Essentials of Planning

Take hold of the future or the future will take hold of you

PlanningDefinition:

Planning involves defining the organization’s objectives or goals, establishing an overall strategy for achieving these goals and developing a comprehensive hierarchy of plans to integrate and coordinate activities.

It gives direction, reduces impact of change, minimizes waste and redundancy and sets standards used in controlling

It determines before hand the

1.Ends (what is to be achieved) 2. Means (how it is to be done) 3. Timing (when to do what) 4. Responsibility and accountability (who should do what) and 5. Reason (why it should be done)

PlanningControlling:

Comparing plans withresults

Correctiveaction

New plans

ImplementationOf plans

Undesirable deviation

No undesirabledeviation

The close relationship of planning and controlling (Siamese Twins)

7. Individual objectives – performance & personal development

6. Department and unit objectives

5. Division objectives

4. More specific overall objectives KRA (key results area)

3. Overall objectives(long and short range)

2. Mission

1.Vision CSR

Top

dow

n ap

proa

ch

Bottom

– up approach

Lower levelmanagers

Middle levelmanagers

Top levelmanagers

Board of Directors

Hierarchy of objectives – Objectives and organizational hierarchy

Type of Plans

Breadth

Strategic

Tactical

Time frame

Long termMaster plan >5 yrs

Medium term< 3 yrs crisis mgmt

Frequency of use

Single use1.Programs2. Projects3.Budgets

Multiple use

Operational1.Policies

2. Procedures3. Methods

4. Rules

Short termDay to day plan

Specificity

1.Financial &Non-financial2. Product & Project plans

Classification of Plans

Mission Statement

Strategic Plans

Operational Plans

Founders, Board of Directors, Top Managers

Top and Middle Managers

Middle and Frontline Managers

The Hierarchy of PlansR

espon

sible for im

plem

entation

Planning – Importance and Limitations

Importance:• Direction setting

• A holistic picture of consequences

• No haphazard actions

• Economy in operations

• Minimizing risks and uncertainties

• Estimation of needed resources

• Better decision making

• Promotion of teamwork

• Provision for control

• Technological innovation / development

Limitations• Lack of accurate information

• Time consuming process

• Expensive

• Inflexibility

• Environmental constraints

• False sense of security

• Capital invested in fixed assets limits planning

Characteristics of Planning

• Primary function of management

• Intellectual process (translating knowledge and information into road map of action, coordinate different action plans, dynamic). Should be able to convert problems into opportunity. (Rise of the crane gang – Chandrakant and Anil Sanghvi)

• Goal oriented

• Dynamic (flexible), future oriented and involves forecasting

• Involves choosing among alternatives

• Planning and control are inseparable and has limitations

Being aware of the opportunities(Environmental scanning)

Market, competition,Customer preference. Self strengths

and weaknesses (Balaji films)

Setting goals & objectivesWhere, when and what?

Considering planning premisesIn what environment – internal

or external – will the plan operate

Identifying alternativesMost promising alternative from the

menu of options

Quantify plans with budgetsBudgets for volume & price of sales,

Operating & Capital expensescontingencies

Formulating supporting plansEquipment & material purchase, hire

& train workers, develop new product

Pitching alternatives in consonancewith goals

Best chance of meeting goals with lowestCost and highest profits

Choosing an alternativeSelecting the optimal path

Steps in Planning-The planning processPlan implementationand review

Objectives: The Foundation of Planning• Objectives are goals and desired outcomes for individuals,

groups, or the entire organizations. They provide the direction for all management decisions and form the criterion against which actual accomplishments are measured. There are verifiable (achieve ROI of 12% at the end of the FY) and non-verifiable (to develop better managers)

• All organizations have multiple objectives. (Businesses seek to increase market share and satisfy employee welfare)

• Real versus Stated Objectives: An organization’s stated and real objectives are often different as they have to cater to differently demanding constituencies.(Number of students in a class; promises of automobile service center)

Planning and Strategic Management

• Alfred D Chandler defined ‘strategy’ as the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals’.

• In 1978, Schendel and Hofer created a composite definition of strategic management based on the principle that the overall design of an organization can be described only if the attainment of objectives and strategy as key factors are added to policy.

Goal Setting Mission / Vision statement

Strategy Formulation

Administration

Strategic Control

Strategic Planning

Strategic Implementation

Strategic Management Process

Strategic Planning Strategic planning involves analysis and development of the

organizations vision, mission,overall goals, general strategies and allocation of resources. It produces fundamental decisions and actions that shape and guide the direction of the entire organization. Top level managers are involved in strategic planning and answers the questions like:

• What is the purpose of the organization?• What does the organization have to do in future to remain

competitive? Why it needs to do that?• What strategies should an organization adopt to achieve its

intended goals?• How much resources need to be allocated to different business

units to enable them to achieve their objectives?

