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Essentials of Planning
Take hold of the future or the future will take hold of you
PlanningDefinition:
Planning involves defining the organization’s objectives or goals, establishing an overall strategy for achieving these goals and developing a comprehensive hierarchy of plans to integrate and coordinate activities.
It gives direction, reduces impact of change, minimizes waste and redundancy and sets standards used in controlling
It determines before hand the
1.Ends (what is to be achieved) 2. Means (how it is to be done) 3. Timing (when to do what) 4. Responsibility and accountability (who should do what) and 5. Reason (why it should be done)
PlanningControlling:
Comparing plans withresults
Correctiveaction
New plans
ImplementationOf plans
Undesirable deviation
No undesirabledeviation
The close relationship of planning and controlling (Siamese Twins)
7. Individual objectives – performance & personal development
6. Department and unit objectives
5. Division objectives
4. More specific overall objectives KRA (key results area)
3. Overall objectives(long and short range)
2. Mission
1.Vision CSR
Top
dow
n ap
proa
ch
Bottom
– up approach
Lower levelmanagers
Middle levelmanagers
Top levelmanagers
Board of Directors
Hierarchy of objectives – Objectives and organizational hierarchy
Type of Plans
Breadth
Strategic
Tactical
Time frame
Long termMaster plan >5 yrs
Medium term< 3 yrs crisis mgmt
Frequency of use
Single use1.Programs2. Projects3.Budgets
Multiple use
Operational1.Policies
2. Procedures3. Methods
4. Rules
Short termDay to day plan
Specificity
1.Financial &Non-financial2. Product & Project plans
Classification of Plans
Mission Statement
Strategic Plans
Operational Plans
Founders, Board of Directors, Top Managers
Top and Middle Managers
Middle and Frontline Managers
The Hierarchy of PlansR
espon
sible for im
plem
entation
Planning – Importance and Limitations
Importance:• Direction setting
• A holistic picture of consequences
• No haphazard actions
• Economy in operations
• Minimizing risks and uncertainties
• Estimation of needed resources
• Better decision making
• Promotion of teamwork
• Provision for control
• Technological innovation / development
Limitations• Lack of accurate information
• Time consuming process
• Expensive
• Inflexibility
• Environmental constraints
• False sense of security
• Capital invested in fixed assets limits planning
Characteristics of Planning
• Primary function of management
• Intellectual process (translating knowledge and information into road map of action, coordinate different action plans, dynamic). Should be able to convert problems into opportunity. (Rise of the crane gang – Chandrakant and Anil Sanghvi)
• Goal oriented
• Dynamic (flexible), future oriented and involves forecasting
• Involves choosing among alternatives
• Planning and control are inseparable and has limitations
Being aware of the opportunities(Environmental scanning)
Market, competition,Customer preference. Self strengths
and weaknesses (Balaji films)
Setting goals & objectivesWhere, when and what?
Considering planning premisesIn what environment – internal
or external – will the plan operate
Identifying alternativesMost promising alternative from the
menu of options
Quantify plans with budgetsBudgets for volume & price of sales,
Operating & Capital expensescontingencies
Formulating supporting plansEquipment & material purchase, hire
& train workers, develop new product
Pitching alternatives in consonancewith goals
Best chance of meeting goals with lowestCost and highest profits
Choosing an alternativeSelecting the optimal path
Steps in Planning-The planning processPlan implementationand review
Objectives: The Foundation of Planning• Objectives are goals and desired outcomes for individuals,
groups, or the entire organizations. They provide the direction for all management decisions and form the criterion against which actual accomplishments are measured. There are verifiable (achieve ROI of 12% at the end of the FY) and non-verifiable (to develop better managers)
• All organizations have multiple objectives. (Businesses seek to increase market share and satisfy employee welfare)
• Real versus Stated Objectives: An organization’s stated and real objectives are often different as they have to cater to differently demanding constituencies.(Number of students in a class; promises of automobile service center)
Planning and Strategic Management
• Alfred D Chandler defined ‘strategy’ as the determination of 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’.
• In 1978, Schendel and Hofer created a composite definition of strategic management based on the principle that the overall design of an organization can be described only if the attainment of objectives and strategy as key factors are added to policy.
Goal Setting Mission / Vision statement
Strategy Formulation
Administration
Strategic Control
Strategic Planning
Strategic Implementation
Strategic Management Process
Strategic Planning Strategic planning involves analysis and development of the
organizations vision, mission,overall goals, general strategies and allocation of resources. It produces fundamental decisions and actions that shape and guide the direction of the entire organization. Top level managers are involved in strategic planning and answers the questions like:
• What is the purpose of the organization?• What does the organization have to do in future to remain
competitive? Why it needs to do that?• What strategies should an organization adopt to achieve its
intended goals?• How much resources need to be allocated to different business
units to enable them to achieve their objectives?
