PLANNING PROCESS

*BEST TO USE SLIDESHOW

OPTION*
(located at the upper part of the screen)
 IDENTIFICATION OF
OPPORTUNITIES
AND THREATS
EVALUATION OF PRESENT SITUA
GOAL SETTING
DETERMINATION OF PREMISES
MATCHING
PROCESS
PROGRAMMING
BUDGETING

STRATEGIC PLANN
OPERATIONS PLAN
IDENTIFICATION OF
OPPORTUNITIES
AND THREATS
EXAMPLES OF PERCEIVED OPPORTUNITIES IN THE
ENVIRONMENT
Demand for low-costing housing and construction materials
• Low interest rates and available financing from the government via the Government
Housing Loan Programs may increase the demand for low-cost housing and,
consequently, construction materials. Also, government loans are either funded directly
by the government or made by private lenders and backed by the government.

Demand for smaller cars

• Gasoline shortage and higher prices of gasoline create the demand for gasoline-efficient
cars. In the Philippines, the deterioration of the peso which increase gasoline prices,
may also contribute to the increase in demand for smaller cars. The reason is automakers
can sell more of the highly profitable but less fuel-efficient large automobiles because
small cars help them reach corporate average fuel economy standards.
IDENTIFICATION OF
OPPORTUNITIES
AND THREATS
This activity involves collecting and analyzing relevant external information which
define opportunities or threats to the firm's business.

EXAMPLES OF PERCEIVED OPPORTUNITIES IN THE

ENVIRONMENT
• Demand for import – substitutes
A country's lack of foreign currency and government-imposed import
restrictions may give businesses the chance to imitate imported items in terms
of both quality and cost. Consumer goods including clothing, footwear, and
home appliances frequently fall under this category. If the quality is
comparable, locally produced products in this category could be used instead
of imports.
IDENTIFICATION OF
OPPORTUNITIES
AND THREATS
EXAMPLES OF PERCEIVED THREATS TO THE FIRM

• New Legislation
Alkylbenzene is a fundamental yet non-biodegradable chemical raw material that Chemphil
Industries of the Philippines distributes to detergent producers. According to Chemphil Industries'
announcement, Congress is about to pass laws banning its use.

• Increased Competition
New entrants to the industry could force a firm to reconsider its product lines. Economic
fundamentals show that when businesses must compete for customers, the result is cheaper pricing,
better goods and services, more variety, and more innovation. For example, the business of specialty
appliance stores or furniture stores is now challenged by big department stores that carry these lines
and which provide greater convenience to customers through the one-stop shopping concept.
IDENTIFICATION OF
OPPORTUNITIES
AND THREATS
The analysis of threats to the survival of a firm is as important as the evaluation of opportunities

EXAMPLES OF PERCEIVED THREATS TO THE FIRM

• Price Control
• The imposition of a price ceiling on the product that a firm manufactures limits the
profit margin of the firm. The company is constrained either to cut costs or
increase sales volume and consequently , increase production capacity to improve
profitability. Also, when they consider the equilibrium price for a product to be
unfair, governments impose price caps. The seller is prohibited from requesting a
price beyond the cap by law.
IDENTIFICATION OF
OPPORTUNITIES
AND THREATS
The analysis of threats to the survival of a firm is as important as the evaluation of opportunities

EXAMPLES OF PERCEIVED THREATS TO THE FIRM

• Price Control
• The imposition of a price ceiling on the product that a firm manufactures limits the
profit margin of the firm. The company is constrained either to cut costs or
increase sales volume and consequently , increase production capacity to improve
profitability. When they consider the equilibrium price for a product to be unfair,
governments impose price caps. The seller is prohibited from requesting a price
beyond the cap by law.
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PLANNING PROCESS
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EVALUATING THE
PRESENT SITUATION

PLANNING PROCESS
 EVALUATING THE PRESENT SITUAT
CHART 5.3 SITUATION
EVALUATION DEPARTMENT
STORE
400M a. The next step in the planning process is to
evaluate the company's current situation in
order to determine the gap between the
b.
200M desired level of performance and its present
levels of performance. This is done after the
c. firm has assessed the opportunities available
100M
to it as well as the threats that challenge its
d. existing business. This gap, for instance, can
exist between the revenue level that is now
being generated utilizing the available
a. Potential revenue line (with resources and the revenue level that could be
expansion) generated with facility expansion. The
b. Gap
c. Momentum revenue line revenue gap for a department store is shown
(without expansion) in Chart 5-3.
d. 5 years
 EVALUATING THE PRESENT SITUAT
CHART 5.3 SITUATION
EVALUATION DEPARTMENT
STORE
400M a.

