus accurate test results), a lab
technician needs to feed the rabbits a daily diet containing a minimum of 24
grams (g) of fat, 36 g of carbohydrates, and 4 g of protien. But the rabbits
should be fed no more than five ounces of food a day.

Rather than order rabbit food that is custom-blended, it is cheaper to order

Food X and Food Y, and blend them for an optimal mix. Food X contains 8 g
of fat, 12 g of carbohydrates, and 2 g of protein per ounce, and costs $0.20
per ounce. Food Y contains 12 g of fat, 12 g of carbohydrates, and 1 g of
protein per ounce, at a cost of $0.30 per ounce.

What is the optimal blend?

Since the exercise is asking for the number of ounces of each food
required for the optimal daily blend, my variables will stand for the number of
ounces of each:

x: number of ounces of Food X

y: number of ounces of Food Y

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 The optimization equation will be the cost relation C = 0.2x + 0.3y, but this time I'll be
finding the minimum value, not the maximum.

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 When you test the corners at (0, 4), (0, 5), (3, 0), (5, 0), and (1, 2), you should
get a minimum cost of sixty cents per daily serving, using three ounces of
Food X only.

Since I can't use negative amounts of either food, the first two constrains are
the usual ones: x > 0 and y > 0. The other constraints come from the grams of
fat, carbohydrates, and protein per ounce:

fat: 8x + 12y > 24

carbs: 12x + 12y > 36
protein: 2x + 1y > 4

Also, the maximum weight of the food is five ounces, so:

x+y<5

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 THE DECISION-
MAKING PROCESS

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 DECISION
- a choice from two or more
alternatives

DECISION-MAKING PROCESS
- a set of eight steps including
identifying a problem, selecting an
alternative, and evaluating the
decision’s effectiveness

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 1. IDENTIFYING A PROBLEM
- existence of a problem or more
specifically a discrepancy between an
existing and a desired state of affair

2. IDENTIFYING DECISION
CRITERIA
- important in resolving a problem,
every decision maker has criteria that
guide his or her decision

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 3. ALLOCATING WEIGHTS TO THE
CRITERIA
- it is important in order for the
decision maker, to give them the
correct priority in decision making

4. DEVELOPING ALTERNATIVES
- this step requires the decision maker
to list the viable alternatives that
could resolve the problem

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 5. ANALYZING ALTERNATIVES
- once the alternatives have been
identified, the decision maker must
critically analyze each one

6. SELECTING THE ALTERNATIVE

- the sixth step is the important act of
choosing the best alternative among
those considered

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 7. IMPLEMENTING THE ALTERNATIVE
- concerned with putting the decision into action
IMPLEMENTATION – involves conveying the
decision to those affected by it and getting their
commitment to it

8. EVALUATING DECISION EFFECTIVENESS

- involves appraising the outcome of the
decision to see if the problem has been resolved

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 Strategic Management
• The set of managerial decisions
and actions that determines
the long-run performance
of an organization

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 Why Strategic Management Is Important

• It results in higher organizational performance

• It requires that managers examine and adapt to
business environment changes
• It coordinates diverse organizational units,
helping them focus on organizational goals
• It is very much involved in the managerial
decision-making process

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 The Strategic Management Process

External Analysis
• opportunities
• threats

Identify the
organization's Formulate Implement Evaluate
current mission, goals, SWOT Analysis Strategies Strategies Results
and strategies

Internal Analysis
• strengths
• weaknesses

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 Organization’s Organization’s Opportunities in
Resources/Capabilities Opportunities the Environment

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 Levels of Organizational Strategy

Corporate Multibusiness
Level Corporation

Business Strategic Strategic Strategic

Level Business Unit 1 Business Unit 2 Business Unit 3

Functional Research and Manufacturing Marketing Human Finance

Level Development Resources

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 Corporate-Level Strategies

• Growth Strategy
– Seeking to increase the organization’s
business by expansion into new products and
markets
• Types of Growth Strategies
– Concentration
– Vertical integration
– Horizontal integration
– Diversification

