Business planning

Iyad S. Attari

2009

Introduction

• Planning is the first function of any successful management.

• It is the tool that all other managerial functions depends on.

• It is a continuous process that aims to specify the goals, objectives, strategies, mission, and vision of any organization.

Introduction

• Depending on the type of objectives and time frame .

• planning is divided into three main types; strategic, tactical, and operational.

Planning Concept and Principles

Planning Principles

• Good planning requires a methodical process that clearly defines the steps that lead to optimal solutions.

Planning Principles

This process should reflect the following principles:

• Comprehensive : all significant options and impacts are considered.

• Efficient : the process should not waste time or money.• Inclusive : people affected by the plan have opportunities

to be involved.

Planning Principles

• Informative : results are understood by stakeholders (people affected by a decision).

• Integrated : individual, short-term decisions should support strategic, long-term goals.

• Logical : each step leads to the next.• Transparent : everybody involved understands how the

process operates.

Planning Principles

• A principle of good planning is that individual, short-term decisions should support strategic, long-term goals.

• This requires comprehensive evaluation and negotiation to help people accept solutions that may seem difficult and costly in the short-term.

Planning Principles

• Good planning is understanding, comprehensive and strategic.

• A planning process should not be limited to the first solution planned or the concerns of people who attend meetings.

ExamplePlanning Principles

Merchants might complain of insufficient customer parking

near their stores This problem can be defined in various ways:

Not enough parking supply.Too many vehicles. Inefficient management of available

spaces.

• Each implying different solutions

• Here are questions to ask to help understand this problem:

How much parking exists, including spaces currently unavailable to customers?

Who currently uses the most convenient spaces?

Who encounters this problem, when and where?

How is parking currently managed (including regulations and prices)?

What is the cost of increasing parking supply? What management strategies could help

address this problem? Who bears the costs and benefits from

potential solutions? How well do various solutions integrate with

strategic planning objectives?

Planning Concepts

• A planning framework defines the basic planning process structure.

• This typically includes the following components:

Planning Concepts

• A planning framework defines the basic planning process structure.

• This typically includes the following components:

Planning Concepts

Principles : A basic rule or concept used for decision-making.

Vision : A general description of the desired result of the planning process.

Problem : An undesirable condition to be mitigated (solved, reduced or compensated).

Planning Concepts

Goals : A general desirable condition to be achieved. Objectives : Specific ways to achieve goals. Scope : The range (area, people, time, activities, etc.) to

be included in a process. Options : Possible solutions to a problem or ways to

achieve an objective.

Planning Concepts

Policies : A general course of action. Plans : A scheme or set of actions. This may be a

strategic (general and broad) or an action (specific and narrow) plan.

Programs : A specific set of objectives, responsibilities and tasks within an organization.

Tasks or Actions : A specific thing to be accomplished.

Planning Concepts

Targets : Something specific to be achieved.

Performance indicators – Practical ways to measure progress toward objectives.

Planning Concepts

Evaluation refers to the process of determining the impacts of an object, activity, policy or program, and its ultimate value.

Types of Planning

Types of Planning

Three types:

• Strategic Planning• Tactical Planning• Operational Planning

Types of Planning • Strategic Planning: The art & science of formulating, developing, implementing and

evaluating cross-functional decisions that enable an organization to achieve its objectives.

Is a course of action to achieve long-range goals.

Reflect the company’s direction and its purpose as stated in its mission statement.

Types of Planning • Tactical Planning: The tactical plan express how the strategic plan will be executed. Course of actions to achieve short-term goals, generally within a

year or less. Tactical plans represent the short-term efforts to achieve the

strategic, longer-term goals. They are concerned with what the units under top management

must do, how they must do it and who has the responsibility.

Types of Planning Operational Planning : IS a description of how the work will be done, the flow of work from

input to end results, including the machines which will be used.

Types of Planning Generally :

Strategic Planning is known as long term planning.

Operational planning is short term planning.

Tactic planning relates to in between both the above.

Strategic Planning

Environmental Analysis

(S.W.O.T.)