The momentum revenue line shows sales

b.
200M stabilizing at P100 M in the next five years if
no additional branches are opened. However,
c. the potential revenue line shows that the firm
100M
could increase sales to P-400 M during the
d.
same period if the firm expands.

a. Potential revenue line (with

expansion)
b. Gap
c. Momentum revenue line
(without expansion)
d. 5 years
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EVALUATING THE
PRESENT SITUATION

PLANNING PROCESS
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SETTING GOALS AND

OBJECTIVES

PLANNING PROCESS

The formulation of company objectives may
be done in different ways. Some firms
formulate objectives in three stages. The first
stage is the statement of purpose or the reason
for being for the organization. The second
stage is the statement scope of activities it will
undertake to achieve the purpose. Finally, the
statement of objectives specifies the standard
of performance that must be met in these
activities; examples of such statements are
shown on the right side of the screen.
SETTING GOALS AND
OBJECTIVES
PURPOSE Be a highly profitable company for
its investors. A company's ability to make a
profit determines whether it can obtain bank
financing, draw in investors to finance its
operations, and expand. Without making a
profit, businesses cannot stay in operation.
MISSION Retail the widest range of
consumer products to all income groups. Also,
successful retail branding may make your
company stand out from the crowd and draw
more customers, which will boost your
product's sales.
OBJECTIVE Maintain leadership in sales in
the retail trade industry
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SETTING GOALS AND

OBJECTIVES

PLANNING PROCESS
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DETERMINING
PLANNING PREMISES

PLANNING PROCESS

TABLE 5-2 PLANNING PREMISES
EXTERNAL VARIABLES
• the rate of growth of the economy
and/or the industry
• the rate of inflation and its expected
impact on costs and prices
• the continuance or discontinuance of
certain government policies which have
a favorable or an unfavorable impact on
the operations of the firm, e.g., high
interest rates.
• the expected market strategies of key
competitors.
DETERMINING PLANNING PREMISE
INTERNAL VARIABLES
• the level of internally generated funds
to support investments
• the level of labor productivity in the
company's factories.
• the company's total staffing level
• the continuance of certain operating
policies, e.g., rate of dividend, choice of
production technology, supply sources,
etc.

A set of presumptions formed from future
projections is referred to as a planning premise. It
is a logical and methodical estimation of the
upcoming variables that may have an impact on
planning. The planning assumptions serve as the
backdrop against which the anticipated events
occur. Events like these have an impact on
planning. Setting up planning grounds is a crucial
component of the planning phase because it
guarantees that all managers in the organization
are on the same page.
DETERMINING PLANNING PREMISE
Here are the primary reasons for
establishing planning premises:
• They help in well-organized
planning.
• The risk of uncertainty is reduced
considerably.
• There is a reduction in the risk of
flexibility.
• Managers can do effective
coordination.
• It also increases profitability.
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DETERMINING
PLANNING PREMISES

PLANNING PROCESS
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PLANNING PROCESS
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EVALUATING
ALTERNATIVES

PLANNING PROCESS
 EVALUATING
ALTERNATIVES

In the initial planning stage, opportunities and dangers are

evaluated in terms of external factors, whereas the current
situation is evaluated in terms of internal ones. The firm's
internal capabilities and resources (such as financial,
human, physical facilities, etc.) are related to the
opportunities and risks it faces when both external and
internal factors are taken into account.

Additionally taken into account are the management and

shareholder values. The opportunity needs to align with
the owners' and management's attitudes or values. For
instance, since cigarettes are seen as a health risk,
stockholders may be against include them in the
company's product lineup.
PLANNING PROCESS
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EVALUATING
ALTERNATIVES

PLANNING PROCESS
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PLANNING PROCESS
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PROGRAMMING

PLANNING PROCESS
 PROGRAMMING

Programming translates broad plans to specific activities to be undertaken

by an enterprise that extend over a period of several years. Programs are
usually structured by product lines or by industry or market classification.
Programming process involves:

1) the preparation and analysis of proposals for new products and making
decisions on these proposals

2) The evaluation of on-going product lines with the objective of improving

their profitability

3) the coordination of the separate programs for the optimum profits of the
enterprise.