Strategic and Operational Plans differ in three major ways
• Time Horizons: Strategic plans tend to look ahead several years or even decades. For operational plans, a year is generally a relevant period.
• Scope: Strategic plans affect a wide range of organizational activities, whereas operational plans have a narrow and more limited scope. The number relationships involved is the key difference
• Degree of Detail: Strategic goals are stated in terms that look simplistic and generic to ensure that the people in the organizations to think of the whole of the organization’s operations. Operational plans as derivatives, are stated in relatively finer details
The Strategic Planning Process
Mission / Vision Statement• Customer Market
• Product and Services
• Geographic Domain
• Technology
• Concern for Survival and growth
• Philosophy
• Self Concept
• Concern for Public image
Strategy Formulation• Analyze the external
environment• Reassess the organizations
resources• Carry out SWOT analysis• Look at the Organization’s
culture (its values, beliefs, attitudes and valued behaviors – the way things are done here)
• Set strategies that would give the organization a competitive advantage
The Strategic Implementation Process
Implementing Strategies Successful strategies require
properly matched organization structure; re-engineer if needed
New strategies would need people with different skills. Need to recruit, select, train, discipline, transfer, promote or even lay off.
Build and manage effective New Teams
Competent / charismatic leadership at the top and and motivated middle and lower level managers
Evaluate Results How effective the
strategies have been? What adjustments are
required? Bring about the
appropriate and well researched change
Inputs:•People•Capital
•Mgmt skills•Tech skills
•Others
Goals of Stakeholders:
•Employees•Consumers•Suppliers
•Stockholders•Governments•Community
•others
Enterpriseprofile
•Executive Orientation:
•Values•Vision
•Mission•Major
objectives•Strategic
intent
Present &Future external
Threats &opportunities
Developmentof alternatestrategies
Internal Strengths &weakness
INDUSTRY
ANALYSIS
EVALUATION
&
STRATEGIC
CHOICE
Implementation
Medium & Short range
planning
•Reengineering•Org. restructure
•staffing
•Consistencytesting
•Contingencyplanning
LEADERSHIP
&
CONTROL
Strategic Planning Process Model
The TOWS matrix for analysis of situation
• Today the strategy designers are aided by a number of matrices that show the relationships of critical variables. The TOWS Matrix is a conceptual frame work for a systematic analysis that facilitates matching of external threats and opportunities with internal weaknesses and strengths of the organization
• The TOWS starts with the threats because in many situations a company undertakes strategic planning as a result of perceived crisis, problem, or threat.
• TOWS Matrix is increasingly used these days for planning mergers, acquisitions, joint ventures and alliances.
Internal factors
External
Factors
Internal Strengths (S)
Strengths in management, operations, finance, marketing, research and development, engineering
Internal weakness (W)
Weaknesses in areas shown in the ‘strengths’ box
External opportunities (O) & risk eg. current & future economic conditions, political and social changes, new products, services and technology
SO Strategy: Maxi–Maxi
Potentially the most successful strategy, utilizing the organizations strength to access opportunities
WO strategy Mini-Maxi
Development strategy to overcome weaknesses in order to take advantage of opportunities
External threats (T)
Energy shortage, competition, and areas similar to those shown in opportunities
ST Strategy Maxi-Mini
Use strengths to cope with threats or to avoid threats
WT strategy Mini-Mini
Retrenchment, liquidation or joint venture to minimize both weaknesses and threats
TOWS Matrix for Strategy Formulations
Stars
(Have opportunities for growth& profit)
Question
Marks
(Need investment)
Cash Cows
(well established in the market)
Dogs
(Should be closed down)
Boston Portfolio Matrix for allocation of Resources
High
Low
Bu
sin
ess
grow
th r
ate
Strong Weak
Relative competition (Market Share)
Multi-businessCorporation
StrategicBusiness Unit
StrategicBusiness Unit
StrategicBusiness Unit
Research &Development
Production /Operation
Marketing Finance
Corporate level Business unit level Functional level
Strategic Management -Three Tier Strategy and their Operational Plans
Operational Plans Operational Plans Operational Plans Operational Plans
Structure
Strategy
Skills
Staff
Style
Systems
Super-ordinate Goals
The Seven S Model (McKinsey & Co) for Strategy Implementation; neglecting any one of the key factors could make the effort to change a slow, painful and even a doomed process
Planning Tools (Scanning, Forecasting & Benchmarking) and Techniques
1. Environmental Scanning: To anticipate and interpret changes in the environment (Insurance needs for DINK, DISK, and traditional families)
• Competitor intelligence: Who r they? What r they doing? How will that affect us??
