© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1

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. 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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

Coping with Uncertainty Planning Coping with uncertainty by formulating courses of action to achieve specified results Three Types of Uncertainty State uncertainty: Occurs when the environment, or a portion of the environment, is considered unstable Effect uncertainty: Occurs when impacts of environmental change are unpredictable Response uncertainty: Arises when the consequences of decisions are unpredictable © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3

Figure 6.1: Planning: The Primary Management Function © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4

5 Table 6.1: Uncertain Environment

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8

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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9

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? © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10

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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11

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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12

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 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. Avoid the “busyness” trap © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14

Figure 6.6: The Project Life Cycle and Project Planning Activities © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15

Graphic Planning/Scheduling/Control Tools Flow Charts Gantt Charts PERT Networks © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17

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. 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. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19