Strategic and Operational Plans differ in three major ways

• Time Horizons: Strategic plans tend to look ahead several years or even decades. For operational plans, a year is generally a relevant period.

• Scope: Strategic plans affect a wide range of organizational activities, whereas operational plans have a narrow and more limited scope. The number relationships involved is the key difference

• Degree of Detail: Strategic goals are stated in terms that look simplistic and generic to ensure that the people in the organizations to think of the whole of the organization’s operations. Operational plans as derivatives, are stated in relatively finer details

The Strategic Planning Process

Mission / Vision Statement• Customer Market

• Product and Services

• Geographic Domain

• Technology

• Concern for Survival and growth

• Philosophy

• Self Concept

• Concern for Public image

Strategy Formulation• Analyze the external

environment• Reassess the organizations

resources• Carry out SWOT analysis• Look at the Organization’s

culture (its values, beliefs, attitudes and valued behaviors – the way things are done here)

• Set strategies that would give the organization a competitive advantage

The Strategic Implementation Process

Implementing Strategies Successful strategies require

properly matched organization structure; re-engineer if needed

New strategies would need people with different skills. Need to recruit, select, train, discipline, transfer, promote or even lay off.

Build and manage effective New Teams

Competent / charismatic leadership at the top and and motivated middle and lower level managers

Evaluate Results How effective the

strategies have been? What adjustments are

required? Bring about the

appropriate and well researched change

Inputs:•People•Capital

•Mgmt skills•Tech skills

•Others

Goals of Stakeholders:

•Employees•Consumers•Suppliers

•Stockholders•Governments•Community

•others

Enterpriseprofile

•Executive Orientation:

•Values•Vision

•Mission•Major

objectives•Strategic

intent

Present &Future external

Threats &opportunities

Developmentof alternatestrategies

Internal Strengths &weakness

INDUSTRY

ANALYSIS

EVALUATION

&

STRATEGIC

CHOICE

Implementation

Medium & Short range

planning

•Reengineering•Org. restructure

•staffing

•Consistencytesting

•Contingencyplanning

LEADERSHIP

&

CONTROL

Strategic Planning Process Model

The TOWS matrix for analysis of situation

• Today the strategy designers are aided by a number of matrices that show the relationships of critical variables. The TOWS Matrix is a conceptual frame work for a systematic analysis that facilitates matching of external threats and opportunities with internal weaknesses and strengths of the organization

• The TOWS starts with the threats because in many situations a company undertakes strategic planning as a result of perceived crisis, problem, or threat.

• TOWS Matrix is increasingly used these days for planning mergers, acquisitions, joint ventures and alliances.

Internal factors

External

Factors

Internal Strengths (S)

Strengths in management, operations, finance, marketing, research and development, engineering

Internal weakness (W)

Weaknesses in areas shown in the ‘strengths’ box

External opportunities (O) & risk eg. current & future economic conditions, political and social changes, new products, services and technology

SO Strategy: Maxi–Maxi

Potentially the most successful strategy, utilizing the organizations strength to access opportunities

WO strategy Mini-Maxi

Development strategy to overcome weaknesses in order to take advantage of opportunities

External threats (T)

Energy shortage, competition, and areas similar to those shown in opportunities

ST Strategy Maxi-Mini

Use strengths to cope with threats or to avoid threats

WT strategy Mini-Mini

Retrenchment, liquidation or joint venture to minimize both weaknesses and threats

TOWS Matrix for Strategy Formulations

Stars

(Have opportunities for growth& profit)

Question

Marks

(Need investment)

Cash Cows

(well established in the market)

Dogs

(Should be closed down)

Boston Portfolio Matrix for allocation of Resources

High

Low

Bu

sin

ess

grow

th r

ate

Strong Weak

Relative competition (Market Share)

Multi-businessCorporation

StrategicBusiness Unit

StrategicBusiness Unit

StrategicBusiness Unit

Research &Development

Production /Operation

Marketing Finance

Corporate level Business unit level Functional level

Strategic Management -Three Tier Strategy and their Operational Plans

Operational Plans Operational Plans Operational Plans Operational Plans

Structure

Strategy

Skills

Staff

Style

Systems

Super-ordinate Goals

The Seven S Model (McKinsey & Co) for Strategy Implementation; neglecting any one of the key factors could make the effort to change a slow, painful and even a doomed process

Planning Tools (Scanning, Forecasting & Benchmarking) and Techniques

1. Environmental Scanning: To anticipate and interpret changes in the environment (Insurance needs for DINK, DISK, and traditional families)

• Competitor intelligence: Who r they? What r they doing? How will that affect us??