• Global and local scanning
• Based on above prepare a consistent scenario and initiate strategic change to gain and keep competitive advantage
2. Forecasting
Information obtained from scanning is used to develop scenarios as basis for forecasting. Two types of forecasting
1. Revenue: Crucial and is based of historical data and environment scan. What revenue patterns evolved over the years, changes in the social, economic and political patterns might impact the revenue generation
2. Technological: Changes in technology and the timeframe when they are likely to be economically viable. (Case of technology in music retail – vinyl discs, magnetic tapes, CD, digital tape etc). Consumers still want to listen to music but on their preferred medium.
Forecasting Technique
Two types of forecasting techniques:
• Quantitative forecasting puts a series of historical data to mathematical scrutiny (time series analysis, regression methods, economic models & indicators, substitution effect etc) to predict future outcome
• Qualitative forecasting uses judgment and opinion of knowledgeable people to predict future outcome
Forecast Effectiveness• It has been a mixed success• Dependable when the environment is stable and not
rapidly changing• Relatively unimpressive in predicting non seasonal events
such as recession, unusual occurrence, discontinued operations etc
• Five cardinal points: keep the technique simple, compare every forecast with “no change”,do not rely on single model – try a few and average them, do not assume that you can identify turning points in a trend and finally shorten the length of forecast to minimize risk and improve accuracy
3. Benchmarking
Benchmarking is the search for the best practices in the market that lead to superior performance. It is a very specific form of environment scanning. (Case of Xerox and their Japan experience of efficiency). Four step process:
• Formation of a benchmarking planning team to identify what is to benchmarked, concerned organizations and data collection procedures
• Team collects data internally and externally• Data analysis to identify performance gaps and cause of
difference• Action plan for improvement and setting new standards
Suggestions for Benchmarking Efforts
1. Link benchmarking efforts to strategies
2. Right sized team (6 to 8 people most effective)
3. Involve those employees to be directly affected by BM
4. Focus specific and target issues not on broad & generic
5. Set realistic timetables
6. Choose benchmarking targets carefully
7. Observe appropriate protocol; contact the right person
8. Do not collect unnecessary and excessive data
9. Look at the process behind the information
10. Identify benchmarking targets and then act
Budgets
• A budget is a numerical plan for allocating resources to specific activities. Managers typically prepare budgets for revenues, expenses and large capital expenditure such as machinery and equipment. It is not unusual, though, for budgets to be prepared for improving time and space and use of material resources.
• Budgets are one planning device that most managers, regardless of organizational level, help formulate.
Types of Budget• Revenue Budget: Is a specific type of revenue forecast (future sales)• Expense budgets: it lists the primary activities undertaken by a unit to
achieve its goals and allocate monetary amount to each.• Profit Budgets: profit budgets combine revenue and expense budgets
into one. They are typically used in large organizations that have multiple facilities and divisions
• Cash Budget: It forecasts how much cash the organization will have in hand and how much will it need to meet the expenses.
• Capital Expenditure Budget: investments in property, buildings and major equipment are called capital expenditure. They allow management to forecast future capital requirements, to keep on top important capital projects.
• Variable budgets: Most organizations are not able to predict the volume accurately. A number of costs such as labor, material and some admin expenses vary with volume. They are taken care in the variable budgets
Approaches to Budgeting
• Incremental Budgets: It has two specific characteristics;
(a) Funds are allocated to units. The managers then allocate funds to activities they see fit. (b) An incremental budget is based on previous budget, using that a a reference point. Only incremental changes in the budget are reviewed.
• Zero Based Budget: It is designed to overcome the second draw back of the incremental budget; activities that are being immortalized. ZBS shifts the burden of proof on the manager why he should get any budget at all
Processes in the ZBB
• Each discrete departmental activity is separated into a decision package.
• The individual decision package are ranked according to their benefit to the organization during the budget period
• Budget resources are allocated to the individual packages according to preferential rankings in the organization.
• The decision package is a document that identifies and describes a specific activity.
• Once department managers have completed the decision packages, they are forwarded to the top executives who determines how much and where to spend.