PLANNING PROCESS
 PROGRAMMING

Marketing plan for each product line consisting of pricing policies, product
development, promotional efforts, distribution channels and personnel
requirements.

Production plan for each product line including plant capacity and
utilization, inventory levels , personnel requirements ,and other production
activities e.g. subcontracting some aspects of production processes. Capital
expenditure plans for product lines and company-wide purchases of
machineries or equipment; construction of buildings; long- term leases. Staff
plan describing the nature and size of staff units e.g. increase in computer
personnel by Controllership Division Manager.

PLANNING PROCESS
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PROGRAMMING

PLANNING PROCESS
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BUDGETING

PLANNING PROCESS

Budgeting is the translation of programs
to financial and other quantitative data.
The budget is stated in monetary terms
after supplemented by nonmonetary
amounts like units sold or produced. The
budget period usually covers one year.
The types of operating budget are
1) revenue budgets
2) expense budgets.
BUDGETING
The revenue budget consists of unit sales projections
multiplied by expected selling prices. Budgets for
revenue are based on expected income, and they
should be routinely evaluated to make sure the
projections are being met.
The expense budget consists of costs of goods sold
and other operating expenses at the expected level of
operations. Businesses can track purchases and keep
operating costs as low as possible with the aid of an
expense budget.
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BUDGETING

PLANNING PROCESS
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FORMAL PLANNING SYSTEMS

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8 F O R M A L P L A N N I N G S Y S T E M S I N B U D G E T I N G O R G A N I Z AT I O N
 FORMAL PLANNING SYSTEMS IN
BUDGETING ORGANIZATION

Among large business organizations such as the San Miguel Corporation or the Philippine
National Oil Company, strategic planning and the preparation of the annual company budget
are usually performed in a formal manner, that is to say, formal planning systems are used."
A formal planning system is one in which the process, participants, outputs, formats and
calendar of the planning activity are explicitly defined (in planning manuals or other
devices).
FUNCTIONS OF FORMAL PLANNING
SYSTEMS
ADAPTIVE COORDINATIV
FUNCTION FUNCTION

CONTROL AND
EVALUATION
 ADAPTIVE
FUNCTION
The examples below illustrate specific environmental developments which necessitated adaptive changes in a firm's
activity or ways of doing business:
 ADAPTIVE
GENERICS ACT FUNCTION
The Generics Drug Act of 1988 requires that
generic labels be used in the distribution of
drugs. This development has compelled the
drug manufacturers to re-examine their
marketing methods and consider new ways of
marketing, e.g., from "brand" promotion to
"point of sale" product promotion.
 ADAPTIVE
GENERICS ACT FUNCTION
The Generics Act of 1988 was passed by the
Philippine government to guarantee that all
Filipinos may access affordable, high-quality
medications. The law requires doctors to
include both the generic and brand names of
the medications in their prescriptions in an
effort to supply and promote affordable, high-
quality alternatives to the frequently used, but
more expensive originator products.
ADAPTIVE
FUNCTION
NEW MINIMUM WAGE LEGISLATION

An upward adjustment in the minimum

wage will decrease profits if the firm is
unable to market its products at higher
prices. An alternative for management in
this case is to mechanize operations in
order to reduce labor costs.
ADAPTIVE
FUNCTION
NEW MINIMUM WAGE LEGISLATION

It results in small businesses cutting back

on their production staff. Scale effects are
what cause minimum wages to have a
negative effect. It is challenging for small
businesses to grow into larger-scale
businesses because of higher marginal
expenses. Production and the need for
production personnel both diminish as a
result.
 ADAPTIVE
FUNCTION
US SURGEON GENERAL’S REPORT

When the report on the health hazard of

cigarette smoking was issued sometime
in the 1960's, the US tobacco
companies realized that they needed
new strategies. They began to look for
ways to diversify their products. Thus,
Philip Morris purchased a beer brewing
company in 1969, and the Seven-Up
Bottling company in 1978, this is
called market diversification
 ADAPTIVE
FUNCTION
US SURGEON GENERAL’S REPORT

Businesses utilize diversification as a

risk-reduction technique to expand into
new markets and industries and boost
profitability. This can be done by
expanding profitability, diversifying
into new markets, introducing new
goods and services, and attracting new
clients.
ADAPTIVE
FUNCTION

