PLANNING
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• Steps,Dimensions,Nature of Planning• Types of Plans• Planning Tools
BudgetsMBO
• Merits,Limitations,Barriors in Planning• Types of Strategies
Forcasting Decision Making
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The roles of planning and controlling in the management process
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Plans: A Definition
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Planning Defined
• Defining the organization’s objectives or goals• Establishing an overall strategy for achieving
those goals• Developing a comprehensive hierarchy of plans
to integrate and coordinate activities
Planning is concerned with ends (what is to be done) as well as with means (how it is to be done).
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Reasons for Planning
EXHIBIT 3.1
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How do managers plan?
Benefits of planning: Improves focus and flexibility.
Improves action orientation.
Improves coordination.
Improves time management.
Improves control.
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Criticisms Of Formal Planning
• Planning may create rigidity.• Plans can’t be developed for a dynamic
environment.• Formal plans can’t replace intuition and
creativity.• Planning focuses managers’ attention on today’s
competition, not on tomorrow’s survival.• Formal planning reinforces success, which may
lead to failure.
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Planning and Performance
• Formal planning generally means higher profits, higher return on assets, and other positive financial results.
• Planning process quality and implementation probably contribute more to high performance than does the extent of planning.
• When external environment restrictions allowed managers few viable alternatives, planning did not lead to higher performance.
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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 yearsLong-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.
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What types of plans do managers use?
Strategic and operational plansStrategic plans — set broad, comprehensive, and
longer-term action directions for the entire organization.
Operational plans — define what needs to be done in specific areas to implement strategic plans. Production plans Financial plans Facilities plans Marketing plans Human resource plans
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What types of plans do managers use?Policies and procedures
Standing plans Policies and procedures that are designed for repeated
use.Policy
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 situations.
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What types of plans do managers use?Budgets and project schedules
Single-use plansOnly used once to meet the needs and objectives 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.Projects
One-time activities that have clear beginning and end points. Project management and project schedules.
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Types of Plans
BREADTH TIME SPECIFICITY FREQUENCY OF USE FRAME OF USE
Strategic Long term Directional Single use
Tactical Short term Specific Standing
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Planning: Focus and Time
• Strategic plansPlans that are organization-wide, establish overall
objectives, and position an organization in terms of its environment
• Tactical plansPlans that specify the details of how an organization’s
overall objectives are to be achieved• Short-term plans
Plans that cover less than one year• Long-term plans
Plans that extend beyond five years
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Strategic Planning
• Strategic plans Apply broadly to the entire organizationEstablish the organization’s overall objectivesSeek to position the organization in terms of its
environment Provide direction to drive an organization’s efforts to
achieve its goals.Serve as the basis for the tactical plans.Cover extended periods of timeAre less specific in their details
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Tactical Planning
• Tactical plans (operational plans)Apply to specific parts of the organization.Are derived from strategic objectivesSpecify the details of how the overall objectives are to
be achieved.Cover shorter periods of timeMust be updated continuously to meet current
challenges
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Directional versus Specific Plans
EXHIBIT 3 .3
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Specific and Directional Plans
• Specific plansPlans that have clearly defined objectives and leave
no room for misinterpretation “What, when, where, how much, and by whom”
(process-focus)
• Directional plansFlexible plans that set out general guidelines
“Go from here to there” (outcome-focus)
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Single-Use and Standing Plans
• Single-use plansA plan that is used to meet the needs of a particular
or unique situation Single-day sales advertisement
• Standing planA plan that is ongoing and provides guidance for
repeatedly performed actions in an organization Customer satisfaction policy
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Management by Objectives
• Management by Objectives (MBO)A system in which specific performance objectives are
jointly determined by subordinates and their supervisors, progress toward objectives is periodically reviewed, and rewards are allocated on the basis of that progress.
Links individual and unit performance objectives at all levels with overall organizational objectives
Focuses operational efforts on organizationally important results.
Motivates rather than controls
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Management by objectives as an integrated planning and control framework.
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What are the common organizational controls?MBO involves a formal agreement specifying …
Workers’ performance objectives for a specific time period.