Tactical PlansOperational plans,

budgets

Monitor Performance Implementation

Master StrategiesVision, mission, strategies,

goals, objectives

Adjust

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Strategic PlanningThe art & science of formulating, developing, implementing and evaluatingcross-functional decisions that enable an organization to achieve its objectives

A complete look at how to position the

organization for the future

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Strategic Planning ProcessFundamental decision making/problem solving model Defines where the organization is now, where it wants to be, and how it

will get there Gathers internal and external information. Develops alternative strategies Selects appropriate strategies Implements a plan Evaluates and revises the plan as needed

StrategyImplementa-

tion

Phase 3

StrategyDevelopment

Phase 2

StrategyFormulation

Phase 1

StrategyEvaluation

Phase 4

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Strategic Planning Process Phase 1: Strategy Formulation

Develop vision & mission statements

Define organizational values

Strategy Formulation

Mission• Who the company is?• What the company do?• Who the company’s

customers are?

Values• Describe what is

important• Dictate employee

behavior

VisionGuiding image of the organizations

desired future

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Vision, Mission, Objectives, and Goals

Vision

• Defines the desired or intended future state of an organization or enterprise in terms of its fundamental objective and/or strategic direction.

•Vision is a long term view.

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Vision, Mission, Objectives, and Goals

Mission

• Defines the fundamental purpose of an organization or an enterprise.

•Describing why it exists and what it does to achieve its Vision

•A corporate Mission can last for many years, or for the life of the organization.

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Vision, Mission, Objectives, and Goals

Goals

• are general guidelines that explain what you want to achieve in your company.

•They are usually long-term and represent global visions.

•such as “protect public health and safety.”

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Vision, Mission, Objectives, and Goals Objectives

•define strategies or implementation steps to attain the identified goals.

•Unlike goals, objectives are specific, measurable, and have a defined completion date.

•They are more specific and outline the “who, what, when, where, and how” of reaching the goals.

Example

NatHealthVision, Mission, & Values

الرؤيا

اإلعتراف وتحقيق التوسعكمزود والعالمي اإلقليمي

الصحي التأمين لخدمات رئيسياإللكترونية، المطالبات وإلدارةالبطاقة تقنية بإستخدام وذلك

الذكية

الرسالة

من للزبائن متميزة خدمة تقديمذاتية الصناديق ، التأمين شركاتالحكومية والمؤسسات التأمين

الموجودات حماية بهدفمجاالت توسعة على ومساعدتهم

متدنية تكاليف وتحقيق عملهمرفع ضمان مع ، للمطالبات

الطبية الخدمة مستوياتحسب النهائي للمستخدم

المتفق التعاقدية السياساتعليها

قيم نات هيلثالنزاهة واإلستقامة1.اإللتزام والمصداقية2.اإلفصاح والشفافية3.الدقة واإلنضباط4.المحافظة على الممتلكات5.عدم تضارب المصالح6.اللطف والكياسة7.التعامل بمهنية ومسؤولية مع الجميع8.- النظاف���ة والترتي���ب والمحافظ���ة عل���ى 10

البيئة الصحيةحماي�ة الملكي�ة الفكري�ة وأس�رار المؤس�سة 9.

هيل�ث )(ن�ات

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Strategic Planning Process Phase 2: Strategy Development

Conduct a SWOT analysis including environmental scanEstablish long-term objectives (3-5 Ys) Identify strategies: - corporate - unit & - functional

Strategy Development

S

O T

W

Internal Strengths

Internal Weaknesses

External

Opportunities External

Threats

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Strengths Weaknesses

Opportunities Threats

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Inte

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SWOT Analysis

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S T R E N G T H S What do you do particularly well? What do you do that is unique in the

“marketplace?” What do your customers/ clients/ patrons ask for

you to do over and over again? What do you have the right tools/ resources to

accomplish?

W E A K N E S S E S What do you not feel as comfortable doing? What needed resources, staff, or skills

do you lack?

Are there new situations coming down the road that you can take advantage of (new programs being offered, new faculty joining the department, new tools available to you)?

Are there gaps in the “market” that you can fill? Are there partnerships that might be fruitful?

Who is your competition and what do they offer that you can’t do as well or at all?

Are there “environmental” changes or situations that could cause problems for you and your programs?

What other roadblocks are being thrown in your path?

O P P O R T U N I T I E S T H R E A T S

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SWOT Analysis

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Strategic Planning Process Phase 3: Strategy Implementation

Establish short-term objectives (6 Ms-1 Y)Develop action plans

Allocate resources

Motivate employees

Strategy Implementation

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Strategic Planning Process Phase 4: Strategy Evaluation

Review strategies

Measure performance

Take corrective action

Strategy Evaluation

Have significant differences occurred?

Activity one:Review strategies

Activity two:Measure performance

Continue present course

Have significant differences occurred?

