11

Planning

Ch 3

Unit 7 - 11

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.

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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).

Planning

Allows for coping with uncertainty– by formulating courses of action to achieve specified

results

Three Types of Uncertainty1. 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

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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.

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Planning: The Primary Management Function

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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

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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

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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)

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Types of Plans

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Types of Plans cont’d(Koontz, et. al.)

Purpose/mission Objectives Strategies Policies Procedures Rules Programmes, and Budgets.

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Purpose or mission

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

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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.

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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?

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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

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A Typical Means-Ends Chain of Objectives

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Strategies

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

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Policies

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

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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

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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

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Programmes

Single use plans comprising relatively wide related activities and requiring complex coordination

Involve, objectives, policies, procedures and budgets and fixed period.

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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

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Importance of Planning

1. To offset uncertainty and change

2. To focus attention on objectives

3. To gain economical cooperation

4. To facilitate control

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The Planning Process Involves :

Assessing– The Planning Period– The Environment of Plans

Environmental Forecasting– Economic Forecasting– Technological Forecasting– Social Forecasting, and– Political Forecasting

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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.

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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.

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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

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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

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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

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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.

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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

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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

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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.

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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

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.

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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.

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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

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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.

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5. Evaluating alternative courses

1. Present staff/combination package1. 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 staff1. Would provide office coverage but stretch financial

resource, because new employee would be eligible for limited benefits39

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?

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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.

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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.

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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.

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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

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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.

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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

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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.

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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.

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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

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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

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Limits to Planning

1. Cost2. Complexity of the planning process3. Problem of rapid change4. Political climate5. Labour organization6. Technological change7. Current crises8. Policy and procedural inflexibility9. Capital investment

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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.

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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.

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3. Problem of rapid change

In a complex & rapidly changing industry, planning is very difficult, because new problems become more complicated.

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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

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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.

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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

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The Project Life Cycle and Project Planning Activities

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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.

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A Sample Flow Chart

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Graphic Planning, Scheduling and Control Tools (cont’d)

Gantt Charts– A graphic scheduling technique historically

used in production operationsUseful 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.

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Figure 6.8: A Sample Gantt Chart

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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

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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

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Formula for Calculating Estimated PERT Times

Te = Time estimate (average)

To = Time estimate (optimistic)

Tm = Time estimate (most likely)

Tp = Time estimate (pessimistic)

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4 pmoe

TTTT

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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

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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

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A Sample PERT Network

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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 costsCosts that vary directly with production and sales

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Graphic Break-Even Analysis

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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.

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The End

Unit 10