Business Economics UNIT 5 VF

10/26/2022
Unit 5
PLANNING AND CONTROLLING

Business Economics
Prof. Raquel Puente Castro
Ph.D.
INDEX
CONTENTS
1. Planning and goal settings
2. Strategic planning
3. What is controlling and why is it important?
4. Tools for measuring organizational performance
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What is planning?
What do you think about planning?

▪ Planning is the process of thinking regarding the activities required to
achieve a desired goal. Planning is based on foresight, the
fundamental capacity for mental time travel.
▪ “Planning means the determination of what is to be done, how it is to

be done, who is to do it, and how results are evaluated.” James Lundy
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What is planning?
▪ Management function that involves setting goals,

establishing strategies for achieving goals, and
developing plans to integrate and coordinate work
activities.
▪ Planning is the primary function of management.
▪ It specifies the objectives to be achieved in the future
and selects the best course of action to achieve
defined objectives.
▪ It involves many activities like analyzing and deciding
about technical, personnel, financial, and other
elements essential to implement the predetermined
course of action.

Why Do Managers Plan?
Objective of planning
▪ Provides direction
▪ Reduces uncertainty / Anticipates the unpredictable
contingencies
▪ Minimizes waste and redundancy /Economy in
operation
▪ Establishes the goals and standards for controlling
▪ Bring cooperation and coordination
▪ Achieving the pre-determined goals
▪ It facilitates handling competition
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Planning and Performance
Is planning worthwhile?
• Formal planning is associated with positive financial results

(higher profits, higher return on assets, … )
• Doing a good job planning and implementing those
plans play a bigger part in high performance than
how much planning is done.
• The impact planning has on an organization’s performance
could be reduced by external forces (governmental
regulations or powerful labor unions)
• The planning-performance relationship seems to be
influenced by the planning time frame. At least four years
of formal planning is required before it begins to affect
performance.
7

Goals and plans
Goals (objectives)
• Are desired outcomes or targets.
• They guide management decisions and form the criteria against which work results
are measured.
• They are described as the essential elements of planning.
Plans
• Are documents that outline how goals are going to be met.
• They usually include resource allocations, schedules and other necessary actions
to accomplish the goals.
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Types of goals
Stated goals
Oﬃcial statements of what an organization says and what it wants

its various stakeholders to believe, its goals are:
✓ Financial: are related to the financial

performance of the organization To increase
the earnings per share from 10 percent to 15
percent
✓ Strategic: related to other areas of an
organization’s performance To asure that
no child goes to be hungry

Goals and plans
Real goals
Goals that an organization pursues, as defined by the actions of its
members. To know them, you just must observe that
organizational members are doing.
US Universities normally say that

their goal is limiting class sizes,
actively involving students in their
learning process, and afterwards,
some of them, they put more
than 300 students in a lecture
class.
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Types of plans
Exhibit 8-1 shows the most popular ways to describe organizational plans.
11

Types of plans
1. BREADTH
▪ Strategic plans
✓ Plans that apply to the entire organization
✓ Establish the organization’s overall goals
▪ Operational plans
✓ Plans that encompass a particular operational area of the
organization
✓ Normally before new products and business units to
support the strategic plans
12
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Types of plans
2. TIME FRAME
▪ Long-term plans
✓ Those plans with a time frame beyond three years
▪ Short-term plans
✓ Those plans that cover one year or less
✓ Any time period in between will be an intermediate plan
✓ Although these are the usual ones, any type of time frame will be
fairly accepted
13

Types of plans
3. SPECIFICITY
▪ Specific plans
✓ Plans that are clearly defined and leave no room for interpretation
✓ State its objectives in a way that eliminates ambiguity and
problems with misunderstanding
▪ Directional plans
✓ Plans that are flexible and set our general guidelines
✓ Provide focus but don’t lock managers into specific goals or courses
of action
14
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Types of plans
4. FREQUENCY OF USE
▪ Single use plans

✓ Is 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
15

Approaches to Setting Goals
Traditional goal-setting
▪ An approach to setting goals in which top managers set

goals that then flow down through the organization and
become subgoals for each organizational area.
▪ It assumes that top managers know what’s best because they
see the “big picture”
▪ Problems:
✓ Turning broad strategic goals into departmental, team
and individual goals can a diﬃcult and frustrating
process
✓ When top managers define the organization’s goals in
broad terms, these ambiguous goals have to be made
more specific as they flow down
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Traditional goal-setting
17
Source: Robbins Coulter. Management Fourteenth Edition. Pearson 2018 Exhibit 8-2 illustrates what can happen as the goals make their way down
from the top of the organization to lower levels.