Activity three:Take

corrective action

No

No

Yes

Yes

Framework to Evaluate Strategies

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Assessing the Internal Environment

InformationTechnology

Operations

Finance andAccounting

Employees

Marketingand Sales

HR

must be able to

Describe the role of each function in the organization. Understand the organization structure & its effect of the implementation of strategic planning

Understand the perspective of your business partners.

Create communication & collaboration. Identify internal needs & emerging issues.

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Finance and AccountingFinance: Assists other business units in the

financial aspects of their business. Pricing products Creating financial models

Accounting: Balances the checkbook of the

company. Accounts receivable Accounts payable

InformationTechnology

Operations

Finance andAccounting

Employees

Marketingand Sales

HR

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Assets, Liabilities & Equity

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Accounts Payable & Accounts Receivable

The money a company owes to

its vender & suppliers (liability accounts)

Accounts Payable

The money a company’s customers

Owe the company (assets accounts)

Accounts Receivable

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Balance Sheet

Summarizes the firm’s financial position Assets = Liabilities + Equity Every financial transaction is an exchange, and both sides are

recorded. Only records transactions measured in money. Profit increase equity Cash withdrawal decrease equity

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Income StatementA statement explaining

revenues, expenses, and profits over a specific period of time(one year or a quarter)

Gross sales $360,000Less cost of goods sold $240,000Gross profit $120,000Less expenses: $50,000

Salaries $20,000Rent $18,000Utilities $7,200Depreciation $1,800Interest $3,000

Income less expenses $70,000Income tax expense $28,000Net income $42,000

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Gross Profit Margin

what its costs to produce a product

Measures the difference between

selling price

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Marketing and Sales

What the organization sells to make profit

MarketingThe process of planning, pricing, promoting & distributing goods/services

to satisfy organizational objectives

Promotion

Price

Place

Product

KeyElements

4 Ps

Who the product/service will be made available for purchase by customers

A key decision in marketing plan. (large share of the market/ lowest price)

Techniques for communicating information about product/service to customers

Sales:Sell the organization's

product to the marketplace

InformationTechnology

Operations

Finance andAccounting

Employees

Marketingand Sales

HR

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OperationsInformationTechnology

Operations

Finance andAccounting

Employees

Marketingand Sales

HR

The Central Focus To provide goods and

services to customers

Primary responsibility Productivity, quality, cost, delivery & performance

Affected by supply chain management

Control

Inventory Scheduling

Standards

Capacity

Keyconcepts

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Information TechnologyInformationTechnology

Operations

Finance andAccounting

Employees

Marketingand Sales

HR

Enables an organization to use information to support its strategic objectives.

• Strategic information systems are designed to achieve competitive advantages.− Airline reservation systems

• Operational systems focus on reducing costs or improving productivity.− Remote access systems that allow

telecommuting

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EmployeesInformationTechnology

Operations

Finance andAccounting

Employees

Marketingand Sales

HR

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Increasing Employee Engagement

Employees willingness to “go the extra mile”

Measuring employee engagement How employee describes the organization Whether they choose to remain How they work

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Investing in Human Capital

Create an organizational culture that develop creative, loyal and empowered employees

HR to play a role in confirming the organization’s return on investment (ROI) in its human capital

Human capital consists of combined knowledge, skills and experience of company’s employees

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Organizational Design

High energy/creativity

Develop products/Services & markets

Experienced staff

Meet or exceed the pay range

No training Basic employee policy

Change & expansion Backlogs & scheduling problem

Polices, procedures & rules in place

Recruitment & selection increased

Leadership sustains moral/ motivation while building teams

Problem resolved

Staffing & organizational culture stabilized

Additional product & services

Training

Labour cost becomes a factor

No change

Fixed rules & regulations

Leadership resist change

Enhanced product/cost reduction programs (early retirement- closing major facilities- outsourcing- third party contracts- retaining key staff)

Introduction Growth Maturity Decline

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HR Focus:Staffing Compensation, HR planning,

training

Introduction

Staffing andtraining

Change managementOutplacementCross-training

Growth Maturity Decline

Crisis: Leadership

Need:Creativity

Crisis: Delegation

Need: Clear direction

Need:Formal systems

Crisis: Bureaucracy

Crisis: Change resistance

Need:• Streamlined

decision making• Flexibility• Small-company

thinking

Patterns of Organizations Change

Scanning The External Environment

Environmental Scanning

Is a process that systematically surveys & interprets relevant data to identify external opportunities and threats

