Planning and Controlling: Study Questions

Chapter 7
Planning and controlling

 Study questions
– How do managers plan?
– What types of plans do managers use?
– What are the useful planning tools, techniques and
processes?
– What is the control process?
– What control systems are used in organisations?
Chapter 7 1
How do managers plan?
 Planning
– The process of setting objectives and determining
how to best accomplish them.
 Objectives
– Identify the specific results or desired outcomes that
one intends to achieve.
Chapter 7 2
 Benefits of planning
– Improves focus and flexibility
– Improves action orientation
– Improves coordination
– Improves time management
– Improves control.
Chapter 7 3
 Steps in the planning process

1. Define your objectives.
2. Determine where you stand vis-à-vis
objectives.
3. Develop premises regarding future
conditions.
4. Analyse and choose among action
alternatives.
5. Implement the plan and evaluate results.
Chapter 7 4
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 years
– Long-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.
Chapter 7 5
managers use?
 Strategic and operational plans
– Strategic plans define long-term needs and
set action directions for the organisation.
– Operational plans define specific activities to
implement strategic plans
• Production plans
• Financial plans
• Facilities plans
• Marketing plans
• Human resource plans.
Chapter 7 6
managers use?
 Policies and procedures
– Standing plans
• Policies and procedures that are designed for repeated use
– Policies
• 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 circumstances.
Chapter 7 7
managers use?
 Budgets and project schedules
– Single-use plans
• Used once to meet the needs 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
– Project schedules
• Single-use plans that identify the activities required to
accomplish a specific major project.
Chapter 7 8
What are the useful planning tools,
techniques and processes?
 Forecasting
– Making assumptions about what will happen in the
future
– A forecast is a vision of the future.
– Qualitative forecasting
– Quantitative forecasting
– All forecasts rely on human judgement.
Chapter 7 9
 Contingency planning
– Identifying alternative courses of action that
can be used if and when original plan proves
inadequate
– Early identification of possible shifts in future
events
– Forward thinking:
• using devil’s advocate method
• developing worst-case scenarios.
Chapter 7 10
 Scenario planning
– A long-term version of contingency planning
– Identifying alternative future scenarios
– Plans made for each future scenario
– Increases organisation’s flexibility and preparation for
future shocks
Chapter 7 11
 Benchmarking
– Use of external comparisons to better evaluate one’s
current performance
– Identify possible actions for the future
– Incorporate successful ideas into one’s own
organisation.
Chapter 7 12
 Use of staff planners
– Lead and coordinate the planning function
– Responsibilities include:
• Assisting line managers in preparing plans
• Developing special plans
• Gathering and maintaining planning information
• Assisting in communicating plans
• Monitoring plans in progress and suggesting
changes.
Chapter 7 13
 Participation and involvement

– Participatory planning requires that the planning
process include people who will be affected by
the plans and/or will help implement them.
– Benefits of participation and involvement:
• Promotes creativity in planning
• Increases available information
• Fosters understanding, acceptance and commitment
to the final plan.
Chapter 7 14
What is the control process?
 Controlling
– The process of measuring performance and taking
action to ensure desired results
– Has a positive and necessary role in the management
process
– Ensures that the right things happen, in the right way,
at the right time.
Chapter 7 15
 Steps in the control process

1. Establish objectives and standards
2. Measure actual performance
3. Compare results with objectives and standards
4. Take corrective action as needed.
Chapter 7 16
 Step 1: establish objectives and standards
– Output standards
• Measure performance results in terms of quantity, quality,
cost or time
– Input standards
• Measure effort in terms of amount of work expended in task
performance.
Chapter 7 17
 Step 2: measure actual performance

