PLANNING

What Is Planning?

Planning
Managerial function that involves:
Defining the organizations goals
Establishing an overall strategy for achieving those goals
Developing a comprehensive set of plans to integrate and coordinate
organizational work
Types of planning
Informal: not written down, short-term focus; specific to an
organizational unit
Formal: written, specific, and long-term focus, involves shared goals for
the organization
Why should managers plan

To offset uncertainty and change;

To focus organizational activity on a set of objectives
To provide a coordinated, systematic roadmap for
future activities
To increase economic efficiency
To facilitate control by establishing a standard for later
activity
Components of a plan
Outcome/goal statement: it represents the end state the
targets and outcomes managers hope to attend
Action statement: they reflect the means by which
organizations move forward to attain their goals
Planning and Performance
The Relationship Between Planning and Performance
Formal planning is associated with:
Higher profits
Other positive financial results
The quality of planning and implementation affects performance more
than the extent of planning
How Do Managers Plan?
Elements of Planning
Goals (also objectives)
Desired outcomes for individuals, groups, or entire organizations
Provide direction and performance evaluation criteria
Plans
Documents that outline how goals are to be accomplished
Describe how resources are to be allocated
 Planning process
ACTION
STATEMENT

2. Establish 4. Determing
outcome course of
statements: 3. Premising action 5. Formulating
1. Developing Goal Identify supportive plans
Forecasting
awareness of planning alternatives Making changes
Formulating
present state Domain Evaluate in existing plans
assumptions
planning alternatives Creating new
Hybrid Selecting supportive plans
planning alternatives
Steps in Planning
1. Being Aware of Opportunities
2. Establishing Objectives or Goals
3. Developing Premises
4: Determining Alternative Courses
5. Evaluating Alternative Courses
6. Selecting a Course
7. Formulating Derivative Plans
8. Quantifying Plans by Budgeting
 Types of Plans

Hierarchy Time Frequency

Specificity
Frame of Use

Strategic Long Term Directional Single use

Operational Short Term Specific Standing

 Types of Plans

BREADTH/hierarchical
Strategic Plans
Apply to the entire organization
Establish the organizations overall goals
Cover extended periods of time
Operational Plans
Specify the details of how the overall goals are to be achieved
Cover short time period
 Types of Plans (contd)

TIME FRAME
Long-Term Plans
Time frames extending beyond three years
Short-Term Plans
Time frames of one year or less

SPECIFICITY
Specific Plans
Clearly defined
Directional Plans
Flexible plans that set out general guidelines, provide focus, yet allow
discretion in implementation
Types of Plans (contd)
FREQUENCY OF USE
Single-use Plan
A one-time plan specifically designed to meet the needs of a
unique situation
Standing Plans
Ongoing plans that provide guidance for activities performed
repeatedly
Types of Plans
Plans can be classified as
(1) mission or purposes,
(2) objectives or goals,
(3) strategies,
(4) policies,
(5) procedures,
(6) rules,
(7) programs, and
(8) budgets
Types of Plans
The mission, or purpose, identifies the basic purpose or
function or tasks of an enterprise or agency or any part of it
Objectives, or goals, are the ends toward which activity is
aimed
Strategy is the determination of the basic long-term objectives of
an enterprise and the adoption of courses of action and allocation
of resources necessary to achieve these goals
Policies are general statements or understandings that guide or
channel thinking in decision making
Procedures are plans that establish a required method of
handling future activities
Types of Plans cont.
Rules spell out specific required actions or no actions, allowing
no discretion
Programs are a complex of goals, policies, procedures, rules,
task assignments, steps to be taken, resources to be employed, and
other elements necessary to carry out a given course of action
A budget is a statement of expected results expressed in
numerical terms
 Developing Plans

Contingency Factors in Planning

Level in the organization
Degree of environmental uncertainty
Stable environment: specific plans
Dynamic environment: specific but flexible plans
Length of future commitments
Current plans affecting future commitments must be sufficiently
long-term to meet the commitments
Approaches to Establishing Goals

Traditional Goal Setting

Broad goals are set at the top of the organization
Goals are then broken into sub goals for each
organizational level
Goals are intended to direct, guide, and constrain
from above
Approaches to Establishing Goals
(contd)

Management By Objectives (MBO)

Specific performance goals are jointly determined by employees
and managers
Progress toward accomplishing goals is periodically reviewed
Rewards are allocated on the basis of progress toward the goals
Key elements of MBO:
Goal specificity, participative decision making, an explicit
performance/evaluation period, feedback
 Steps in a Typical MBO Program
Jointly set
objectives Develop action Review Give rewards for
objectives and achieved
plans to achieve
provide feedback objectives
objectives

Overall objectives and

strategies of org
Managers and
employees
working
Objectives allocated to together on
divisions and depts. action plan

