1. 11 Planning Ch 3 Unit 7 - 11

2. Objectives After studying this unit you should be able to : – Define planning and why it is termed the primary function of management. – Explain the different classifications and types of plans. – Explain the importance and the steps involved in planning. – Explain why people fail in planning and the limits to planning. – Discuss the tools used in planning. 2

3. 33 Introduction A Plan: – is a specific documented intention consisting of an objective (end) and an action statement (means) Planning: – Is an intellectual process; – it requires the conscious determination of courses of action, and – the basing of decisions on purpose, knowledge and considered estimates. (Koontz, O’Donnell & Weihrich, 1980) – is a task of: – setting objectives, – specifying how to achieve them, – implementing the plan. and – evaluating the results. (Boddy, 2005).

4. Planning Allows for 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 4

5. 55 Planning cont’d. It is deciding in advance: – what to do, – how to do it, – when to do it, and – who is to do it. In this sense planning is essentially decision making, and – It is the responsibility of management Because it affects all downstream mgmt functions, – it has been called the primary management function.

6. 66 Planning: The Primary Management Function

7. 77 Classification of Plans Standing plans – Those that are repeatedly used ie. policies, procedures and rules Single use plans – Those designed for the attainment of specific objectives within a relatively short time span, ie a programme and budgets

8. 88 Types of Plans Strategic plans – Set out the overall direction for the business, are broad in scope and cover all major activities. – Chandler (1962) defined them as: determining the the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals. Tactical/Divisional plans – for each major unit of the business – focus on how to compete

9. 99 Types of Plans cont’d Operational plans – First line managers tool for planning daily, weekly, and monthly activities Business plans – set out the markets the business intends to serve, how it will do so and what finance they require (Blackwell,2004)

10. 10 Types of Plans

11. 11 Types of Plans cont’d (Koontz, et. al.) Purpose/mission Objectives Strategies Policies Procedures Rules Programmes, and Budgets.

12. 12 Purpose or mission A broad definition of an organizations operations and scope, aiming to distinguish it from similar organizations (Boddy,2005).

13. 13 Objectives Represent the desired ends and can be used as yardsticks for measurement of performance, – to indicate to what extent an organization’s mission is being carried out. Eg. – An airlines mission is the provision of cheap air freight facilities, – its objectives could include: Cutting costs so that its able to offer profitable low freight charges.

14. 14 Objectives cont’d Objectives are fundamental to the control of organizational activity, and are vital for the formulation of policies, programmes and rules. Objectives should be SMART expressed in quantitative, measurable, and concrete terms. Ie. o What specific result is to be achieved? o When is the result to be achieved? o How is the result to be measured? o Who will be responsible for achieving the result?

15. 15 The Importance of Objectives (Kreitner 2007, p. 161) 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

16. 16 A Typical Means-Ends Chain of Objectives

17. 17 Strategies Are courses of action to be taken in light of the adverse environmental forces so as to achieve company objectives.

18. 18 Policies These are statements that reflect the basic objectives and provide guidelines for selecting actions to achieve objectives.

19. 19 Procedures Series of related sequential steps to deal with a structured problem. Narrower and more specific than policies Often utilized when high degrees of accuracy in performance are required if policies are to be executed effectively. – Eg. if an airline has a policy of servicing incoming aircraft within a reasonable time of landing, that – calls for the drawing up of appropriate procedures

20. 20 Rules Simplest type of operational plans They state specific action for particular situations – no discretion. Differ : – from procedures in that they are not related to time sequences, and – from policy which is essentially guides decision-making

21. 21 Programmes Single use plans comprising relatively wide related activities and requiring complex coordination Involve, objectives, policies, procedures and budgets and fixed period.

22. 22 Budgets Statements in quantified terms of: – future expenditures and revenue – reflecting resources allocated to specified activities within a stated period of time (usually 1 yr). They mirror basic organizational plans & – are used as guides to and controls of, standards of performance. They act as signals for corrective action to be taken

23. 23 Importance of Planning 1. To offset uncertainty and change 2. To focus attention on objectives 3. To gain economical cooperation 4. To facilitate control

24. 24 The Planning Process Involves : Assessing – The Planning Period – The Environment of Plans Environmental Forecasting – Economic Forecasting – Technological Forecasting – Social Forecasting, and – Political Forecasting

25. 25 The Planning Period Planning – can be short, medium, or long range – is costly, therefore a company should probably not plan for a longer period than is economically justifiable, – yet it is risky to plan for a shorter period. It is important to integrate short & long term plans. Planning involves an Open-System Approach – therefore a plan requires an analysis of every environmental element.

26. 26 The Environment of Plans Non controllable elements include: – Population growth, future price levels,political environment, tax rates, policies & business cycles. Semi controllable include: – Marketshare, character of labor turnover, labor efficiency, company price policy and industry legislative policy Controllable elements – Those decided largely by the company mgmt and involving policies, programs & strategies.