• Global and local scanning

• Based on above prepare a consistent scenario and initiate strategic change to gain and keep competitive advantage

2. Forecasting

Information obtained from scanning is used to develop scenarios as basis for forecasting. Two types of forecasting

1. Revenue: Crucial and is based of historical data and environment scan. What revenue patterns evolved over the years, changes in the social, economic and political patterns might impact the revenue generation

2. Technological: Changes in technology and the timeframe when they are likely to be economically viable. (Case of technology in music retail – vinyl discs, magnetic tapes, CD, digital tape etc). Consumers still want to listen to music but on their preferred medium.

Forecasting Technique

Two types of forecasting techniques:

• Quantitative forecasting puts a series of historical data to mathematical scrutiny (time series analysis, regression methods, economic models & indicators, substitution effect etc) to predict future outcome

• Qualitative forecasting uses judgment and opinion of knowledgeable people to predict future outcome

Forecast Effectiveness• It has been a mixed success• Dependable when the environment is stable and not

rapidly changing• Relatively unimpressive in predicting non seasonal events

such as recession, unusual occurrence, discontinued operations etc

• Five cardinal points: keep the technique simple, compare every forecast with “no change”,do not rely on single model – try a few and average them, do not assume that you can identify turning points in a trend and finally shorten the length of forecast to minimize risk and improve accuracy

3. Benchmarking

Benchmarking is the search for the best practices in the market that lead to superior performance. It is a very specific form of environment scanning. (Case of Xerox and their Japan experience of efficiency). Four step process:

• Formation of a benchmarking planning team to identify what is to benchmarked, concerned organizations and data collection procedures

• Team collects data internally and externally• Data analysis to identify performance gaps and cause of

difference• Action plan for improvement and setting new standards

Suggestions for Benchmarking Efforts

1. Link benchmarking efforts to strategies

2. Right sized team (6 to 8 people most effective)

3. Involve those employees to be directly affected by BM

4. Focus specific and target issues not on broad & generic

5. Set realistic timetables

6. Choose benchmarking targets carefully

7. Observe appropriate protocol; contact the right person

8. Do not collect unnecessary and excessive data

9. Look at the process behind the information

10. Identify benchmarking targets and then act

Budgets

• A budget is a numerical plan for allocating resources to specific activities. Managers typically prepare budgets for revenues, expenses and large capital expenditure such as machinery and equipment. It is not unusual, though, for budgets to be prepared for improving time and space and use of material resources.

• Budgets are one planning device that most managers, regardless of organizational level, help formulate.

Types of Budget• Revenue Budget: Is a specific type of revenue forecast (future sales)• Expense budgets: it lists the primary activities undertaken by a unit to

achieve its goals and allocate monetary amount to each.• Profit Budgets: profit budgets combine revenue and expense budgets

into one. They are typically used in large organizations that have multiple facilities and divisions

• Cash Budget: It forecasts how much cash the organization will have in hand and how much will it need to meet the expenses.

• Capital Expenditure Budget: investments in property, buildings and major equipment are called capital expenditure. They allow management to forecast future capital requirements, to keep on top important capital projects.

• Variable budgets: Most organizations are not able to predict the volume accurately. A number of costs such as labor, material and some admin expenses vary with volume. They are taken care in the variable budgets

Approaches to Budgeting

• Incremental Budgets: It has two specific characteristics;

(a) Funds are allocated to units. The managers then allocate funds to activities they see fit. (b) An incremental budget is based on previous budget, using that a a reference point. Only incremental changes in the budget are reviewed.

• Zero Based Budget: It is designed to overcome the second draw back of the incremental budget; activities that are being immortalized. ZBS shifts the burden of proof on the manager why he should get any budget at all

Processes in the ZBB

• Each discrete departmental activity is separated into a decision package.

• The individual decision package are ranked according to their benefit to the organization during the budget period

• Budget resources are allocated to the individual packages according to preferential rankings in the organization.

• The decision package is a document that identifies and describes a specific activity.

• Once department managers have completed the decision packages, they are forwarded to the top executives who determines how much and where to spend.

