PLANNINGAND

DECISION-MAKINGEssentials of Planning and Decision-Making

PLANNING

PLANNING and CONTROLLING

• Planning and Controlling are INSEPARABLE.• They are the Siamese Twins of

Management.New Plans

Planning

Controlling:Comparing plans with

results

Implementation of plans

Corrective action

No undesirable deviation from

plans

Figure 1:Close Relationship of Planning and Controlling

• Any attempt to CONTROL without PLANS is meaningless, since there is no way for people to tell whether they are GOING where they WANT TO GO (the result of the task of control) unless they first KNOW where they WANT TO GO (part of the task of planning).

• Plans thus furnish the STANDARDS OF CONTROL.

PLANNING and CONTROLLING

THE PLANNING PERIOD

• SHORT-TERM PLANNING

- 6 to 12 months.

• INTERMEDIATE-RANGE PLANNING

-1 to 5 years

• LONG-TERM PLANNING

-5, 10 to 20 years.

HOW LONG SHOULD THE PLANNING PERIOD BE?

The length of the period for which an enterprise plan vary on the type of the enterprisethe kind of industrythe production cyclethe quality of managerial practiceand many other factors in the decision

TYPES OF PLANS

1. Visions2. Missions or Purposes3. Goals or Objectives4. Strategies5. Policies6. Procedures7. Rules8. Programs9. Budgets

1. VISION• A picture of the state of the desired

outcome in the future usually in the long term from current time.

• It answers the question “where do we want to go?”

• It may be a plan or a goal. Like objectives a vision statement should be specific, measurable, attainable, realistic and time-bound.

TYPES OF PLANS

DEVELOPING A VISION

• Begins with thinking strategically About the firm’s FUTURE MAKEUP; FORMING VISION of firm’s future in 5-10 years Task is to:

• Inject sense of purpose into firm’s activities; • Provide LONG-TERM DIRECTION; • Give the firm STRONG IDENTITY; • Decide “WHO we are, WHAT we do, &

WHERE we are headed”

VISION STATEMENTS FAMOUS COMPANIES

– Nike - “To bring inspiration and innovation to every athlete in the world”

• Toys 'R' Us – “Our Vision is to put joy in kids’ hearts and a smile on parents’ faces.”

• Disney – “We create happiness by providing the finest in entertainment for people of all ages, everywhere.”

• Amazon – “To build a place where people can come to find and discover anything they might want to buy online”

• Avon – “To be the company that best understands and satisfies the product, service and self-fulfillment needs of women - globally.”

• Ikea – “Affordable solutions for better living.”

2. PURPOSES OR MISSIONS• Identifies the basic purpose or function or tasks of

the organization or any part of it.• In every social system, enterprises have a basic

function or task assigned to them by society. • For example,

business - production and distribution of goods and services

state highway department - design, building, and operation of a system of state highways

courts - interpretation of laws and their application university - teaching, research, and providing services to

the community

TYPES OF PLANS

MISSION STATEMENTS FAMOUS COMPANIES

– Toyota – “To Move People in a better way”

• Toys 'R' Us – “To be the world’s greatest kids’ brand.”• Disney – “To be one of the world's leading producers and

providers of entertainment and information.”• Apple – “to bringi the best personal computing experience to

students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings.”

• Microsoft – “to enable people and businesses throughout the world to realize their full potential.”

• Facebook – “to give people the power to share and make the world more open and connected.”

3. GOALS OR OBJECTIVES • Represent not only the END POINT OF

PLANNING, but also the end toward which organizing, directing/leading, and controlling are aimed.

TYPES OF PLANS

TYPES OF OBJECTIVESNeeded by an Organization:

1. FINANCIAL OBJECTIVES • Outcomes that relate to improving firm’s financial

performance

SPECIFIC FINANCIAL CORPORATE OBJECTIVES

• McCORMICK & COMPANY• Improve returns from each of our existing operating

groups. • Achieve a 20% return on equity. • Achieve net sales growth rate of 10% per year. • Maintain an average earnings per share growth rate

of 15% per year.

• QUAKER OATS COMPANY• To achieve return on equity at 20% or above, “real”

earnings growth averaging 5% or better over time, be a leading marketer of strong consumer brands, and improve the profitability of low-return businesses or divest them.

2.STRATEGIC OBJECTIVES • Outcomes that will result in greater

competitiveness & stronger long-term market position

TYPES OF OBJECTIVESNeeded by an Organization:

SPECIFIC STRATEGIC CORPORATE OBJECTIVES

• NIKE• Protect & improve Nike’s position as the number one

athletic brand in America. • Build a strong momentum in growing fitness market. • Intensify the company’s effort to develop products that

customers need and want.