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 Corporate-Level Strategies (cont’d)

• Stability Strategy
– A strategy that seeks to maintain the status
quo to deal with the uncertainty of a dynamic
environment, when the industry is
experiencing slow- or no-growth conditions, or
if the owners of the firm elect not to grow for
personal reasons

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 Corporate-Level Strategies (cont’d)

• Retrenchment Strategy
– Reduces the company’s activities or operations
– Retrenchment strategies include:
• Cost reductions
• Layoffs
• Closing underperforming units
• Closing entire product lines or services

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 Corporate-Level Strategies (cont’d)

• Corporate Portfolio Analysis

• BCG Matrix
– Developed by the Boston Consulting Group
– Considers market share and industry growth rate
– Classifies firms as:
• Cash cows: low growth rate, high market share
• Stars: high growth rate, high market share
• Question marks: high growth rate, low market share
• Dogs: low growth rate, low market share

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 Business-Level Strategy

• Business-Level Strategy
– A strategy that seeks to determine how an
organization should compete in each of its
SBUs (strategic business units)

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 The Role of Competitive Advantage

• Competitive Advantage
– An organization’s distinctive competitive edge that is
sourced and sustained in its core competencies
• Quality as a Competitive Advantage
– Differentiates the firm from its competitors
– Can create a sustainable competitive advantage
– Represents the company’s focus on quality
management to achieve continuous improvement and
meet customers’ demand for quality

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 Forces in an Industry Analysis

New
Entrants

Threat of
New Entrants
Bargaining
Power of
Intensity of Buyers
Rivalry Among
Suppliers Current Buyers
Competitors
Bargaining
Power of
Suppliers
Threat of
Substitutes

Substitutes

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 Competitive Strategies
• Cost Leadership Strategy
– Seeking to attain the lowest total overall costs relative to
other industry competitors
• Differentiation Strategy
– Attempting to create a unique and distinctive product or
service for which customers will pay a premium
• Focus Strategy
– Using a cost or differentiation advantage to exploit a
particular market segment rather than a larger market
• Stuck in the Middle
– Organizations that are unable to develop a cost or
differentiation advantage

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 Functional-Level Strategy

• Functional-level strategies support the business-

level strategy
– i.e., Marketing, human resources, research and
development, and finance all support the
business-level strategy
– Problems occur when employees or customers
don’t understand a company’s strategy

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 Strategies in Today’s Environment:
Applying E-Business Techniques

• Cost Leadership
– Online activities: bidding, order processing,
inventory control, recruitment, and hiring
• Differentiation
– Internet-based knowledge systems, online
ordering, and customer support
• Focus
– Chat rooms and discussion boards, targeted
web sites

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 Customer Service Strategies

• Giving the customers what they want

• Communicating effectively with them
• Providing employees with customer service
training

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 Innovation Strategies

• Possible Events
– Radical breakthroughs in products
– Application of existing technology to new uses
• Strategic Decisions about Innovation
– Basic research
– Product development
– Process innovation
• First Mover
– An organization that brings a product
innovation to market or uses a new process
innovation

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 CONTEMPORARY
ISSUES IN PLANNING
(CRITICISMS OF PLANNING)

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 • PLANNING MAY CREATE RIGIDITY
• PLANS CAN’T BE DEVELOPED FOR A DYNAMIC
ENVIRONMENT
• FORMAL PLANS CAN’T REPLACE INTUITION AND
CREATIVITY

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 • PLANNING FOCUSES MANAGER’S ATTENTION ON
TODAY’S COMPETITION, NOT ON TOMORROW’S
SURVIVAL

•FORMAL PLANNING REINFORCES SUCCESS, WHICH

MAY LEAD TO FAILURE

•JUST PLANNING ISN’T ENOUGH

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