27. 27 Environmental Forecasting Allows mgrs to gain information on what is pertaining and what changes are likely to occur in the environment Involves conducting a PEST, SWOT, Competitor & ANALYSIS Forecasts & their review: – compel mgrs to think ahead, look into the future & provide for it. – may disclose areas where necessary control is lacking. Forecasting: – especially where participated in throughout the organization may help unify and coordinate plans. – it assists in brining in singleness of purpose to planning

28. 28 Steps in Planning 1. Be aware of opportunity 2. Establishing objectives 3. Premising 4. Determining alternative courses of actions 5. Evaluating alternative course of action 6. Selecting a course of action 7. Formulating derivative plans 8. Numbering plans by budgeting

29. 29 Steps in Planning cont’d 1. Being aware of opportunity – Includes a preliminary look at possible future opportunities, a – knowledge of where we stand in the light of our strengths and weaknesses, an – understanding of why we wish to solve uncertainties, and – a vision of what we expect to gain

30. 30 Steps in Planning cont’d 2. Establishing objectives – Objectives specifying the: results expected, the end points of what is to be done, where the primary emphasis is to be placed, and what is to be accomplished by the network of: – strategies, policies, procedures, rules, budgets, and programs.

31. 31 Steps in Planning cont’d 3. Premising – assumptions about the environment (internal & external) in which organizational plans are to be implemented. and – should be limited aspects that are critical or strategic to the plan – those with the most influence. 4. Determining alternative courses ‑ – the number of alternatives should be reduced so that the most promising possibilities may be analysed

32. 32 Steps in Planning cont’d 5. Evaluating alternative courses – examine their strong and weak points, – weigh the various factors in light of premises and goals – examine ROI, risk & cost. 6. Selecting a course of action – this is a stage at which a plan is adopted, – the real point of decision making

33. 33 Steps in Planning cont’d 7. Formulating derivative plans – plans required to support the basic plan. – Eg when a airline decides to acquire new planes, derivatives plans will include: hiring and training various types of personnel; acquisition and positioning of spare parts; development of maintenance facilities; scheduling, advertising, financing and insurance.

34. 34 Steps in Planning cont’d 8. Numbering plans by budgeting – Convert plans to budgets. – The overall budgets of an organization represent the sum total of income and expenses. o Each department or program of a business can have its own budgets. – If done well, budgets become important standards against which planning progress can be measured

35. Planning; an example (Plunkett et al) Basic planning process by a first level manager 1. Being aware of an opportunity – Increasing marketshare 2. Set Objective – To ensure that the office is staffed from 8hrs to 21hrs, Mon – Thurs. Target date January 1 2016. 35

36. 3.Premising Present staffing situation – Office is staffed by two f/time hourly employees. 08hrs to 16.30 and 08hrs to 17hrs Financial resources – Operating budget has sufficient funds to support additional staff at a range of K6 – K8 p/hr, but benefits are restricted. 36

37. Premising cont’d Labour supply – The potential number of p/time applicants is uncertain based on the rate of pay available. Company policy – Severe limits are placed on the use of overtime & compensatory time. – a p/time employee becomes eligible for a limited benefits package when they work 19hrs per week 37

38. 4. Determining alternative courses 1. Use present office staff by developing by developing a combination package involving o/time and compensatory time. 2. Use the present office staff by altering the work hours of one or both. 3. Hire p/time staff to work 17 – 21hrs Mon – Thurs 4. Hire two p/time workers to work two nights each from 17 – 21hrs. 38

39. 5. Evaluating alternative courses 1. Present staff/combination package 1. Problems with company pay policy & potential reaction of present staff. 2. Present staff/altered work hours. 1. Would provide coverage but would affect daytime productivity. Staff reaction – no! 3. One p/time staff 1. Would provide office coverage but stretch financial resource, because new employee would be eligible for limited benefits 39

40. Evaluating alternative courses 4. Two p/timers/two nights each. 1. Would provide coverage and not exceed financial resources or benefits restriction. Only question is: ‒ can labour supply produce two qualified applicants? 40

41. 6. Selecting a course of action The alternative with the fewest questions and most promise is alternative 1. the only problem lies in attracting candidates. 41

42. 7. Implementation 1. To overcome the potential limitation (supply of qualified candidates), pay the proposed employees top rate of K8 p/hr. 2. Develop advertising by October 1. 3. Advertise both internally to externally 4. Establish Nov 1 as cutoff date for applications 5. Complete screening and interviews by Nov.21 6. Make hiring offers by Dec. 1. 42

43. 8. Control & evaluation 1. Check daily to determine number of applicants 2. Extend the advertising deadline until a sufficient number (20 – 30), applications are received. 3. If two candidates cannot be found, obtain additional funds and implement alternative 3. 43

44. 44 Why People Fail in Planning 1. Lack of commitment to planning – There is a natural tendency to let today's problems push aside planning for tomorrows opportunities. – Therefore there is need for a climate that forces people to plan 2. Psychological difficulties – Lack of confidence & risk taking – Fear of adding to ones responsibility

45. 45 Why People Fail in Planning 3. Lack of meaningful objectives – Goals must be clear, attainable, actionable and verifiable (smart) – Goals must be defined in light of our strengths & weaknesses and the relevant environmental factor. 4. Tendency to underestimate the importance of planning premises – Plans must be made in the light of uniform and generally understood planning premises.