• ATLAS CORPORATION• To become a low-cost, medium-size gold producer,

producing in excess of 125,000 ounces of gold a year and building gold reserves of 1,500,000

4. STRATEGIES• Defined as the determination of THE BASIC

LONG-TERM OBJECTIVES of an enterprise • The art of using organizational resources to

reach the goals defined.• Consists of COMPETITIVE MOVES &

BUSINESS APPROACHES to produce successful performance

TYPES OF PLANS

• Strategies are management’s “GAME PLAN” for: Running the business Strengthening firm’s competitive position Satisfying customers Achieving performance targets

• Examples: Improving the market standing Increasing productivity goals Product innovation Systems development

TYPES OF PLANS

A strategy without metrics is just a wish. And metrics that are not aligned with

strategy are a waste of time.

Thinking strategically: Three big strategic questions

1.Where are we now?2. Where do we want to go?

3. How will we get there?

5. POLICIES• GENERAL STATEMENTS or

UNDERSTANDINGS that GUIDE or channel THINKING in decision making.

• They HELP DECIDE ISSUES before they become problems.

• Behavioral guidelines that set boundaries on what managers can and cannot do; provide criteria to follow in order to implement operational objectives.

TYPES OF PLANS

Sample Attendance Policy: No-Fault Point System

The goal of this attendance policy is to reward good attendance and eliminate people with poor attendance. It uses a point system, and does not excuse or unexcuse absences.

In a no fault attendance system, absences are recorded thus:Each absence = 1 point (no multi-day occurrences)

Each late in (tardy) or early out = 1/2 point Each no-show for work = 2 points

Each return with no prior call = 1 point Each absence-free quarter eliminates all points and rewards the

employee with a day off with pay. Each employee starts fresh, with no points, each year.

Progressive disciplinary action accompanies a no-fault attendance system. If an employee earns:

7 points = verbal warning 8 points = written warning

9 points = 3 day suspension 10 points = termination

6. PROCEDURES• Establish a chronological sequences of required

actions in handling future activities;• Details of the exact manner in which certain

activities must be accomplished;• Procedures are guides to action; therefore they

are more specific than policies. Policies define a broad field whose area is determined and limited by the objectives of the enterprise. Procedures show the sequence of concrete acts.

TYPES OF PLANS

Example:

Policy statement: “The customer is always right”

In a department store, the procedure might be to send a complaining customer to the supervisor, then to the

department manager and finally to the adjustment office.

Whatever decision these various managers make will be within the broad guideline of thinking that the

customer is right. Although the managers might not believe in a particular instance that the customer is

justified, the complaint will be handled according to a prescribed procedure from the policy of the store.

Sample Procedure for Hiring New Employees

1.Determine the need for a new or replacement position.2.Develop and prioritize the key requirements needed from the position and the special qualifications, traits, characteristics, and experience looked for in a candidate. With HR department assistance, develop the job description and salary range for the position.3.Advertise or post the job opportunities in the bulletin board, company website, print media, etc.4.Send an all-company email to notify staff that a position has been posted and that the company is open for hiring employees.5.Interested candidates shall fill out the Position Application. Schedule an interview for candidates, with the hiring supervisor, the manager of the hiring supervisor or a customer of the position and HR. (In all cases, tell the candidates the timelines you anticipate the interview process will take.)6.Hold the interviews with each interviewer clear about their role in the interview process. Interviewers shall fill out the Job Candidate Evaluation Form. 7.If no candidates are selected for the position, make certain to clearly communicate with the applicants that they were not selected. If a candidate is selected for the position, prepare a written job offer that includes the new job description and salary.

7. RULES• Spell out specific REQUIRED ACTIONS OR

NONACTIONS.• Usually the SIMPLEST TYPE OF PLAN.• The essence of rule is that it reflects a

managerial decision that a certain action must – or must not – be taken.

• Rules are DIFFERENT from policies in that POLICIES ARE MEANT TO GUIDE DECISION MAKING by marking off areas in which managers can use their DISCRETION, while RULES ALLOW NO DISCRETION in their application.

TYPES OF PLANS

Sample of Simple Rules

NO Eating

DrinkingSmoking

No littering P

Classroom Rules:1.Everyone deserves respect.

2.Come to class prepared. 3.Do your best.

4.Have a winning attitude. 5.Have fun and learn!

8. PROGRAMS• A complex of goal, 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;

• They are ordinarily supported by budgets.