ANTI-POLLUTION REGULATIONS
ADAPTIVE ANTI-POLLUTION REGULATIONS

FUNCTION
Policies and rules adopted by government and private pressure groups with respect to pollution, noise, energy conservation
and waste disposal also impinge on the operations of a firm, e.g .,choice of location or production

As an example, a regional cement firm that was

facing closure due to government environmental
protection authorities was forced to invest
expensive anti-pollution equipment. Firms
participate in planning activities in an effort to
attempt and predict changes in the external
environment and to determine a course of action to
adapt to the new environment since changes in the
external environment can endanger existing
products or ways of doing business. Strategic
planning, which was covered in the preceding
section, is a case in point.
ADAPTIVE ANTI-POLLUTION REGULATIONS

FUNCTION
Of course, setting broad directions and strategies for
the firm will be meaningless unless these are
supported by more specific plans for
implementation, i.e., operating plans. These latter
plans thus also serve to anticipate the resource
requirements of the firm. For example, if a firm is
considering expansion of production capacity, this
will require additional financial as well as human
resources. The planning process will answer the
following questions:
ADAPTIVE ANTI-POLLUTION REGULATIONS

FUNCTION
• How much funds are required to acquire the
additional facilities and to fund the additional
working capital requirements?

• How will the firm provide the additional

personnel needed? Train present personnel or
hire from outside?
ADAPTIVE ANTI-POLLUTION REGULATIONS

FUNCTION
• Will the firm borrow or will stockholders invest
additional funds?

• If the firm will borrow funds, will it be short-

term or long-term?
ADAPTIVE ANTI-POLLUTION REGULATIONS

FUNCTION
The process of identifying resources is the first step
to determine the feasibility of the goals formulated
by management. It also facilitates the choice of the
least costly alternative in the acquisition of these
resources. In this way, effective planning, at the
strategic and the operating level, facilitates the
firm's successful adaptation to its changing
environment.
ADAPTIVE
FUNCTION
ADAPTIVE COORDINATIV
FUNCTION FUNCTION

CONTROL AND
EVALUATION
CONTROL AND COORDINATIVE
EVALUATION FUNCTION
FUNCTION
CONTROL AND COORDINATI
FUNCTION
EVALUATION
Large organizations' formal planning processes place as
FUNCTION
much emphasis on establishing and communicating top
management's performance goals for the organization as
a whole as they do for the various departments or units
that make up the organization. Statements of the firm's
aims and goals serve as the vehicle via which these
performance expectations are articulated. Despite the
fact that those two phrases are similar in the business
literature, they are sometimes distinguished from one
another in the planning literature.
GOALS
OBJECTIV COORDINATI
FUNCTION
ES
GOALS
OBJECTIVES COORDINATI
FUNCTION

These are statements about desired end states expressed in

sufficiently general terms as to allow for varying
interpretations as to the level of achievement or its timing.
Business goals can take many different forms and be
aspirational or motivational, such as driving an organization
toward a certain objective like improved customer service.
 OBJECT
GOALS COORDINATI
FUNCTION
IVES
These are statements about desired accomplishments
expressed in more specific and measurable terms. Business
objectives are the precise, quantifiable outcomes that
organizations seek to retain as they expand. Business
objectives are created with an emphasis on specificity.
Analyzing, evaluating, and comprehending where you are
now and where you want to be in the future is necessary.
 GOALS OBJECTIV COORDINATI
FUNCTION
ES
In defining the desired financial performance of the firm for instance, the example
below illustrates the difference between a statement of an objective and a statement
of a goal:
STATEMENT OF
OBJECTIVES COORDINATI
FUNCTION
GOAL
"The firm shall continue
to provide
above-average returns
to its shareholders."
 COORDINATI
STATEMENT
STATEMENT OF GOAL
FUNCTION
OF
OBJECTIVE
"Earnings per share will grow
at a compounded rate of 20% per annum
in the next five years."
Explicitly stated objectives and goals are often formulated in large organizations because
without them, lower level managers and employees may be left to guess at

1. the criteria to be used by top management in evaluating the performance of the subunits (e.g.,
profit, market share, cost efficiency, etc.)

2. the level of performance expected during a particular period.