Specific objectives Action plans

collaboratively set with implemented
employees
Benefits of Management by Objectives

manager and employee efforts are focused on activities

that will lead to goal attainment
Performance can be improved at all company levels
Employees are motivated
Departmental and individual goals are aligned with
company goals
Criticisms of Planning
Planning may create rigidity
Plans cannot be developed for dynamic environments
Formal plans cannot replace intuition and creativity
Planning focuses managers attention on todays competition,
not tomorrows survival
Formal planning reinforces todays success, which may lead to
tomorrows failure
Problems with MBO
Constant change prevents MBO from taking hold
An environment of poor employer employee relations
reduces MBO effectiveness
Strategic goals may be displaced by operational goals
Mechanistic organizations and values that discourage
participation can harm the MBO process
Too much paperwork saps MBO energy.
QUERIES
 Organizational Strategy
Strategic Management
The set of managerial decisions and actions that
determines the long-run performance of an
organization
Business Model
A strategic design for how a company intends to
profit from its strategies, work processes, and work
activities.
1. Creating customer value
2. Generating profits
 The Strategic Management Process

External Analysis
OPPORTUNITIE
S
opportunities
threats
THREATS
Identify the
organization's Formulate Implement Evaluate
current mission, goals, Strategies Strategies Results
and strategies

Internal Analysis
STRENGTHS
WEAKNESSES
 Strategic Management Process
Step 1: Identify the Organizations Current Mission,
Objectives, and Strategies
Mission: the firms reason for being
The scope of its products and services
Goals: the foundation for further planning
Measurable performance targets
Step 2: Conduct an Internal Analysis
Assessing organizational resources, capabilities, activities, and culture:
Strengths (core competencies) create value for the customer and
strengthen the competitive position of the firm
Weaknesses (things done poorly or not at all) can place the firm at a
competitive disadvantage
 Strategic Management Process (contd)

Step 3: Conduct an External Analysis

The environmental scanning of specific and general
environments
Focuses on identifying opportunities and threats

Steps 2 and 3 combined are called a SWOT analysis. (Strengths,

Weaknesses, Opportunities, and Threats)
 Strategic Management Process (contd)

Step 4: Formulate Strategies

Develop and evaluate strategic alternatives
Select appropriate strategies for all levels in the
organization that provide relative advantage over
competitors
Match organizational strengths to environmental
opportunities
Correct weaknesses and guard against threats
 Strategic Management Process (contd)
Step 5: Implement Strategies
Implementation: effectively fitting organizational structure and
activities to the environment
The environment dictates the chosen strategy; effective strategy
implementation requires an organizational structure matched to
its requirements
Step 6: Evaluate Results
How effective have strategies been?
What adjustments, if any, are necessary?
 Levels of Organizational Strategy

Multibusiness
Corporate
Corporation
Level

Strategic Strategic Strategic

Business
Business Unit 1 Business Unit 2
Level Business Unit 3

Research and Human

Functional Manufacturing Marketing Finance
Development Resources
Level
 Types of Organizational Strategies
Corporate-level Strategy
The companys grand strategy for the entire organization
and its strategic business units
Types of Grand Strategies
Growth: expansion into new products and markets
(concentration, vertical integration, horizontal integration,
diversification)
Stability: maintenance of the status quo
Renewal: addresses organizational weaknesses that are
leading to performance declines (retrenchment,
turnarounds)
Combination: simultaneous pursuit of two or more of the
strategies above
 THE BCG MATRIX
High MARKET SHARE Low
High
ANTICIPATED GROWTH RATE

QUESTION
STARS MARKS

CASH COWS DOGS

Low
 Cash cows
Low growth, High market share
Businesses in this category generate large amount of cash, but
their prospects of future growth are limited
Stars
High growth and high market share
Hold dominancy in faster growing markets
Question mark
High growth but low market shares
Attractive industries; more investment beneficial
Dogs
Low growth, low market share
Do not produce/consume much cash
Hold no promise for improved performance
TOWS MATRIX
SWOT analysis is somewhat static by nature
No mention of inter relation between ones strength,
weaknesses, opportunities and threats
TOWS matrix facilitates matching the external threats and
opportunities with the internal weaknesses and strengths of
the organization