TYPES OF PLANS

Sample Program: Emergency Action Program

Sample Program: Emergency Action Program

Sample Program: Emergency Action Program

Sample Program: Emergency Action Program

Sample Program: Emergency Action Program

Sample Program: Emergency Action Program

9. BUDGETS• A statement of expected results EXPRESSED IN

NUMERICAL TERMS; may be called a “quantified” plan. The financial operating budget is often called a “profit plan”.

• May be EXPRESSED IN FINANCIAL TERMS - in terms of labor-hours, units of product, or machine-hours; or in any other NUMERICALLY MEASURABLE TERMS.

• Budgets are ALSO CONTROL DEVICES. However, MAKING A BUDGET IS CLEARLY PLANNING. The budget is the FUNDAMENTAL PLANNING INSTRUMENT in many companies.

• The budget is NECESSARY FOR CONTROL, but it cannot serve as a SENSIBLE STANDARD of control unless it REFLECTS plans.

TYPES OF PLANS

Business start-up budget – includes a list of all necessary purchases including tangible assets (for example, equipment, inventory) and services (for example, remodeling, insurance), (working capital), sources and collateral

Corporate budget - a finished budget for the short-term future, typically one year

Government budget - a summary or plan of the intended revenues and expenditures of that government

Personal or family budget - all sources of income (inflows) are identified and expenses (outflows) are planned with the intent of matching outflows to inflows (making ends meet)

Examples of Budgets

Steps in Planning

1. Being Aware of Opportunities• All managers should:

Take at preliminary look at possible future opportunities and see them clearly and completely.

Know where their company stands in the light of its strengths and weaknesses.

Understand what problems it has to solve and why.

Know what it can expect to gain.• Planning requires a realistic diagnosis of the

opportunity situation.

Steps in Planning

2. Establishing Objectives To be done for the long-term as well as for the

short range.

Objective specify the expected results and indicate the end points of what is to be done, where the primary emphasis is to be placed, and what is to be accomplished.

Objectives must be SMART.

Steps in Planning

3. Developing Premises Establish, circulate, and obtain

agreement to utilize critical planning premises such as forecasts, applicable basic policies, and existing company plans.

Premises are assumptions about the environment in which the plan is to be carried out.

Steps in Planning

4. Determining Alternative Courses Search for and examine alternative courses

of action, especially those not apparent.

The more common problem is not finding alternatives but reducing the number of alternatives so that the most promising may be analyzed.

Even with mathematical techniques and the computer, there is limit of the number of alternatives that can be thoroughly examined.

Steps in Planning

5. Evaluating Alternative Courses Evaluate the alternatives by

weighing them in the light of premises and goals.

Steps in Planning

6. Selecting a Course This is the point at which the plan is

adopted – the real point of decision making.

Occasionally, an analysis and evaluation of alternative courses will disclose that two or more are advisable, and the manager may decide to follow several courses rather than the one best course.

Steps in Planning

7. Formulating Derivative Plans When a decision is made, planning

is seldom complete, and a seventh step is indicated.

Derivative or action plans are almost invariably required to support the basic plan.

Steps in Planning

8. Quantifying Plans by Budgeting Quantify decisions and plan by converting them

into budgets.

The overall budget of an enterprise represents the sum total of income and expenses, with resultant profit or surplus, and the budgets of major balance sheet items such as cash and capital expenditures.

If done well, budgets become a means of adding various plans and set important standards against which planning progress can be measured.

Stepsin

Planning

Being aware of opportunitiesIn light of:· The market· Competition· What customer want· Our strengths· Our weaknesses

Comparing alternatives in light of goals

Which alternative will give us the best chance of meeting our goals at the lowest cost and highest profit?

Setting objectives or goalsWhere we want to be and what we want to accomplish and when.

Considering planning premises

In what environment – internal or external – will our plans operate?

Identifying alternativesWhat are the most promising alternatives to accomplishing our objectives?

Choosing an alternativeSelecting the course of action we will pursue.