Plans through which performance objectives will be accomplished.
Standards for measuring accomplishment of performance objectives .
Procedures for reviewing performance results.
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Cont..
The MBO process:Supervisor and workers jointly set objectives,
establish standards, and choose actions.Workers act individually to perform tasks; supervisors
act individually to provide necessary support.Supervisor and workers jointly review results, discuss
implications, and renew the MBO cycle.
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Types of MBO performance objectives ImprovementPersonal developmentMaintenance
Criteria for effective performance objectivesSpecificTime definedChallengingMeasurable
Cont..
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Cont..
Pitfalls to avoid in using MBOTying MBO to pay.
Focusing too much attention on easily quantifiable objectives.
Requiring excessive paperwork.
Having managers tell workers their objectives.
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Cont..Advantages of MBO
Focuses workers on most important tasks and objectives.
Focuses supervisor’s efforts on important areas of support.
Contributes to relationship building.Gives workers a structured opportunity to participate
in decision making.
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Cascading of Objectives
EXHIBIT 3.4
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Elements of MBO
• Goal specificity• Participative decision making• Explicit time period for performance• Performance feedback
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Setting Employee Objectives
• Identify an employee’s key job tasks.• Establish specific and challenging goals for each
key task.• Allow the employee to actively participate.• Prioritize goals.• Build in feedback mechanisms to assess goal
progress.• Link rewards to goal attainment.
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Strategic Management
• Strategic Management ProcessA nine-step process that involves strategic planning,
implementation, and evaluation• The organization’s current identity
Mission statement Defines the purpose of the organization
ObjectivesStrategic plan
A document that explains the business founders vision and describes the strategy and operations of that business.
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The Strategic Management Process
EXHIBIT 3.5
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Analyze the Environment
• Environmental scanningScreening large amounts of information to detect
emerging trends and create a set of scenarios• Competitive intelligence
Accurate information about competitors that allows managers to anticipate competitors’ actions rather than merely react to them
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SWOT: Identifying Organizational Opportunities
EXHIBIT 3.6
SWOT analysisAnalysis of an organization’s strengths, weaknesses, opportunities, and threats in order to identify a strategic niche that the organization can exploit
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SWOT :SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture.
It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective
• Strengths: attributes of the person or company that are helpful to achieving the objective.
• Weaknesses: The absence of certain strengths maybe considered a weakness.
• Opportunities: external conditions that are helpful to achieving the objective.
• Threats: changes in the external conditions which could do damage to the objective.
Creative use of SWOT
• How can we Use and Capitalize on each Strength?
• How can we Improve each Weakness? • How can we Exploit and Benefit from each
Opportunity? • How can we Mitigate each Threat ?
Environmental Scan
• Internal Analysis External Analysis
Strengths Weaknesses Opportunities Threats
SWOT Matrix
SWOT analysis framework
Strengths :• Strong brand name • Good reputation among customers • Exclusive access to high grade natural
resources • Favourable access to distribution networks
Weakness:
• A weak brand name • Poor reputation among customers • High cost structure • Lack of access to best natural resources
Opportunities:
• An unfulfilled customer need • Arrival of new technologies • Loosening of regulations • Removal of international trade barriers
Threats:
• Shift in consumer tastes away from the firm’s products
• Emergence of substitute products • New regulations • Increased trade barriers
SWOT MATRIX
Strengths Weakness
Opportunities
S-O Strategies
W-O Strategies
Threats S-T Strategies
W-T Strategies
The SWOT matrix
• S-O Strategies: Pursue opportunities that are a good company’s fit to the company’s strengths
• W-O Strategies: Overcome weaknesses to pursue opportunities
• S-T Strategies: Identify ways to use strengths to reduce vulnerability to external threats
• W-T Strategies: Establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats
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SWOT Analysis• Strengths (strategic)
Internal resources that are available or things that an organization does well Core competency: a unique skill or resource that