– Goal is accurate measurement of actual results on
output and/or input standards
– Effective control requires measurement.
Chapter 7 18
 Step 3: compare results with objectives and
standards
– Control equation
– Need for action reflects the difference between
desired performance and actual performance.
– Methods of comparing desired and actual
performance:
• Historical comparison
• Relative comparison
• Engineering comparison
– Benchmarking, using different comparison
methods.
Chapter 7 19
 Step 4: take corrective action as needed
– Taking action when a discrepancy exists between
desired and actual performance
– Management by exception:
• Giving priority attention to situations showing the greatest
need for action.
• Types of exceptions:
– Problem situation
– Opportunity situation.
Chapter 7 20
 Feedforward controls
– Employed before a work activity begins
– Ensure that:
• objectives are clear
• proper directions are established
• right resources are available
– Focus on quality of resources.
Chapter 7 21
 Concurrent controls
– Focus on what happens during work process
– Monitor ongoing operations to make sure they are
being done according to plan
– Can reduce waste in unacceptable finished products
or services.
Chapter 7 22
 Feedback controls
– Take place after work is completed
– Focus on quality of end results
– Provide useful information for improving future
operations.
Chapter 7 23
 Internal and external control

– Internal control
• Allows motivated individuals and groups to exercise self-
discipline in fulfilling job expectations
– External control
• Occurs through personal supervision and the use of formal
administrative systems.
Chapter 7 24
What control systems are used in
organisations?
 Compensation and benefits
– Attractive and competitive base compensation results
in:
• attracting and keeping a qualified workforce
• having capable, motivated workers who exercise self-control.
Chapter 7 25
organisations?
 Compensation and benefits
– Unattractive and uncompetitive base compensation
results in:
• attracting a less qualified workforce
• greater need for external controls.
Chapter 7 26
organisations?
 Attracting and keeping qualified employees who
exercise self-control can be helped or hindered
by:
– Merit pay incentives
– Pay-for-performance incentives
– Fringe benefits.
Chapter 7 27
organisations?
 Employee discipline systems
– Discipline is the act of influencing behaviour through
reprimand.
– Progressive discipline ties reprimands to the severity
and frequency of the employee’s infractions.
Chapter 7 28
organisations?
 To be effective, reprimands should:
– be immediate
– be directed toward actions, not personality
– be consistently applied
– be informative
– occur in a supportive setting
– support realistic rules.
Chapter 7 29
organisations?
 Important financial aspects of organisational
performance
– Liquidity
• The ability to generate cash to pay bills
– Leverage
• The ability to earn more in returns than the cost of debt
– Asset management
• The ability to use resources efficiently and operate at
minimum cost
– Profitability
• The ability to earn revenues greater than costs.
Chapter 7 30
organisations?
 Purchasing control
– A productivity tool
– Trends in purchasing control:
• Leveraging buying power
• Committing to a small number of suppliers
• Working together in supplier–purchaser partnerships.
Chapter 7 31
organisations?
 Inventory control
– Goal is to ensure that inventory is just the right size to
meet performance needs, thus minimising the cost
– Methods of inventory control:
• Economic order quantity
• Just-in-time scheduling.
Chapter 7 32
organisations?
 Statistical quality control
– Quality control involves checking processes,
materials, products and services to ensure that they
meet high standards.
– Statistical quality control involves:
• taking samples of work
• measuring quality in the samples
• determining the acceptability of results.
Chapter 7 33
organisations?
 Management by objectives (MBO)
– A structured process of regular communication
– Supervisor/team leader and worker jointly set
worker’s performance objectives.
– Supervisor/team leader and worker jointly review
results.
Chapter 7 34
organisations?
 MBO involves a formal agreement specifying:
– worker’s performance objectives for a specific time
period
– plans through which they will be accomplished
– standards for measuring results
– procedures for reviewing results.
Chapter 7 35
organisations?
 Types of MBO performance objectives
– Improvement
– Personal development
– Maintenance.
 Criteria for effective performance objectives
– Specific
– Time defined
– Challenging
– Measurable.
Chapter 7 36
organisations?
 Pitfalls to avoid in using MBO
– Tying MBO to pay
– Focusing too much attention on easily quantifiable
objectives
– Requiring excessive paperwork
– Having managers tell workers their objectives.
Chapter 7 37
organisations?
 Advantages of MBO
– Focuses worker’s efforts on most important tasks and
objectives
– Focuses supervisor’s efforts on important areas of
support
– Contributes to relationship building
– Gives worker structured opportunity to participate in
decision making.
Chapter 7 38

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Chapter 7

Planning and controlling

 Steps in the planning process

 Participation and involvement

 Steps in the control process

 Step 2: measure actual performance

 Internal and external control

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