Formal statements of objectives and goals are thus used to challenge lower managers to achieve
higher levels of effort and performance where they may otherwise be content to deliver what they
may regard as "satisfactory" levels of performance.
When a Chinese businessman abruptly left the Philippines in 1983, leaving behind around
500 million pesos in outstanding loans to various Philippine banks, some enterprises there
did not survive. A minor bank run prompted the closure of banks and other financial
institutions that had exposure to this Chinese billionaire. After that, as the general economy
continued to deteriorate, more businesses shuttered their doors toward the end of the
Marcos administration.
When a firm is not in a crisis situation, it may define its objectives and goals differently.
This normally includes objectives and goals in the areas of revenues and profits as
contained say, in the annual company budget. However, to ensure long run survival and
growth, an Austrian – American management consultant – educator named
Peter Drucker proposes that business firms should have well defined objectives and goals in
all of the following areas:

DRUCKER
DRUCKE GOAL CATEGORIES
RMARKET INNOVATIO PRODUCTIVIT
PHYSICAL AND
STANDING FINANCIAL
N Y RESOURCES

PROFITABILI MANAGERIAL WORKER PUBLIC

TY PERFORMANCE & PERFORMANCE RESPONSIBILITY
DEVELOPMENT AND ATTITTUDE

APPLYING DRUCKER’S GOAL

CATEGORIES TO A DEPARTMENT
STORE
DRUCKE GOAL CATEGORIES
RMARKET
STANDING

GOALS OBJECTIVES

IMPROVE Increase sales by 10%

each year in the next five
MARKET years
STRANDING
DRUCKE GOAL CATEGORIES
R INNOVATIO
N
GOALS OBJECTIVES

Increase product lines or

BECOME MORE services to include
INNOVATIVE supermarket, sports products,
and jewelry items and increase
the share of revenues from these
products to 25% of total sales at
the end of five years.
DRUCKE GOAL CATEGORIES
R PRODUCTIVIT
Y
GOALS OBJECTIVES

Complete installation of
IMPROVE computer systems to facilitate
PRODUCTIVITY inventory control and faster
service at the cashier’s area
within three years
DRUCKE GOAL CATEGORIES
R PHYSICAL AND
FINANCIAL
RESOURCES

GOALS OBJECTIVES

Double total parking space in

UPGRADE AND five years. Complete new annex
building to house new boutiques,
PHYSICAL AND etc. , at the end of the third
FINANCIAL year. Increase the proportion of
borrowed funds to 25% of
RESOURCES total assets.
DRUCKE GOAL CATEGORIES
R
PROFITABILI
TY
GOALS OBJECTIVES

Maintain a minimum of 20%

PROFITABILITY ROI
(Return on Investment) on
stockholders' equity for the
next 5 years.
DRUCKE GOAL CATEGORIES
R
MANAGERIAL PERFORMANCE & DEVELOPMENT

GOALS OBJECTIVES

Install a formal performance

IMPROVE appraisal system for managers
MANAGERIAL and establish
in-house supervisory training
CAPABILITIES programs by the end of the
AND ATTITUDE next two years.
DRUCKE GOAL CATEGORIES
R
WORKER PERFORMANCE AND
ATTITTUDE
GOALS OBJECTIVES

Install in-service training

IMPROVE programs and organize Total
MANAGERIAL Quality Control Circles by
phases in all store locations.
CAPABILITIES
AND ATTITUDE
DRUCKE GOAL CATEGORIES
R
PUBLIC RESPONSIBILITY

GOALS OBJECTIVES

Allocate 2% of annual profits to

ENHANCE undertake projects or programs to
improve image in community such
COMPANY'S as donations for scholarship grants
IMAGE FOR and donations to calamity
victims.
PUBLIC
DRUCKE GOAL CATEGORIES
R

The ability of the firm to express top management's expectations in clear statements of
objectives and goals through its planning system influences the effectiveness with which
the control will be performed.

NEXT FORMAL PLANNING AS A COORDINATE DEVIC

FORMAL PLANNING AS A
COORDINATE DEVICE
FORMAL PLANNING AS A COORDINATE

It may be challenging to achieve a certain level of integration and

coordination in the actions of the various organizational units
without formal planning systems, especially in very large
organizations. This is because the requirement that plans prepared
by different units at different levels in the organization be mutually
consistent and coherent. The next chapter describes how, for
instance, the creation of the yearly corporate budget necessitates a
DEVICE

particular level of coherence among various functional plans. This

is how formal planning systems are utilized as a coordinative tool.