Management Thoughts & Practices MBA & BBA Lectures 7 The Basics of Planning By: Farhan Mir

What Is Planning? Defining the organization’s goals Desired outcomes for individuals, groups, or entire organizations Establishing an overall strategy for achieving those goals How shall we achieve the goals? Developing a comprehensive set of plans to integrate and coordinate organizational work Who is going to do what? How will resources be allocated?

The Relationships Between Goals and Plans

A Little History in the U.S. 1930’s federal planning in response to the Great Depression U.S. strategic planning in World War II Industrial development after WW II From 1960’s, Planning-Programming-Budgeting-System (PPBS) with systems approach, strategic planning used in government Today, wide-spread (universal?) use across all types of organizations

Purposes of Planning - Provides direction - Reduces uncertainty - Minimizes waste and redundancy - Sets the standards for controlling

Types of Plans Exhibit 7.2

Four Types of Planning Strategic Planning Long range, broad goals Tactical To implement a strategic plan; shorter term and more specific Operational Creating very specific policies and procedures Contingency Alternative actions for unusual or crisis situations

Strategic vs. Operational Plans Strategic Plans Apply to the entire organization. Establish the organization’s overall goals. Positions organization in terms of its environment Cover extended (longer) periods of time. Operational Plans Assumes objectives exist Specifies (for each operation) details of how overall goals will be achieved Cover short time period

Specific vs. Directional Plans Specific Plans Clearly defined No room for interpretation Directional Plans Flexible plans General guidelines Provide focus yet discretion in implementation.

Specific Versus Directional Plans

Single-use vs. Standing Plans Single-Use Plan A one-time plan specifically designed to meet the need of a unique situation. Standing Plans Ongoing plans that provide guidance for activities performed repeatedly.

Stated versus Real Goals Broadly-worded official statements of the organization (intended for public consumption) that may be irrelevant to its real goals (what actually goes on in the organization)!

Organizational Goals (cont’d) Accounting manager ï Split accounts receivable/payable functions from other areas within two years Computerize payroll system for each restaurant this year Pay all invoices within thirty days Advertising director Develop regional advertising campaigns within one year Negotiate 5 percent lower advertising rates next year Implement this year í s promotional strategy Restaurant manager Implement employee incentive system within one year Decrease waste by 5 percent this year Hire and train new assistant manager Vice president ñ finance Keep corporate debt to no more than 20 percent of liquid assets for next ten years Revise computerized accounting system within five years Earn 9 percent on excess cash this President and CEO Provide 14 percent return to investors for at least ten years Start or purchase new restaurant chain within five years Negotiate new labor contract this year Mission: Our mission is to operate a chain of restaurants that will prepare and serve high-quality food on a timely basis and at reasonable prices. marketing Increase per store sales 5 percent per year for ten years Target and attract two new market segments during next five years Develop new promotional strategy for next year operations Open 150 new restaurants during next ten years Decrease food-container costs by 15 percent during next five years Decrease average customer wait by thirty seconds this year Strategic Goals Tactical Goals Operational Goals Kinds of Goals for a Regional Fast-Food Chain say KFC Figure 7.2

Traditional Goal-Setting Broad goals set at the top of the organization. Goals broken into sub-goals for each org level Assumes that top management knows best because they can see the “big picture.” Goals are intended to direct, guide, and constrain from above. Common Problem: Goals often ambiguous, lack clarity Goals become “reinterpreted” as flow down hierarchy

Problems With Traditional Objective Setting Exhibit 7.4

A Means-Ends Chain Illustrated We need to increase profits by 10% We need to reduce costs by 15% We need to reduce WIP by 10% I need to reduce defects at my work station by 10% and accelerate my assembly line by 10%

Management By Objectives (MBO) A method whereby managers and employees define objectives for every department, project, and person and use them to monitor subsequent performance Divide problem into manageable, “bite-size” chunks

MBO Goes One Step Further… Establishes means-ends chain, but is also MOTIVATING, not just CONTROLLING! Four elements: Goal Specificity Participative decision-making Explicit time period Performance feedback How it works: Specific performance goals are jointly determined by employees and managers (increases commitment) Progress toward accomplishing goals is periodically reviewed. Rewards are allocated on the basis of progress towards the goals

Essential Steps for MBO Set Goals The most difficult step Develop Action Plan For both workgroups and individuals Review Progress Periodic during the year Appraise Overall Performance. Review Annual Goals

MBO Pitfalls and Benefits Involves entire workforce in process Breaks goals into manageable Track progress Re-assess and adjust Loss of big picture Lose focus of goal Micromanagement Who’s in charge? Decisions?

Managerial Issues How to plan in uncertainty How to plan when rate of change is high? Should the lower levels be involved in decision making? Planning about internal factors, specific environment, general environment, corporate social responsibility, ethics……

Avoid experiencing surprises. Planning Should Enable Managers to Avoid making mistakes. Avoid wasting resources. Avoid experiencing surprises.