Activity A
Activity B
Activity C
Activity D
Activity E
Decision PackageA
Decision PackageB
Decision PackageC
Decision PackageD
Decision PackageE
1
2
3
4
5
Step 1
C
E
B
A
D
Breakdown of ActivitiesInto decision Packages
Ranking decisionPackages
A
B
C
D
E
Step 2 Step 3
Allocation of Resources
Operational Planning Tools
• Scheduling
• The GNATT Charts / Load Charts
• Breakeven Analysis
• PERT Network Analysis
• Linear Programming
• Queuing Theory
• Probability Theory
• Marginal Analysis
• Simulation
Time Management
• Time is a unique resource; it can neither be stockpiled not lost time retrieved.
• The majority of manager’s time is spent on responding to requests, demands and problems initiated by others (Response Time) and the manager has very little control on this.
• The portion that is under manager’s control is called the “Discretionary Time” and is manageable.
Time Management Steps
1. List your objectives
2. Rank objectives according to their importance
3. List the activities necessary to achieve your objectives
4. For each objective, assign priorities to the various activities required to reach the objective.
5. Schedule your activities according to the priorities you have set.
Some additional Time Management Tips
• Follow the 10 – 90 principle
• Know your productivity cycle
• Remember Parkinson’s Law
• Group less important activities together
• Minimize disruptions
• Beware of wasting time in Poorly run meetings
Management by Objectives (MBO)
Management by Objectives is a comprehensive managerial system that integrates many key managerial activities in a systematic manner and is consciously directed towards effective and efficient achievement of organizational and individual objectives.
It includes four elements: goal specificity, participatory decision making, an explicit timeframe and performance feedback. The overall objectives are translated into specific objectives for each succeeding level in the organization and is therefore, participatory and two way osmosis process. If the individuals achieve their goals, then their unit’s goals will be attained and so on up the chain until the organization’s overall objectives become a reality
Top management
Hierarchy Objectives
We need to improve the Organization’s performance
Division Manager
Department’s Manager
Individual Employee
Improvement in division’s profit
Profit rise regardless of means
Work fast, regardless of quality
Traditional objective Setting, MBO
Steps in a Typical MBO Program
1. Organization’s overall objectives and strategies are formulated
2. Major objectives are allocated amongst the divisional and departmental heads
3. Unit managers collaboratively set specific objectives for their units with their superiors
4. Specific objectives are set for all department members
5. Action plans for objectives are discussed, fine-tuned, specified and agreed upon by the managers and staff
6. Action plans are implemented
7. Progress towards objectives is periodically reviewed and feedback provided
8. Successful achievement of objectives is reinforced by performance based rewards
Characteristics of MBO
• Comprehensive managerial system that integrates key activities in a systemic manner for achievement of the objectives
• Focuses on results and not on activities
• Focuses on accomplishment of objectives in a participatory manner
• Delegation is by “negotiating a contract of goals” with subordinates
• Verifiable achievement of tasks and goals
• Periodic performance appraisals in accordance with the tasks
• Goals are used to monitor and control to promote managerial self control
Benefits and Limitations of MBO
• Effective management
• Clarity of organizational action
• Encouraging commitment for attainment of organizational goals
• Professional satisfaction
• Establishment of effective control
• Failure to educate employees about MBO philosophy
• Goal setters not provided with adequate guidelines
• Difficulty in setting appropriate goals that are optimum and measurable
• Establishment of easily attainable goals
• Stress on short term goals• Inflexibility• Unethical practices in pursuit of
objectives• Can be stressful, threat perception• Lack of strong commitment from
the top• Incompatibility with sudden
changes
Core jobcharacteristics
Critical psychologicalstates
Outcomes
Skill varietyTask identityTask significance
Experienced meaningfulness of the work
Autonomy Experienced responsibilityfor the outcome of the work
Feedback from the job
Knowledge of the actual results of the work activities
Higher internal workmotivation
Higher growth satisfaction
Higher general job satisfaction
Higher workeffectiveness
Moderators1. Knowledge and skills2. Growth need strength3. Context satisfaction
MBO is most effective if the goals are difficult enough to require to persons to stretch
Reward System
• Rewards and incentives contribute to strategy implementation by shaping individual and group behavior. Well designed incentive plans are consistent with an organization’s objectives and structure. They motivate employees to direct their performance toward the organization’s goals
• The setting up of the incentive plan should be tailored to further the organization’s objectives. Incentive plans should encourage short term or long term decision making, greater or lesser risk taking, more or less cooperation with other managers and the like.
QUESTIONS ??