Formulating supporting plans

Such as plans to:· Buy equipment· Buy materials· Hire and train workers· Develop a new product

Quantifying plans by making budgetsDeveloping such budgets as:· Volume and price of sales· Operating expenses

necessary for plans· Expenditures for capital

equipment

Steps in PlanningFigure 2.0

PLANNING TOOLS & TECHNIQUES

1. Gantt Chart2. Pert-CPM Chart

3. Systems Flowchart4. Cause & Effect Diagram

5. Process Maps6. SWOT Analysis

7. TOWS Matrix

Gantt Chart

• first project planning and control technique to emerge during 1940’s in response to the need to manage complex defense projects and systems

better• a tool for planning and scheduling an Analyst

performance during a systems project and for machine supplies delivery during the installation

phase of a project• shows the anticipated completion times for various

project activities as bars plotted against time on the horizontal axis

GANTT CHARTWORK SCHEDULE

GANTT CHARTPROJECT DEVELOPMENT

Program Evaluation & Review Technique Program Evaluation & Review Technique ((PERT) Critical Path Method (CPM) Charts• a planning and control tool that graphically

portrays the optimum way to attain some predetermined objective, generally in terms of time

• presents a graphic illustration of a project as a network diagram consisting of numbered nodes

(either circles or rectangles) representing events, or milestones in the project linked by labeled

vectors (directional lines) representing tasks in the project. The direction of the arrows on the lines

indicates the sequence of tasks.

PERT/CPM CHART – PC CARD

SYSTEMS FLOWCHARTSYSTEMS FLOWCHART

• explains how a system works using a diagram. The diagram shows the flow of

data through a system. • The different shaped symbols used are:

Start/end of

the process

Operation

Decision

Connector

Deployment Flowchart

New Product

Development

CAUSE AND EFFECT DIAGRAMCAUSE AND EFFECT DIAGRAM

• also known as “fishbone diagram”, developed by Ishikawa in the early 1950s

• method consists of defining an occurrence of a typically undesirable event or problem

(effect) and then identifying contributing factors (causes)

Cause & Effect Diagram

Cause & Effect Diagram

PROCESS MAPPROCESS MAP

• visually depicts the sequence of events to build a product or produce an outcome

• shows all the process associated activities, including volumes of input and output, approvals,

exceptions, and cross-functional hand-offs.

• the basic goal is to provide a unifying vision of business processes so that participating

organizations and individuals can have an understanding of their specific role in the overall

system

Process Mapping

SWOT Analysis

• a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture

• involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective

• A SWOT analysis must first start with defining a desired end state or objective and may be incorporated into the strategic planning model

SWOT Analysis

• Strengths - characteristics of the business or team that give it an advantage over others in the industry.

• Weaknesses - characteristics that place the firm at a disadvantage relative to others.

• Opportunities - external chances to make greater sales or profits in the environment.

• Threats - external elements in the environment that could cause trouble for the business.

An Illustration: The Procter & Gamble Company Profile

The Procter & Gamble Company (P&G) boasts boatloads of brands. The world's #1 maker of household products courts market share and billion-dollar names. It's divided into three global units: health and well being, beauty, and household care. The company also makes pet food and water filters and produces a soap opera. Some two-dozen of P&G's brands are billion-dollar sellers, including Fusion, Always/Whisper, Braun, Bounty, Charmin, Crest, Downy/Lenor, Gillette, Iams, Olay, Pampers, Pantene, Pringles, Tide, and Wella, among others. P&G shed its coffee brands in late 2008. Being the acquisitive type, with Clairol and Wella as notable conquests, P&G's biggest buy in company history was Gillette in late 2005.

Procter & Gamble SWOT Analysis:

STRENGTHS·New Management·Gross Margin 15 Times the Industry Average·One of the best marketers in the world·Diversified brand portfolio: more than 300 brands with more than 79 billion in Revenue·Tightly integrated with the largest retailers in the US and around the world·Product innovation·Talented management·Distribute to 80 Countries·Distribution channels all over the world·New Billion Dollar brands

WEAKNESSESS·Top Brands Losing Market Share·Health and Beauty Women Only·Lagging behind in online media presence & leadership·Missing opportunity: Refuses to manufacture private label products for its retail customers·Slow Process Heavy Culture·Weak brands (Duracell, Iam, Braun, Pringles)·Views Product Performance only

OPPORTUNITIES·Health and Beauty for Men·Doubling Environmental Goals for 2012·Adding Value for the Conspiracy·Utilizing online social networks·Going Green/Eco Friendly·Capitalizing on online media·Continue to divest brands that don't align with the company's long-term goals (i.e., Folgers)·Emerging markets·New acquisition opportunities·Selling directly to consumers·Design for better product experience

THREATS·Substitute brands that have a cheaper price·Private label growth·Slowdown in consumer spending in the US & globally·Key competitors expanding their product portfolios through acquisitions·Increase in raw material price·Commodity cost and currency exchange rate placed tremendous pressure on the business

The TOWS Matrix: A Modern Tool for Analysis of the Situation

• The TOWS Matrix has been introduced for analyzing the competitive situation of the company that leads to the development of the four distinct sets of strategic alternatives.