represents a competitive edge• Weaknesses
Resources that an organization lacks or activities that it does not do well
• Opportunities (strategic) Positive external environmental factors
• Threats Negative external environmental factors
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Grand Strategies• Growth strategy
A strategy in which an organization attempts to increase the level of its operations;
• Retrenchment strategy A strategy characteristic of a company that is reducing its
size, usually in an environment of decline• Combination strategy
The simultaneous pursuit by an organization of two or more of growth, stability, and retrenchment strategies
• Stability strategy A strategy that is characterized by an absence of significant
change
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Growth Strategies
• MergerOccurs when two companies, usually of similar size,
combine their resources to form a new company• Acquisition
Occurs when a larger company buys a smaller one and incorporates the acquired company’s operations into its own
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Competitive Strategies
• Strategies that position an organization in such a way that it will have a distinct advantage over its competitionCost-leadership strategy
Becoming the lowest-cost producer in an industryDifferentiation strategy
Attempting to be unique in an industry within a broad market
Focus strategy Attempting to establish an advantage
(cost/differentiation) in a narrow market segment
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Benchmarking
• BenchmarkingThe search for the best practices among competitors
or noncompetitors that lead to their superior performance
• ISO 9000 seriesStandards designed by the International Organization
for Standardization that reflect a process whereby independent auditors attest that a company’s factory, laboratory, or office has met quality management standards
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Attaining Six Sigma Quality
• Six sigmaA philosophy and measurement process developed in
the 1980s at Motorola.To design, measure, analyze, and control the input
side of a production process to achieve the goal of no more than 3.4 defects per million parts or procedures.
A philosophy and measurement process that attempts to design in quality as a product is being made.
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Six Sigma 12-Process Steps• Select the critical-to-quality characteristics.• Define the required performance standards.• Validate measurement system, methods, and procedures.• Establish the current processes capability.• Define upper and lower performance limits.• Identify sources of variation.• Screen potential causes of variation to identify the vital few variables needing
control.• Discover variation relationship for the vital variables.• Establish operating tolerances on each of the vital variables.• Validate the measurement system’s ability to produce repeatable data. • Determine the capability of the process to control the vital variables.
Implement statistical process control on the vital variables.
Source: Cited in D. Harold and F. J. Bartos, “Optimize Existing Processes to Achieve Six Sigma Capability,” reprinted with permission from Control Engineering, March 1998, p.87, © Cahners Business Information.
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Identifying A Competitive Advantage
• Environmental sources of entrepreneurial opportunityThe unexpectedThe incongruousThe process need Industry and market structuresDemographicsChanges in perceptionNew knowledge
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Planning Tools
What is forecasting?
Forecasting is a tool used for predicting future demand based onpast demand information.
Why is forecasting important?
Demand for products and services is usually uncertain.
Forecasting can be used for…
• Strategic planning (long range planning)
• Finance and accounting (budgets and cost controls)
• Marketing (future sales, new products)
• Production and operations
What is forecasting all about?
Demand for Mercedes E Class
TimeJan Feb Mar Apr May Jun Jul Aug
Actual demand (past sales)
Predicted demand
We try to predict the future by looking back
at the past
Predicted demand looking back six months
From the March 10, 2006 WSJ:
Ahead of the Oscars, an economics professor, at the request of Weekend Journal, processed data about this year's films nominated for best picture through his statistical model and predicted with 97.4% certainty that "Brokeback Mountain" would win. Oops. Last year, the professor tuned his model until it correctly predicted 18 of the previous 20 best-picture awards; then it predicted that "The Aviator" would win; "Million Dollar Baby" won instead.
Sometimes models tuned to prior results don't have great predictive powers.
What’s Forecasting All About?
Some general characteristics of forecasts• Forecasts are always wrong• Forecasts are more accurate for groups or families
of items• Forecasts are more accurate for shorter time
periods• Every forecast should include an error estimate• Forecasts are no substitute for calculated demand.
