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PLANNING IN MANAGEMENT
Planning is deciding in advance what to do and how to do. It is one of the basic
managerial functions. Before doing something, the manager must formulate an
idea of how to work on a particular task. Thus, planning is closely connected with
creativity and innovation. It involves setting objectives and developing
appropriate courses of action to achieve these objectives.
(i) The governments mobilize domestic resources and also raise foreign finance
to carry out such projects which are expected to induce productive activities in
the private sector. This involve the development of infrastructure and heavy
industries.
(ii) The governments adopt certain monetary and fiscal policies to stimulate
private economic activity and to ensure harmony between the social objectives
of the government and the behaviour of the private producers and businessmen.
Planning Definition
"Planning bridges the gap from where we are to where we want to go. It makes it
possible for things to occur which would not otherwise happen" - Koontz and
O'Donnel.
Purpose of a plan
Just as no two organizations are alike, so also their plans. It is therefore important
to prepare a plan keeping in view the necessities of the enterprise. A plan is an
important aspect of business. It serves the following three critical functions:
Importance of Planning
1. Planning increases the organization's ability to adapt to future
eventualities: The future is generally uncertain and things are likely to
change with the passage of time. The uncertainty is augmented with an
increase in the time dimension. With such a rise in uncertainty there is
generally a corresponding increase in the alternative courses of action from
which a selection must be made. The planning activity provides a
systematic approach to the consideration of such future uncertainties and
eventualities and the planning of activities in terms of what is likely to
happen.
Features of planning
Planning focuses on achieving objectives
Planning is a primary function of management
Planning is pervasive
Planning is continuous
Planning is futuristic
Planning Process
Setting objectives: Objectives may be set for the entire organization and
each department or unit within the organization.
Evaluating alternative courses: The next step is to weigh the pros and
cons of each alternative.
Implement the plan: This is concerned with putting the plan into action.
Types of Plans
[A] Activities Covered
[1] Strategic
Sets longterm direction of org. which it wants to proceed in future
Encompasses all functional areas of Business
Involves analysis of environmental factors
Period is a problem
[2] Operational
Tactical/Shortterm Planning
Aimed at sustaining the org. in its production and distribution of current
products and/or services to existing markets
Commitment Principle:
Longrange planning is not really planning for future decisions, but rather
planning the future
impact of todays decision.
Strategic in Nature
Involves, generally, 35 yrs
[D] Approach
Planning Principles
Planning is a dynamic process, it is very essential for every organization to
achieve their ultimate goals, but, there are certain principles which are essential
to be followed so as to formulate a sound plan. They are only guidelines in the
formulation and implementation of plans. These principles are as follows:
Strategic planning
Strategic planning is an organization's process of defining its strategy, or
direction, and making decisions on allocating its resources to pursue this
strategy. In order to determine the direction of the organization, it is necessary to
understand its current position and the possible avenues through which it can
pursue a particular course of action. Generally, strategic planning deals with at
least one of three key questions:
1. "What do we do?"
2. "For whom do we do it?"
3. "How do we excel?"
Key components
Vision: outlines what the organization wants to be, or how it wants the
world in which it operates to be (an "idealized" view of the world). It is a
long-term view and concentrates on the future. It can be emotive and is a
source of inspiration. For example, a charity working with the poor might
have a vision statement which reads "A World without Poverty."
Many people mistake the vision statement for the mission statement, and
sometimes one is simply used as a longer term version of the other. However
they are meant to be quite different, with the vision being a descriptive picture of
future state, and the mission being an action statement for bringing about what
is envisioned (ie. the vision is what will be achieved if the company is successful
in achieving its mission).
There are many approaches to strategic planning but typically one of the
following approaches is used:
Among the most useful tools for strategic planning is SWOT analysis (Strengths,
Weaknesses, Opportunities, and Threats). The main objective of this tool is to
analyze internal strategic factors, strengths and weaknesses attributed to the
organization, and external factors beyond control of the organization such as
opportunities and threats.
7. Provides clearer focus for the organization, thereby producing more efficiency
and effectiveness.