NowIn the future

External Environment Factors

Demographic Factors

Demographic Factors

Age

Gender

Generational differences Geographic

shifts in populations

Ethnicity

Unskilled labor

Nontraditional labor force

Demographic Factors (cont.)Age

Demographic Factors (cont.)Age

Baby boomers

Start to be 60 in 2006

200478 million baby

boomers EducatedTrainedLoyal

Dependable

Born between 1946 and 1964

44%

Demographic Factors (cont.)Gender

47% of 2004 workforce56% of student in college campuses

Family constrain

Inflexible working conditions Occupational

barriers

Gender stereotyping

Demographic Factors (cont.)Generational differences

Born between 1965 and 1980

Born after 1980

Millennium

Demographic Factors (cont.) Geographic shifts in populations

Urban centers The suburbs

Demographic Factors (cont.)Ethnicity

Hispanic The largest minority group in US

Hawaii

Minorities made up the majority of the population

Avoid

discrimination &

harassment

Increase inclusion& engagement

Demographic Factors (cont.)Unskilled labor

Higher education Skilled workers

Training Off shoring

Demographic Factors (cont.) Nontraditional labor force

Find enabling technology

Create enabling environment

Economic Factors

Interestrates

Inflation Disposableincome

CPI

GDP

EconomicFactors

UnemploymentLess investment

EmploymentInvestment

Total value of goods and services produced in a country in a given year

Good economyWage increases

No wage increases Downsizing

Measure the average change over time in the prices paid by the

consumer for goods & services

Consumer Price Index

Gross Domestic Product

The amount of money the consumer have to spend after taxes paid When supply of money is in excess of

the amount of goods and services

Salary compression Increase in starting salary

Other Factors

Political

• Legislation and regulatory guidelines

Social

• Changing definition of families

• Strain on health-care systems

Technological

• Advances• Skills• “Digital

divide”• Process

changes

• What is Risk ?

A - Any obstacles to reach the Goal . B - Any obstacle to reach profit for the

business. C - Risk is connected with bad results in the

future.

• So Risk aspects * Bad results occurrence.

* Future Events. * Probabilities.

We Describe Risk : The Uncertainty of the future ,as the probability of bad result of any future events.

Example :

Type Of Risks what is the obstacles not only effect the business negatively

(income) but also to Maximize income .

Inflation Risk : Inflation has an advantage for producers but disadvantages for

consumer. To measure the inflation= The Average of all goods and services.

( The important prices and non important prices taking together . So the simple average not considered to measure inflation and

replaced by the Weighted Average . Weighted Average (price level) = (p1 * w1) + (p2 * w2)+…………

(pn * wn) = Points. The relationship between inflation and unemployment . ( is

negative , when the inflation increase the employers or producers use more employees to collect more revenues from the increase prices because it become worth it . ( Fillips theory ).

Risk And Return

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Infla

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Dec

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Political Risk :

Political Risk :

• The probability of loss from actions of governments.

• Political system in the country .• Changes in public opinion ,government

policy , tax laws, regulations on exportations, foreign influence, & War.

Exchange Rate Risk : Is the risk that a foreign currency transaction will be

negatively exposed in exchange rates.For example the Jordanian currency drop in year

1989 against the us dollar.Foreign currency risk : Hard currencies ( US Dollar,

Euro , Pound , Yen )

Other currencies called the Soft currencies.What effect the currency price : a) GNP b)

Inflation c) The increase in the interest rate on the currency

effect to increase the demand on it .

Interest Rate Risk : Is the risk of fluctuations in the value of assets due to

changes in interest rates.Greater the longer the maturity of the asset.• The value of bonds decline when the interest rates increase .• If interest rate Decline lower return will be available for reinvestment of

interest & principal payments received .

Default risk: Is the risk that the borrower will be unable to repay

debt.The higher the default risk the higher the rate of return

required by the investor .

Credit Risk :

Ex. When you can collect the loans after 3 years so the purchasing power will decrease.

Type of credit risk :( Default risk , interest rate changes ).

Credit Policy : Credit period. ( 2/10 , net 30 ) Discounts given for early payments. ( 2/10 , net 30 ) Credit Standards. ( financial strength can accept credit customers, but this cause

bad debts). Collection Policy. ( speed up collections but it might also anger customers).

Market Risk :

Changes in prices will result from changes that effect all firms. The Competition is the risk but not the monopoly . Prices correlated to some degree with broad swing in the economy caused

by recession , inflation high interest rates ,etc. Called unsystematic risk or no diversifiable risk.