46. 46 Why People Fail in Planning cont’d 5. Failure to see scope of plans – Some mgrs concentrate solely on either major or minor plans neglecting other types of plans: – Eg. Missions/purposes, objectives/goals, strategies, policies, rules, procedures and programs. 6. Failure to see planning as a rational process – Planning requires clear goals, knowledge of alternatives and a desire to come up with best possible solution

47. 47 Why People Fail in Planning cont’d 7. Excessive reliance on experience – What happened in the past is not likely to suit a future situation 8. Failure to use the principle of the limiting factor – it requires that mgrs search out those factors in a problem situation which make the most difference in the solution and then deal primarily with them.

48. 48 Why People Fail in Planning cont’d 9. Lack of top management support – Planning is not likely to be very effective if there is no support from top mgmt. 10. Lack of clear delegation – It is very difficult for people to plan if they do not know what their job is, and – if they do not have clear authority to make decisions. 11. Lack of adequate control techniques & info. – It can hardly be very effective if those responsible do not know how well they are working.

49. 49 Why People Fail in Planning cont’d 12. Lack of an appropriate planning climate within the organization as a whole – procedural inflexibilities inhibit effective planning, & – too much pressure on line mgrs leaves them with no time to prepare effective plans 13. Technical problems – a mgr lacking technical skills will be deficient in solving some of the technical problems which accompany planning

50. 50 Why People Fail in Planning cont’d 14. Resistance to changes – without proper levels of participation, & careful planning for implementation, – plans & objectives will be resisted by some employees. – limiting resistance to change requires patient selling of ideas, careful dissemination of information and aggressive leadership

51. 51 Limits to Planning 1. Cost 2. Complexity of the planning process 3. Problem of rapid change 4. Political climate 5. Labour organization 6. Technological change 7. Current crises 8. Policy and procedural inflexibility 9. Capital investment

52. 52 1. Cost Cost effective planning requires a lot of time and energy. The more: – committed to planning an organization is, the more time and energy it devotes to it, and the more – detailed the planning, the more expensive it will be. The longer the planning period the more costly the plans will be.

53. 53 2. Complexity of the planning process Shifting patterns of market demand make prediction highly uncertain Forecasting & planning techniques require a fair degree of mathematical knowledge by mgrs, so – lack of training in quantitative approaches to planning, creates difficulties.

54. 54 3. Problem of rapid change In a complex & rapidly changing industry, planning is very difficult, because new problems become more complicated.

55. 55 4. Political climate – Government regulation must be taken into account 5 Labor organization – existence of strong unions especially those organized on a national basis tend to restrict freedom in planning. 6. Technological change – The rate & nature of change presents external limitations on planning

56. 56 7. Current crises – Focusing on and constantly dealing with current crises resulting from uncontrollable environment. 8. Policy & procedural inflexibility – Progressive planning requires an environment of change. 9. Capital investment – The ability to switch courses of future action becomes limited and – the investment itself becomes a planning premises.

57. 57 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

58. 58 The Project Life Cycle and Project Planning Activities

59. 59 Graphic Planning, Scheduling and 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.

60. 60 A Sample Flow Chart

61. 61 Graphic Planning, Scheduling and 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.

62. 62 Figure 6.8: A Sample Gantt Chart

63. 63 Graphic Planning, Scheduling and 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 non-routine projects

64. 64 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 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

65. 65 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  

66. 66 Getting to Class on Time Estimates for the amount of time that it takes Joe to get to class: – Optimistic: 11 minutes (The alarm clock wakes him.) – Mostly likely: 15 minutes (Joe hits the snooze button once.) – Pessimistic: 25 minutes (Joe unplugs the clock.) What is Joe’s estimated (average) time to get to class? – 16 minutes

67. 67 PERT Networks (cont’d) Positive and Negative Aspects of PERT – Excellent scheduling tool for large, non-routine projects – Requires envisioning projects in their entirety – Provides a tool for predicting resource needs, potential problem areas, and the effect of delays Negative Aspects of PERT – 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

68. 68 A Sample PERT Network

69. 69 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 equal total sales revenues Fixed Versus Variable Costs – Fixed costs: Costs that must be paid regardless of output or sales – Variable costs Costs that vary directly with production and sales

70. 70 Graphic Break-Even Analysis

71. 71 Break-Even Analysis Strengths – 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. Limitations – 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.

72. 72 The End Unit 10