8. Bridges staff/employees and the board of directors (in the case of
corporations).
9. Builds strong teams in the board and in the staff/employees (in the case of
corporations).
10. Provides the glue that keeps the board members together (in the case of
corporations).
11.Produces great satisfaction and meaning among planners, especially around a
common vision.
12. Increases productivity from increased efficiency and effectiveness.
13. Solves major problems in the organization.
The scheduling for the strategic planning process depends on the nature and
needs of the organization and the its immediate external environment. For
example, planning should be carried out frequently in an organization whose
products and services are in an industry that is changing rapidly . In this
situation, planning might be carried out once or even twice a year and done in a
very comprehensive and detailed fashion (that is, with attention to mission,
vision, values, environmental scan, issues, goals, strategies, objectives,
responsibilities, time lines, budgets, etc). On the other hand, if the organization
has been around for many years and is in a fairly stable marketplace, then
planning might be carried out once a year and only certain parts of the planning
process, for example, action planning (objectives, responsibilities, time lines,
budgets, etc) are updated each year. Consider the following guidelines:
1. Strategic planning should be done when an organization is just getting started.
(The strategic plan is usually part of an overall business plan, along with a
marketing plan, financial plan and operational/management plan.)
2. Strategic planning should also be done in preparation for a new major venture,
for example, developing a new department, division, major new product or line of
products, etc.
3. Strategic planning should also be conducted at least once a year in order to be
ready for the coming fiscal year (the financial management of an organization is
usually based on a year-to-year, or fiscal year, basis). In this case, strategic
planning should be conducted in time to identify the organizational goals to be
achieved at least over the coming fiscal year, resources needed to achieve those
goals, and funded needed to obtain the resources. These funds are included in
budget planning for the coming fiscal year. However, not all phases of strategic
planning need be fully completed each year. The full strategic planning process
should be conducted at least once every three years. As noted above, these
activities should be conducted every year if the organization is experiencing
tremendous change.
4. Each year, action plans should be updated.
5. Note that, during implementation of the plan, the progress of the
implementation should be reviewed at least on a quarterly basis by the board.
Again, the frequency of review depends on the extent of the rate of change in
and around the organization.
It seems that the two phrases strategic planning and business planning are
used interchangeably, much more than ever. I believe its better to see the
phrases as different than to generalize them as the same.
Strategic planning is best viewed as clarifying the overall purpose and priorities
of the organization. There are many different ways to do strategic planning, and
the contents of the plan vary, depending on the purpose of the planning.
However, the focus of the planning should primarily be organization-wide.
cars the same way youd advertise or sell minivans. Each needs a different
business plan.
According to Barney and Griffin, organizational goals serve four basic functions;
they provide guidance and direction, facilitate planning, motivate and inspire
employees, and help organizations evaluate and control performance.
Organizational goals inform employees where the organization is going and how
it plans to get there. When employees need to make difficult decisions, they can
refer to the organization's goals for guidance. Goals promote planning to
determine how goals will be achieved. Employees often set goals in order to
satisfy a need; thus, goals can be motivational and increase performance.
Evaluation and control allows an organization to compare its actual performance
to its goals and then make any necessary adjustments.
The goal-setting model indicates that individuals have needs and values that
influence what they desire. A need is defined as a lack of something desirable or
useful. According to Maslow's hierarchy of needs, all individuals possess the same
basic needs. Individuals do, however, differ in their values. Values are defined as
Functions of Goals
-Economic goals. This goals are concerned with production of goods and
services for people outside the organization.
-Cultural goals. This goals are concerned with the symbolic objects and with
creating or maintaining value systems of society.
-Order goals. This goals are negative and attempt to place some kind of
constraints upon members of the organization and to prevent certain forms of
behavior.
-Product goal. These related to the nature and characteristics of the outputs
themselves. Example the design, quality and the availability of their output.
-Consumer goal. These goal related to the nature of outputs in term of market
to be served and consumer satisfaction.
-Secondary goal. There related to goals that are not the main aim of the
organization.