Business Risk : Is the fluctuations in earnings before interest & tax ( Operating income)

when the firm it used no debt. Depends on factors such as: 1) Demand Variables. 2) Sales Price Variables. 3) Input Price Variables. 4) Amount Of Operating Leverage.

Regulations Risk : Such as the central bank regulation for the local banks to increase

their capitals for a higher limits . The solution here is to increase the capital or merge with other banks .

Finance Risk : The possibility that an asset cannot be sold on short notice for its

market value . Which is the risk to the shareholders from the use of financial

leverage. Called the liquidity risk for the short term period but when it

became a chronic or long term we call it Bankruptcy. From business failure , stock market, interest rates, etc.Employee Risk : Strikes. Labor unions. Unskilled labor. Ethical risk .

Management Risk : Inefficient management. mismanagement. Ethical risks.

Technological Risk : Old machines or systems for production and services. From advances in technology technical failure etc.

Natural Risk : Earth quick. Volcano. Flood. Fires. Accident Disease.

Environmental Risk : Pollution.

Natural of the Business Risk : Place of the building, (position far from the harbor or airport ). Operational ( to distribution to supplies & operations, loss of access to

essential assets , failures in distribution).

Portfolio Risk : Is the risk remaining after allowing for risk reducing effects of combining

securities into a portfolio . Portfolio risk is attributable to the poor balance of risks within the

portfolio. There is a limitation for the no. of securities in the portfolio.

1 2 3 4 5 60

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40

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Diversification by using portfolio

Size of portfolio

Risk

1

3

2

4

According to the source of risks

A) National Risk : Inside the co. Firm risk. ( any risk inside the firm). Market risk. ( Competition from other co. from the

same country ). Inflation risk. ( and the local industry for the same

industry ).

B) International Risk : Outside the co. Firm risk. ( in the international markets). Market risk. ( Competition from other co. from the

other country ). Inflation risk. ( International relations between 2

co. such as Mercedes international effect Mercedes in Jordan strongly ).

Economy

Market

firm

According to the standard of controllability risk

A) Controllable Risk : You can minimize it but can not delete it. Called Firm risk Systematic risk Avoidable risk.

Diversifiable risk.

B) uncontrollable Risk : The risk that you can not minimize it . Called Market risk Economy risk Unsystematic risk

Non-Diversifiable risk.

Human being Behavior against Risk:

A- Risk lover B- Risk Avoider

(Risk Gamblers). (Risk averter).

Question : Do the risk avoider accept the same level of return as will as the risk lover ?

Answer : No , The higher the risk the higher the return.

Or higher return the higher the risk.

Risk And Return

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Risk (beta)

Ret

urn (E

xpec

ted)

SML

Free risk (Sys)

What kind of relationship between return & risk.

Positive relationship .

key performance indicator (KPI)

key performance indicator (KPI)

• Is a measure of performance• Commonly used to help an organization define and

evaluate how successful it is.• Typically in terms of making progress towards its long-

term organizational goals. • Measure activities such as the benefits of leadership

development, engagement, service, and satisfaction.• KPIs are typically tied to an organization's strategy

using concepts or techniques such as the Balanced Scorecard.

key performance indicator (KPI)

The Balanced scorecard (BSC)

• Is a strategic performance management tool.

• Measuring whether the smaller-scale operational activities of a company are aligned with its larger-scale objectives in terms of vision and strategy.

• By focusing not only on financial outcomes but also on the operational, marketing and developmental inputs to these.

key performance indicator (KPI)

The Balanced scorecard (BSC)

• helps provide a more comprehensive view of a business, which in turn helps organizations act in their best long-term interests.

key performance indicator (KPI)

Implementing Balanced Scorecards typically includes four processes:

1- Translating the vision into operational goals;

2- Communicating the vision and link it to individual performance;

3- Business planning; index setting

4- Feedback and learning, and adjusting the strategy accordingly.

key performance indicator (KPI)

Bsc Perspectives :

• suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:

The Learning & Growth Perspective The Business Process Perspective The Customer Perspective The Financial Perspective

Page 137YOUR LOGO

„To achieve our vision, how should we appear to our customers?“

„To satisfy our shareholders and customers, what business processes

must we excel at?“

Balanced Scorecard Framework

„To succeed financially, how should we appear to our shareholders?

„To achieve our vision, how will we sustain our ability to change and

improve?“

Customer Business Processes

Financial

Learning & Growth

BalancedScorecard

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key performance indicator (KPI)

Thank You

Iyad Attari