1. Chapter Six The Basics of Planning and Project Management

2. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 2 Chapter Objectives Distinguish among state, effect, and response uncertainty. Identify and define three types of planning. Write good objectives and discuss the role of objectives in planning. Describe the four-step management by objectives (MBO) process and explain how it can foster individual commitment and motivation.

3. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 3 Chapter Objectives (cont’d) Discuss project planning within the context of the project life cycle and list six roles played by project managers. Compare and contrast flow charts and Gantt charts, and discuss the value of PERT networks. Explain how break-even points can be calculated.

4. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 4 Coping with Uncertainty Planning –Coping with uncertainty by formulating courses of action to achieve specified results Three Types of Uncertainty 1.State uncertainty: Occurs when the environment, or a portion of the environment, is considered unstable 2.Effect uncertainty: Occurs when impacts of environmental change are unpredictable 3.Response uncertainty: Arises when the consequences of decisions are unpredictable

5. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 5 Figure 6.1: Planning: The Primary Management Function

6. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 6 Coping with Uncertainty (cont’d) Organizational Responses to Uncertainty –Defenders: Relying on a primary technology and/or a narrow product line to remain competitive –Prospectors: Seeking first-mover advantage by aggressively making things happen and not waiting for them to happen –Analyzers: Following the market leader and imitating what works, avoiding expensive R&D mistakes –Reactors: Waiting for adversity (e.g., declining sales) to occur before taking corrective action

7. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 7

8. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 8 Balancing Planned Action and Spontaneity in the Twenty-First Century Command-and-Control Model –Top-down tight control of operations through exact planning which creates organizational inflexibility to deal with unanticipated events and limited success Contingency Model –Planned action balanced with creative flexibility to take advantage of unexpected opportunities and to cope with the need for change

9. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 9 The Essentials of Planning A Plan: –Is a specific documented intention consisting of an objective (end) and an action statement (means) –States what, when, and how something is to be done Essentials of Sound Planning –Organizational mission –Types of planning –Objectives –Priorities –The planning/control cycle

10. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 10 Organizational Mission A clear, formally written, and publicized statement that guides the organization by: –Defining the organization for key stakeholders –Creating an inspiring vision of the organization –Outlining how the vision will be accomplished –Establishing key priorities –Stating a common goal and fostering togetherness –Creating a philosophical anchor for the organization –Generating enthusiasm and a “can do” attitude –Empowering organization members

11. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 11 Types of Planning Strategic planning: Determining how to pursue long-term goals with available resources Intermediate planning: Determining subunits’ contribution with allocated resources Operational planning: Determining how to accomplish specific tasks with available resources

12. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 12 Figure 6.2: Types of Planning

13. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 13 Planning Horizon The elapsed time between the formulation and the execution of a planned activity –Planning horizon length corresponds to the type of plan with which it is associated; lengths shorten as the planning process evolves from strategic to intermediate to operational plans.

14. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 14 Objectives An objective is a commitment to achieve a measurable result within a specified period. Writing Good Objectives –Objectives should be expressed in quantitative, measurable, and concrete terms. What specific result is to be achieved? When is the result to be achieved? How is the result to be measured? Who will be responsible for achieving the result?

15. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 15 Objectives (cont’d) The Importance of Objectives (Uses of) –Target: Sets specific goals to achieve –Measuring stick: Gauges how much was achieved –Commitment: Encourages pursuit of the objective –Motivation: Provides a challenge for achievement The Means-Ends Chain of Objectives –Achievement of lower-level objectives creates a means for achieving higher-level objectives.

16. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 16 Figure 6.3: A Typical Means-Ends Chain of Objectives

17. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 17 Priorities Priorities are a ranking of goals, objectives, or activities in order of importance to guide the order and timing of decisions. Management looks at its priorities when deciding how to allocate resources.

18. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 18 Priorities (cont’d) The A-B-C Priority System –A: “Must do” objectives are critical to successful performance. –B: “Should do” objectives are necessary for improved performance. –C: “Nice to do” objectives are desirable for improved performance but not critical to survival or improved performance. The 80/20 Principle (Pareto Analysis) –A majority of causes, inputs, or effort tends to produce a majority of results, outputs, or rewards.

19. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 19 The Planning/Control Cycle Planning sets in motion activities to accomplish the planned objectives. Control functions direct and monitor activities for deviations from plans (i.e., attainment of objectives). Planning uses feedback from controls to improve/alter plans and implement corrective actions where necessary.

20. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 20 Figure 6.4: The Basic Planning/Control Cycle

21. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 21 Management by Objectives and Project Planning Management by Objectives (Peter Drucker) –A comprehensive management system based on measurable, participatively set objectives The MBO Cycle –Step 1: Setting objectives –Step 2: Developing action plans –Step 3: Periodic review –Step 4: Performance appraisal

22. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 22 Figure 6.5: MBO’s Strengths and Limitations

23. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 23 Project Planning and Management Project –A temporary endeavor to achieve a particular aim The Project Life Cycle –Conceptualization: Setting project goals and objectives –Planning: Organizing facilities and equipment, personnel and task assignments, and scheduling –Execution: Beginning actual work on the project –Termination: Turning the project over to the end user and phasing out project resources

24. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 24 Figure 6.6: The Project Life Cycle and Project Planning Activities

25. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 25

26. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 26 Project Management Software Important attributes: flexibility and transparency –Identify and schedule need-to-do activities. –Dynamically shift priorities and schedules. –Provide critical path analysis. –Provide flexibility for plan modifications. –Set priority levels. –Manage all resources flexibly. –Merge plans. –Issue manager alerts for project slippage. –Automatically record time to map against project. –Identify time spent on activities.

27. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 27 Project Management Guidelines Projects are schedule-driven and results-oriented. The big picture and the little details are of equal importance. Project planning is a necessity, not a luxury. Project managers know the motivational power of a deadline.

28. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 28 Graphic Planning/Scheduling/Control Tools Flow Charts –Arrange events in the order of their actual or desired occurrence (flow) –Eliminate wasted steps and activities (work simplification) –Are useful for identifying task components and in TQM –Potential problems: They do not indicate the time dimension of tasks. They are not practical for complex operations where several activities occur at once.

29. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 29 Figure 6.7: A Sample Flow Chart

30. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 30 Graphic Planning/Scheduling/Control Tools (cont’d) Gantt Charts –A graphic scheduling technique historically used in production operations Useful for scheduling large projects where time for each activity can be specified and progress assessed Potential problem: Overly complex endeavors are too cumbersome for Gantt charts.

31. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 31 Figure 6.8: A Sample Gantt Chart

32. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 32 Graphic Planning/Scheduling/Control Tools (cont’d) Program Evaluation and Review Technique (PERT) Networks –Developed in 1958 for use in the development of the U.S. Navy’s Polaris submarine-launched missile project –Graphic sequencing and scheduling tool for large, complex, and nonroutine projects

33. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 33 PERT Networks PERT Terminology –Event: Denotes a performance milestone –Activity: Work (jobs) in process –Time: Estimated weighted times for completion of an activity—optimistic (most likely) and pessimistic –Critical path: The most time consuming (longest) chain of required activities and events in a PERT network that must be completed on time or else the entire project will be delayed

34. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 34 PERT Networks (cont’d) Formula for Calculating Estimated PERT Times T e =Time estimate (average) T o =Time estimate (optimistic) T m =Time estimate (most likely) T p =Time estimate (pessimistic) 6 4 pmo e TTT T  

35. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 35 PERT Networks (cont’d) Positive and Negative Aspects of PERT –Excellent scheduling tool for large, nonroutine projects –Requires envisioning projects in their entirety –Provides a tool for predicting resource needs, potential problem areas, and the effect of delays –Inappropriate for repetitive assembly-line operations –Only as good as its underlying assumptions about event completion times –Can be too time-consuming if not computerized

36. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 36 Figure 6.9: A Sample PERT Network

37. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 37 Break-Even Analysis Break-Even Point –The level of sales at which there is no loss or profit –The point at which the total of fixed and variable costs is equal to total sales revenues Fixed Versus Variable Costs –Fixed costs: Contractual costs that must be paid regardless of output or sales –Variable costs: Costs that vary directly with production and sales

38. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 38 Break-Even Analysis (cont’d) The Algebraic Method The difference between unit selling price P and unit variable costs VC is the contribution margin that can be applied to recovering fixed costs. FC = total fixed costs P = selling price (per unit) VC = variable costs (per unit) BEP = break-even point (in units)

39. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 39 Break-Even Analysis (cont’d) Price Planning –Determining the impact of changes in unit selling price on the break-even point in units Rising prices decrease the break-even point; lower prices increase the break-even point.

40. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 40 Break-Even Analysis (cont’d) Profit Planning –Determining the required level of output to achieve a profit objective VCP FC BEP    profitdesired )unitsin(000,20 47 000,30000,30 )unitsin(     BEP

41. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 41 Figure 6.10: Graphic Break-Even Analysis

42. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 42 Break-Even Analysis: Strengths and Limitations Planners are forced to interrelate cost, volume, and profit in a realistic way. Planners are able to ask what-if questions concerning the impact of price, costs, and profit objective changes. A neat separation of fixed and variable costs is difficult to achieve. Complex factors in supply and demand interfere with the linear projections (point estimates) of the analysis.

43. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 43 Summary Planning is the primary management function. A properly written plan tells what, when, and how something is to be accomplished. Objectives are the single most important feature of the planning process. Management by objectives (MBO) is based on measurable and participatively set goals.

44. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 44 Summary (cont’d) Project planning occurs throughout the project life cycle. Flow charts, Gantt charts, and PERT networks are graphical tolls for planning, scheduling, and controlling operations. Break-even analysis gauges the impact of price changes and profit objectives on sales volume.

45. Copyright © Houghton Mifflin Company. All rights reserved.Chapter Six | 45 Terms to Understand Planning State uncertainty Effect uncertainty Response uncertainty Plan Strategic planning Intermediate planning Operational planning Planning horizon Objective Priorities 80/20 principle Management by objectives (MBO) Project Gantt chart Program Evaluation and Review Technique (PERT) PERT event PERT activity PERT times Critical path Break-even analysis Fixed costs Variable costs Contribution margin