-Operational goal. These related to the activities which involved in providing
outputs, and the operation of the organization. For example, the choice of
structure, the management process and the nature of technology.
Situation analysis
A situation refers to the general position or context that a person or organization
is operating within at a specific point in time. A situation refers to the general
state of things; or the combination of circumstances occurring at a given time.
Situation analysis is a marketing term, and involves evaluating the situation and
trends in a particular company's market. The Situation Analysis allows a company
to understand their own internal and external situation, the customer, the market
environment, and the firms own capabilities. A SWOT Analysis is a type of
situation analysis that examines the Strengths and Weaknesses of a company
(its internal environment) as well as Opportunities and Threats in the market (in
the external environment).
The "5 C Analysis" tends to be the most useful and common approach to
conducting a Situation Analysis. In this approach a firm will examine the:
The final written format of the situation analysis is ultimately broken down into
different sections regarding each of the different Cs, and a thorough
examination of each of them. It may also include information on the use and cost
of different methods of advertising that the company desires to use for the
launch of the product.
Risk
Resources
Goals
Values
Demands
Style
Judgment
No matter what technique is used, group decision making has clear advantages
and disadvantages when compared with individual decision making. The
following are among the advantages:
This method can be more time-consuming than one individual making the
decision on his own.
The decision reached could be a compromise rather than the optimal
solution.
Groups may have difficulty performing tasks because the group, rather
than a single individual, makes the decision, resulting in confusion when it
comes time to implement and evaluate the decision.
So, are two (or more) heads better than one? The answer depends on several
factors, such as the nature of the task, the abilities of the group members, and
the form of interaction. Because a manager often has a choice between making a
decision independently or including others in the decision making, she needs to
understand the advantages and disadvantages of group decision making.
Evaluating the alternatives can be done in numerous ways. Here are a few
possibilities:
Sometimes, though, the best alternative may not be obvious. That's when a
manager must decide which alternative is the most feasible and effective,
coupled with which carries the lowest costs to the organization. (See the
preceding section.) Probability estimates, where analysis of each alternative's
chances of success takes place, often come into play at this point in the decision-
making process. In those cases, a manager simply selects the alternative with
the highest probability of success.
If a manager's plan hasn't resolved the problem, he needs to figure out what
went wrong. A manager may accomplish this by asking the following questions:
Was the wrong alternative selected? If so, one of the other alternatives
generated in the decision-making process may be a wiser choice.
Was the correct alternative selected, but implemented improperly?
If so, a manager should focus attention solely on the implementation step
to ensure that the chosen alternative is implemented successfully.
They thus touch off chain of behavior throughout the organization. Personal
decisions are made by an executive as an individual and not as a part of an
organization. An executive who charges jobs or organization is making a personal
decision. Decisions to many to buy a house, to purchase a car are examples of
personal decisions. Such decisions life of an executive but may affect the
personal life of an executive but may affect the organization sometimes directly
or indirectly.
Strategic or basic decisions, on the other hand, are more important and are
generally taken by the top management of organizations. They relate to policy
matters and so require a thorough fact finding and analysis of the possible
alternatives. Launching a new program, location of a new plant, installation of a
computer system are examples of strategic decisions.
are relatively simply. They are, made at lower levels of management. These
decisions require little thought and judgment. The decision maker identifies the
problem and applies the predetermined solution. For example, if an employee is
habitually late comer he can easily be dealt with under the established
procedure.
Policy decisions are of vital importance and are taken by the top management.
They effect the entire organization. But operating decisions are taken by the
lower management in order to put into action the policy decisions. For instance,
the bonus issue is a policy matter which is to be decided by the top management
and calculation of bonus is an operating decision which is taken at the lower
levels.
Certainty
Decisions are made under the condition of certainty when the manager has
perfect knowledge of all the information needed to make a decision. This
condition is ideal for problem solving. The challenge is simply to study the
alternatives and choose the best solution.