• The TOWS Matrix has a wider scope and a different emphasis from the business portfolio matrix and SWOT analysis.

• The TOWS Matrix is a conceptual framework for a systematic analysis that facilitates matching of the external threats and opportunities with the internal weaknesses and strengths of the organization.

The TOWS Matrix: A Modern Tool for Analysis of the Situation

Internal

factors

External

factors

Internal strengths (S)

e.g., strengths in management, operations, finance, marketing, research and development, engineering.

Internal weaknesses (W)

e.g., weaknesses in areas shown in the “strengths” box.

External opportunities (O)

(consider risks also) e.g., current and future economic conditions; political and social changes; new products, services, and technology.

SO strategy: Maxi-Maxi

Potentially the most successful strategy, utilizing the organization’s strengths to take advantage of opportunities.

WO strategy: Mini-Maxi

e.g., development strategy to overcome weaknesses in order to take advantage of opportunities.

External threats (T)

e.g., energy shortage, competition, and areas similar to those shown in the “opportunities” box above.

ST strategy: Maxi-Mini

Use of strengths to cope with threats or to avoid with threats.

WT strategy: Mini-Mini

e.g., retrenchment, liquidation, or joint venture to minimize both weaknesses and threats.

Decision Making

• It is defined as the selection of a course of action from among alternatives; it is at the core of planning.

• A plan cannot be said to exist unless a decision–a commitment of resources, direction, or reputation–has been made.

• Managers sometime see decision making as their central job because they must constantly choose what is to be done, who is to do it, and when, where, and occasionally even how it will be done.

Managerial Functions and the Managerial Functions and the Organizational HierarchyOrganizational Hierarchy

Four-step Decision Making Four-step Decision Making ModelModel

Step 1Identify the need for a decision (for example: based on vision, problem, or

opportunity

Step 2Develop

alternative responses to choose from

(possible courses of actions)

Step 4

Implement chosen alternative

Step 3Choose

appropriate alternative (based on situation)

CONSIDERATIONS IN MAKING DECISIONS

1. Consider limiting factors - something that stand in the way of accomplishing a desired objective. The principle of the limiting factor states that by recognizing and overcoming those factors that stand critically in the way of a goal, the best alternative course of action can be selected.

2. In evaluation of alternatives, several methodologies and applications and analysis may be applied. These include: Advantages/ Disadvantages Strengths/ Weaknesses Cost-Benefit Analysis (C.B.A.) Decision Trees

CONSIDERATIONS IN MAKING DECISIONS

3. In choosing appropriate alternative, three approaches may be used:

Bases for selecting from among alternative courses of action

Experimentation

Reliance on the past

How to select from among

alternatives?Choice made

Research and analysis

DECISION MAKING UNDER CERTAINTY, UNCERTAINTY, AND

RISK1. Certainty• In a situation involving certainty, people are reasonably sure about

what will happen when they make a decision. The information is reliable and is considered to be reliable, and the cause and effect relationships are known.

2. Uncertainty• In a situation of uncertainty, people have only a meager database, they

do not know whether or not the data are reliable, and they very unsure about whether or not the situation may change.

3. Risk• In a situation with risks, factual information may exist, but it may be

incomplete. To improve decision making, one may estimate the objective probability of an outcome (by using for example, mathematical models) and the subjective probability (based on judgment and experience).

CONTINGENCY PLANNING

• Contingency plans set out in advance how managers will respond to possible future events that could disrupt the organization’s existing plans.

• Plans that managers hope will never need to be implemented.

• One thing to consider is to monitor the potential sources of crises. Crises – events that have a major effect on the ability of an organization’s members to carry on their daily tasks – are the most intense type of contingency (i.e. earthquake, flood, computer virus, strikes).

CONTINGENCY PLANNING

To limit the impact of such a crisis, managers can:

1.Perform preventive work to avoid or minimize the effect of crisis.

2.Prepare for a crisis by assembling information and defining responsibilities and procedures that will be helpful in a time of crisis.

3.Make a timely response to a crisis.

References : Management - A Global Perspective by Weihrich and Koontz 11th Edition

Management by Dyck and Neubert

• Materials used are of Original Copyright of

Prof. Emilia. S. Bio, P.I.E.,IE-EMG Dept.

• Revisions made by

EMG20/B1; 1st Qtr. S.Y.2014-2015

Estacio, Gino JamesGandeza Raymart T.