INTERNAL
FACTORS
EXTERNAL
FACTORS
EXTERNAL
OPPORTUNITIES
e.g. current and future
economic conditions, political
and social changes, new
products, services and
technologies
EXTERNAL THREATS (T)
e.g. energy shortage,
competition, and areas similar
to those shown in
opportunities box above
TOWS MATRIX
INTERNAL STRENGTHS (S)
e.g. strengths in mgmt,
operations, finance, marketing,
R&D, engineering
SO strategy: MAXI-MAXI
Potentially the most successful
strategy, utilizing the
organization's strength to take
advantage of opportunities
ST strategy: MAXI-MINI
E.G. use of strengths to cope
with threats or to avoid threats
INTERNAL WEEKNESSES
(W)
e.g. weaknesses in areas shown
in strengths box
WO strategy: MINI-MAXI
e.g. developmental strategy to
overcome weaknesses in order
to take advantage of
opportunities
WT strategy: MINI-MINI
e.g. retrenchment, liquidation,
or joint venture to minimize
both weaknesses and threats
Business-Level Strategy
Business-Level Strategy
A strategy that seeks to determine how an organization
should compete in each unit within the organization to
create a competitive advantage
Competitive advantage
An organizations distinctive competitive edge that is sourced and
sustained in its core competencies
Functional-Level Strategy
Functional-level strategies support the business-level
strategy
i.e., Marketing, human resources, research and
development, and finance all support the business-level
strategy
Problems occur when employees or customers dont
understand a companys strategy
QUERIES
Premising and forecasting
Premises are assumptions about the environment in which
the plan is to be carried out.
Anticipated environment in which plans have to be carried
out
The more thoroughly individuals charged with planning
understand and agree to utilize consistent planning premises,
the more coordinated enterprise planning will be
PRINCIPLE OF PLANNING
Forecast of the future effects may become premises of the
other plans
 DOMAIN OF PREMISING
WHAT
PLANTS?
KIND OG
MARKET WHAT
PRODUCTS
WHAT TAX
RATES AND
POLICIES
VOLUMES OF
SALES WHAT
WHAT EXPANSION?
TECHNOLOGICAL
DEVELOPMENTS
WHAT
WHAT PRICES POLITICAL
? AND SOCIAL
ENVIRONMENT WAGE RATES?
?
Forecasting
Technique used to assess the environment
Determine prediction of the outcomes
Forecasting techniques:
Quantitative forecasting: applying set of mathematical rules to a
series of past data to predict outcomes; used when precise data
is available
Qualitative forecasting: uses judgment and opinions of
knowledgeable individuals to predict outcomes; used when
precise data is limited or hard to obtain.
 Quantitative:
Time series analysis
Regression models
Econometric models
Economic indicators
Substitution effect

Qualitative
Jury of opinion
Sales force composition
Customer evaluation
Forecasting effectiveness
Most successful in suitable and stable environment
Ineffective in predictive too dynamic environments like
recession, unusual occurrences, discontinued operations,
reactions of competitors
no change forecast: effective for almost half the time
planned
rolling forecast (12-18 months advance only); best suited for
dynamic situations and observing trends
Dont rely on a single forecast system
QUERIES
Decision Making
Decision making is defined as the selection of a course of
action from among alternatives
Decision Making Process
1. Identification of problem
2. Identification of decision Criteria
3. Allocation of weights to criteria
4. Development of alternatives
5. Analysis of alternatives
6. Selection of an alternative
7. Implementation of the Alternative
8. Evaluation of decision effectiveness
E.g.:
Purchase of raw material
Quantity, Quality, Time of delivery & mode of delivery
Allocate the weights
Search for various suppliers
Analyze all
Select one supplier
Place a order
Rationality
The problem is clear &
unambiguous
A single, well defined goal is to
Rational be achieved
All alternatives & consequences
Decision are known
Preferences are clear
Making Preferences are constant & stable
No time or cost constraints exist
Final choice will maximize payoff
(leads to)
Limited, or "Bounded," Rationality
Limitations of information, time, and certainty limit
rationality, even though a manager tries earnestly to be
completely rational
Satisficing is picking a course of action that is satisfactory
or good enough under the circumstances
 Programmed And Nonprogrammed
Decisions

Structured problems &Programmed decisions

Unstructured Problems & Non programmed
decisions
 Types of decisions at various levels
in the organization

Unstructured
Top level

Non Programmed Decisions

Programmed Decisions

Structured Lower Level

Simons model of decision making
Contribution of Herbert Simon
The decision making process can be broken into series of
three sequential steps:
1. Intelligent activity
2. Design activity
3. Choice activity
Intelligent activity refers to the initial phase of searching the
environment for conditions calling for decisions.

Design activity refers to the phase of inventing, developing,

and analyzing possible course of action to take place.

Choice activity refers to the final phase of actual choice

selecting a particular course of action from those available.
Creativity and Innovation
Creativity refers to the ability and power to develop new
ideas
Conditions necessary for Creativity:
Expertise, Creative thinking skills, Internal Motivation,
Environmental need, Tension & Encouragement from others
Innovation means the use of new ideas
Forecasting
It is the process of estimating the relevant events of future,
based on the analysis of their past and present behavior
Acc to Neter & Wasserman: Business forecasting refers to the
statistical analysis of the past & current movement in the
given time series so as to obtain clues about the future
pattern of those movements
Features of forecasting
It relates to future events
Defines the probability of happening of future events
Analyzing the past & present relevant events
Use of some statistical tools & techniques
Planning & Forecasting
Planning is more comprehensive and forecasting involves the
estimation of future events & provides parameters to
planning
Importance of Forecasting
Promotion of organization
Key to planning
Coordination & control
Success in organization