Key issues in forecasting
1. A forecast is only as good as the information included in the forecast (past data)
2. History is not a perfect predictor of the future (i.e.: there is no such thing as a perfect forecast)
REMEMBER: Forecasting is based on the assumption that the past predicts the future! When forecasting, think
carefully whether or not the past is strongly related to what you expect to see in the future…
• Forecasting (continued)Methods of Sales Forecasting
Jury of Executive Opinion Method
Delphi method:
Step 1— Experts are asked to answer, independently and in writing, a series of questions
Step 2— A summary of all the answers is then prepared
Step 3— Copies of the summary are given to the individual experts
Step 4— Another summary is made of these modifications
Step 5— Third summary made of opinions and justifications, and copies are again distributed
Step 6— Forecast generated from all of the opinions and justifications that arise from step 5
• Forecasting (continued)Methods of Sales Forecasting (continued)
Salesforce Estimation Method
Time Series Analysis Method
– Product Stages
Evaluating Sales Forecasting Methods
Planning Tools
• SchedulingGantt Charts
Coordinate organizational resources
Establish realistic worker output standards
PERT charts
Representing and Scheduling Project Plans• Gantt Charts
Useful for depicting simple projects or parts of large projects
Show start and completion dates for individual tasks• PERT Charts
PERT = Program Evaluation Review TechniqueShow order of activities or dependencies between
activities
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Gantt Charts
•Graphical Representation of a schedule•Helps to plan, coordinate and track specific tasks in a project•Named after Henry Gantt who invented them in 1917•Depicts some of the same information as on a PERT chart•Also depicts new information
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Example Gantt ChartTASKS
A Study current email systemB Define end-user requirementsC Design Class diagramD Acquire computer technologyE Plan & code email modulesF Acceptance test new systemG Deliver new system
1 2 3 4 5 6 7 8 9 10 11 12 TodayQuestions: From the above, can you guess:
•Which, if any, tasks should have been completed by today and aren’t even started? ______
•Which, if any, tasks have been completed? ______
•Which, if any, tasks have been completed ahead of schedule:? ______
•Which, if any, tasks are on or ahead of schedule? _________
•Which, if any, tasks are behind schedule? ________
Figure 3-16Graphical diagrams that depict project plans (a) A Gantt Chart (b) A PERT chart
Planning Tools
April 6, 2006 LIS580- Spring 2006 70
FIGURE 4–8
Gantt Scheduling Chart for Acme Strategic Report Projects, Jan 1–15, 2003
G.Dessler, 2003
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PERT Charts
•PERT = Project Evaluation and Review Technique•PERT chart = graphical representation of the scheduling of events in a project•Sample PERT Chart:
•A PERT chart is a graph Edges are tasks/activities that need to be done Nodes are the events or milestones
•Task edge T from event node E1 to event node E2 signifies: Until event E1 happens, task T cannot be started Until task T finishes, event E2 cannot happen
•Events often simply represent completion of tasks associated with arrows entering it
1 00
2 44
3 106
4 77
A4
B2
C3 5 10
10D3
6 1313
E3
F 3
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PERT Chart Event Nodes
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Event Number:
Sequence number assigned
Only task edges indicate dependencies
Earliest Completion Time (ECT):
Earliest time this event can be achieved, given
durations and dependencies
Latest Completion Time (LCT):
Latest time that this event could be safely achieved
Sample PERT Chart
• Scheduling (continued) Program Evaluation and Review Technique (PERT)
Defining PERT
Features Critical Path
Steps in Designing a PERT Network
Step 1—List all the activities/events that must be accomplished and the sequence
Step 2—Determine how much time will be needed to complete each activity/event
Step 3—Design PERT network that reflects all of the information in steps 1 and 2
Step 4—Identify the critical path
Planning Tools
Comparison of Gantt and PERT Charts
• GanttVisually shows
duration of tasksVisually shows
time overlap between tasks
Visually shows slack time
• PERTVisually shows
dependencies between tasks
Visually shows which tasks can be done in parallel
Shows slack time by data in rectangles
© Lethbridge/Laganière 2005Chapter 11: Managing the Software
Process
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Bouncy Castle PERT Example using MS Project
© Lethbridge/Laganière 2005Chapter 11: Managing the Software
Process
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Bouncy Castle Gantt Example using MS Project
In MS Project set the task length to be 0 to get a milestone
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