When problems tend to arise on a regular basis, a manager may address them
through standard or prepared responses called programmed decisions. These
solutions are already available from past experiences and are appropriate for the
problem at hand. A good example is the decision to reorder inventory
automatically when stock falls below a determined level. Today, an increasing
Structured problems are familiar, straightforward, and clear with respect to the
information needed to resolve them. A manager can often anticipate these
problems and plan to prevent or solve them. For example, personnel problems
are common in regard to pay raises, promotions, vacation requests, and
committee assignments, as examples. Proactive managers can plan processes for
handling these complaints effectively before they even occur.
Risk
A crisis problem is an unexpected problem that can lead to disaster if it's not
resolved quickly and appropriately. No organization can avoid crises, and the
public is well aware of the immensity of corporate crises in the modern world.
The Chernobyl nuclear plant explosion in the former Soviet Union and the Exxon
Valdez spill of years past are a couple of sensational examples. Managers in more
progressive organizations now anticipate that crises will occur. These managers
are installing early-warning crisis information systems and developing crisis
management plans to deal with these situations in the best possible ways.
Uncertainty
When information is so poor that managers can't even assign probabilities to the
likely outcomes of alternatives, the manager is making a decision in an uncertain
environment. This condition is the most difficult for a manager. Decision making
under conditions of uncertainty is like being a pioneer entering unexplored
territory. Uncertainty forces managers to rely heavily on creativity in solving
problems: It requires unique and often totally innovative alternatives to existing
processes. Groups are frequently used for problem solving in such situations. In
Democratic decision making is when the leader gives up ownership and control of a
decision and allows the group to vote. Majority vote will decide the action. Advantages
include a fairly fast decision, and a certain amount of group participation. The
disadvantage of this style includes no responsibility. An individual is not responsible for
the outcome. In fact, even the group feels no real responsibility because some members
will say, "I didn't vote for that.". Lack of group and personal responsibility seems to
disqualify this style of decision making; however, the democratic style does not have its
place in business.
Autocratic decision making is when the leader maintains total control and ownership of
the decision. The leader is also completely responsible for the good or bad outcome as a
result of the decision. The leader does not ask for any suggestions or ideas from outside
sources and decides from his or her own internal information and perception of the
situation. Advantages include a very fast decision, and personal responsibility by the
leader, for the outcome. If an emergency situation exists, the autocratic style is usually
the best choice. The disadvantages are varied and sometimes include less than desired
effort from the people that must carry out the decision. If the employee is personally
affected by the decision but not included when the decision is made, morale and effort
may or may not suffer. It is not always predictable. If the outcome for the decision is not
positive, members of the organization begin to feel they could have done a better job
themselves and the leader may lose credibility.
Collective - Participative decision making is when the leader involves the members of
the organization. Other perspectives of the situation are discovered because the leader
deliberately asks and encourages others to participate by giving their ideas, perceptions,
knowledge, and information concerning the decision. The leader maintains total control
of the decision because, although outside information is considered, the leader alone
decides. The leader is also completely responsible for the good or bad outcome as a
result of the decision. The advantages include some group participation and
involvement. This is especially valuable when a person is affected negatively by the
decision. In most cases, the individual is informed before the decision is implemented
(no surprises) and usually feels good about personal involvement. If the leader is a good
communicator, and listens carefully to the information collected, he or she will usually
have a more accurate understanding of the situation and make a better decision. The
disadvantages of this style include a fairly slow, time consuming decision; less security,
because so many people are involved in the decision.
Consensus decision making is when the leader gives up total control of the decision.
The complete group is totally involved in the decision. The leader is not individually
responsible for the outcome. The complete organization or group is now responsible for
the outcome. This is not a democratic style because everyone must agree and "buy in"
on the decision. If total commitment and agreement by everyone is not obtained the
decision becomes democratic. The advantages include group commitment and
responsibility for the outcome. Teamwork and good security is also created because
everyone has a stake in the success of the decision. A more accurate decision is usually
made, with a higher probability of success, because so many ideas, perspectives, skills
and "brains" were involved in the creation. The disadvantages include a very slow and
extremely time consuming decision. It is also a lot of work getting everyone in the
organization involved. It takes skill and practice for a group to learn how to work
together.