Activity A

Activity B

Activity C

Activity D

Activity E

Decision PackageA

Decision PackageB

Decision PackageC

Decision PackageD

Decision PackageE

1

2

3

4

5

Step 1

C

E

B

A

D

Breakdown of ActivitiesInto decision Packages

Ranking decisionPackages

A

B

C

D

E

Step 2 Step 3

Allocation of Resources

Operational Planning Tools

• Scheduling

• The GNATT Charts / Load Charts

• Breakeven Analysis

• PERT Network Analysis

• Linear Programming

• Queuing Theory

• Probability Theory

• Marginal Analysis

• Simulation

Time Management

• Time is a unique resource; it can neither be stockpiled not lost time retrieved.

• The majority of manager’s time is spent on responding to requests, demands and problems initiated by others (Response Time) and the manager has very little control on this.

• The portion that is under manager’s control is called the “Discretionary Time” and is manageable.

Time Management Steps

1. List your objectives

2. Rank objectives according to their importance

3. List the activities necessary to achieve your objectives

4. For each objective, assign priorities to the various activities required to reach the objective.

5. Schedule your activities according to the priorities you have set.

Some additional Time Management Tips

• Follow the 10 – 90 principle

• Know your productivity cycle

• Remember Parkinson’s Law

• Group less important activities together

• Minimize disruptions

• Beware of wasting time in Poorly run meetings

Management by Objectives (MBO)

Management by Objectives is a comprehensive managerial system that integrates many key managerial activities in a systematic manner and is consciously directed towards effective and efficient achievement of organizational and individual objectives.

It includes four elements: goal specificity, participatory decision making, an explicit timeframe and performance feedback. The overall objectives are translated into specific objectives for each succeeding level in the organization and is therefore, participatory and two way osmosis process. If the individuals achieve their goals, then their unit’s goals will be attained and so on up the chain until the organization’s overall objectives become a reality

Top management

Hierarchy Objectives

We need to improve the Organization’s performance

Division Manager

Department’s Manager

Individual Employee

Improvement in division’s profit

Profit rise regardless of means

Work fast, regardless of quality

Traditional objective Setting, MBO

Steps in a Typical MBO Program

1. Organization’s overall objectives and strategies are formulated

2. Major objectives are allocated amongst the divisional and departmental heads

3. Unit managers collaboratively set specific objectives for their units with their superiors

4. Specific objectives are set for all department members

5. Action plans for objectives are discussed, fine-tuned, specified and agreed upon by the managers and staff

6. Action plans are implemented

7. Progress towards objectives is periodically reviewed and feedback provided

8. Successful achievement of objectives is reinforced by performance based rewards

Characteristics of MBO

• Comprehensive managerial system that integrates key activities in a systemic manner for achievement of the objectives

• Focuses on results and not on activities

• Focuses on accomplishment of objectives in a participatory manner

• Delegation is by “negotiating a contract of goals” with subordinates

• Verifiable achievement of tasks and goals

• Periodic performance appraisals in accordance with the tasks

• Goals are used to monitor and control to promote managerial self control

Benefits and Limitations of MBO

• Effective management

• Clarity of organizational action

• Encouraging commitment for attainment of organizational goals

• Professional satisfaction

• Establishment of effective control

• Failure to educate employees about MBO philosophy

• Goal setters not provided with adequate guidelines

• Difficulty in setting appropriate goals that are optimum and measurable

• Establishment of easily attainable goals

• Stress on short term goals• Inflexibility• Unethical practices in pursuit of

objectives• Can be stressful, threat perception• Lack of strong commitment from

the top• Incompatibility with sudden

changes

Core jobcharacteristics

Critical psychologicalstates

Outcomes

Skill varietyTask identityTask significance

Experienced meaningfulness of the work

Autonomy Experienced responsibilityfor the outcome of the work

Feedback from the job

Knowledge of the actual results of the work activities

Higher internal workmotivation

Higher growth satisfaction

Higher general job satisfaction

Higher workeffectiveness

Moderators1. Knowledge and skills2. Growth need strength3. Context satisfaction

MBO is most effective if the goals are difficult enough to require to persons to stretch

Reward System

• Rewards and incentives contribute to strategy implementation by shaping individual and group behavior. Well designed incentive plans are consistent with an organization’s objectives and structure. They motivate employees to direct their performance toward the organization’s goals

• The setting up of the incentive plan should be tailored to further the organization’s objectives. Incentive plans should encourage short term or long term decision making, greater or lesser risk taking, more or less cooperation with other managers and the like.

QUESTIONS ??