Decision trees
A decision tree shows a complete picture of a potential decision and allows a
manager to graph alternative decision paths. Decision trees are a useful way to
analyze hiring, marketing, investments, equipment purchases, pricing, and
similar decisions that involve a progression of smaller decisions. Generally,
decision trees are used to evaluate decisions under conditions of risk.
The term decision tree comes from the graphic appearance of the technique that
starts with the initial decision shown as the base. The various alternatives, based
upon possible future environmental conditions, and the payoffs associated with
each of the decisions branch from the trunk.
Payback analysis
Payback analysis comes in handy if a manager needs to decide whether to
purchase a piece of equipment. Say, for example, that a manager is purchasing
cars for a rental car company. Although a less-expensive car may take less time
to pay off, some clients may want more luxurious models. To decide which cars to
purchase, a manager should consider some factors, such as the expected useful
life of the car, its warranty and repair record, its cost of insurance, and, of course,
the rental demand for the car. Based on the information gathered, a manager can
then rank alternatives based on the cost of each car. A higher-priced car may be
more appropriate because of its longer life and customer rental demand. The
strategy, of course, is for the manager to choose the alternative that has the
quickest payback of the initial cost.
Many individuals use payback analysis when they decide whether they should
continue their education. They determine how much courses will cost, how much
salary they will earn as a result of each course completed and perhaps, degree
earned, and how long it will take to recoup the investment. If the benefits
outweigh the costs, the payback is worthwhile.
Simulations
Simulation is a broad term indicating any type of activity that attempts to imitate
an existing system or situation in a simplified manner. Simulation is basically
model building, in which the simulator is trying to gain understanding by
replicating something and then manipulating it by adjusting the variables used to
build the model.
Market Research
Cost-Benefit Analysis
SWOT Analysis
Feasibility Study
Classical Model
Administrative Model
Is considered to be descriptive.
It is considered intuitive.
Political Model
Global Scanning
- Screening a broad scope of information on global forces that might affect the
organization.
- Has value to firms with significant global interests.
- Draws information from sources that provide global perspectives on world-wide
issues and opportunities.
Forecasting
Types of forecasting
Quantitative forecasting
Applying a set of mathematical rules to a series of hard data to predict
outcomes (e.g., units to be produced).
Qualitative forecasting
Using expert judgments and opinions to predict less than precise outcomes
(e.g., direction of the economy).
Collaborative planning, forecasting, and replenishment (CPFR) software
A standardized way for organizations to use the Internet to exchange data.
Forecasting techniques
Quantitative
Qualitative
Jury of opinion
Sales force composition
Customer evaluation
Benchmarking
The search for the best practices among competitors and non-competitors
that lead to their superior performance.
By analyzing and copying these practices, firms can improve their
performance.
Steps in Benchmarking
Allocating Resources
Types of resources
Budgets
Types of Budgets
Be flexible.
Goals should drive budgetsbudgets should not determine goals.
Coordinate budgeting throughout the organization.
Use budgeting/planning software when appropriate.
Remember that budgets are tools.
Remember that profits result from smart management, not because you
budgeted for them.
Schedules
Plans that allocate resources by detailing what activities have to be done, the
order in which they are to be completed, who is to do each, and when they are
to be completed.
Represent the coordination of various activities.
Gantt Chart
A bar graph with time on the horizontal axis and activities to be accomplished
on the vertical axis.
Shows the expected and actual progress of various tasks.
Load Chart
A Gantt Chart
A Load Chart
Breakeven analysis
Is used to determine the point at which all fixed costs have been recovered and
profitability begins.
Fixed cost (FC)
Variable costs (VC)
Total Fixed Costs (TFC)
Price (P)
Linear programming
Project
A one-time-only set of activities that has a definite beginning and ending point
time.
Project management
The task of getting a projects activities done on time, within budget, and
according to specifications.
Scenario
Scenario planning
An attempt, not to try to predict the future but to reduce uncertainty by playing
out potential situations under different specified conditions.
Contingency planning
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