Means-ends chain
▪ An integrated network of goals

▪ The goals achieved at lower levels
become the means to reach the goals
(ends) at the next level
▪ The accomplishment of goals at that
level becomes the means to achieve the
goals (ends) at the next level
18
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Management by objectives
(MBO): Source: Robbins Coulter. Management Fourteenth
Edition. Pearson 2018 Exhibit 8-3
Steps in MBO
▪ A process of setting mutually

agreed upon goals and using those Step 1: The organization’s overall objectives and strategies are
goals to evaluate employee formulated.
performance Step 2: Major objectives are allocated among divisional and
departmental units.
Step 3: Unit managers collaboratively set specific objectives for
▪ They have four elements: their units with their managers.
✓ Goal specificity Step 4: Specific objectives are collaboratively set with all
✓ Participative decision making department members.
✓ Explicit time period Step 5: Action plans, defining how objectives are to be achieved, are
specified and agreed upon by managers and employees.
✓ Performance feedback
Step 6: The action plans are implemented.
Step 7: Progress toward objectives is periodically reviewed, and

▪ Goals are not only used to make sure feedback is provided.
employees do what they must do but
Step 8: Successful achievement of objectives is reinforced by
also to motivate employees performance-based rewards.
19

CHARACTERISTICS OF WELL-WRITTEN GOALS
Characteristics
Written in terms of outcomes rather than actions
Measurable and quantifiable
Clear as to a time frame
Challenging yet attainable
Written down
Communicated to all necessary organizational members
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Source: Robbins Coulter. Management Fourteenth Edition. Pearson 2018
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Steps in Goal-Setting
1. Review the organization’s mission, or purpose.
2. Evaluate available resources.
3. Determine the goals individually or with input from others.
4. Write down the goals and communicate them to all who need to know.
5. Review results and whether goals are being met.
21

Activity
Working on goals
• In groups of three to four individuals, students tackle planning and goal-

setting for something they would like to accomplish in the future.
• Students should refer to Exhibit 8-4 when creating their goals in

writing.
• Remember goals associated with the plans should be specific,

achievable, and measurable.
IMPORTANT: Save this activity-goal.

We will need it later for another
activity.
22
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Approaches to Planning
Traditional approach
• Planning is entirely done by top-level

managers who often are assisted by a “formal
planning department” (group of of planning
specials whose sole responsibility is to seek
write the various organizational plans)
• Plans flow down through other organizational
levels
• As they go down, they are tailored to the
particular needs of each level
• “Plans are documents the you prepare for the
corporate planning stuff and later forget”
• It can be effective if managers create
documents that do not only look impressive
but are understandable
23

Approaches to Planning
Involving approach
• Involve more organizational members in the process

• Plans are developed by organizational members at
the various levels and in the various work units to
meet their specific needs
• When members are involved in this process, they
see plans are more than just something written
down on paper
• They see that plans are used in directing and
coordinating work
24
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How Can Managers Plan Effectively in
Dynamic Environments?
• Develop plans that are specific but flexible

• Keep planning even when the environment is
uncertain
• Allow lower organizational levels to set goals
and develop plans
25
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What is strategic management?
Strategic Management
▪ SM is what managers do to develop the organization’s strategies.
▪ SM involves all the basic management functions (planning, organizing, leading and controlling)
Organization’s strategies
▪ They’re plans for how the organization will do whatever it’s in business to do , how it will compete
successfully and how it will attract and satisfy its customers in order to achieve its goals
Business Model
▪ It is how a company is going to make money. It focuses on:
✓ Whether customers will value what the company is providing
✓ Whether the company can make money doing that
✓ “Economic viability of their company’s business model”
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Why is strategic management important?
There are three reasons:
1) It can make a difference in how well an organization

performs. It appears that organizations that use strategic
management do have higher levels of performance
2) Helps managers decide how to act in face of change and

uncertainty. They use strategic management to examine
relevant factors and decide what actions to take, in order to
cope uncertainty
3) Helps complex and diverse organizations work together Each

part needs to work together toward achieving organization’s
goals, strategic management helps to do this.
It is used by both business organizations and

non-for-profit organizations
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The strategic management process
Source: Robbins Coulter. Management Fourteenth Edition. Pearson 2018. Exhibit 9-1 illustrates the six-step 29
process of strategic management, which encompasses strategy planning, implementation, and evaluation
The strategic management process
Three main types of ▪ How effective have

strategies managers will strategies been at helping
formulate: the organization achieve its
1. Corporate goals
2. Competitive ▪ What adjustments are
3. Functional No matter how effectively an necessary?
organization has planned its
strategies, performance will
suffer if the strategies aren’t
implemented properly.
30
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Types of Organizational Strategies
Source: Robbins Coulter. Management Fourteenth Edition. Pearson 2018. Exhibit

9-3 shows the three types of strategies organizations use: corporate, competitive, 31
and functional.
Corporate strategies
• It is one that determines what businesses a

company is in or wants to be in and what it
wants to do with those businesses
• It is based on the mission and goals of the
organization and the roles that each
business unit of the organization will play.
• There are three types of Corporate
strategies:
✓ Growth Strategy
✓ Stability Strategy
✓ Renewal Strategy
32
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Growth strategy
▪ It is a strategy that’s used when an organization

wants to expand the number of markets served or
products offered, either through its current
business (es) or through new ones
▪ Consequences: increasing revenues, number of
employees or market share
▪ The Growth Strategy include four types:
✓ Concentration
✓ Vertical integration
✓ Horizontal integration
✓ Diversification
33
Growth strategy
▪ Use of concentration: focus on its primary line of

business and increases the number of products
offered or markets served in this primary business
▪ Use of vertical integration: either backward,
forward or both
✓ Backward: the organization becomes its own
supplier so it can control its inputs
✓ Forward: the organization becomes its own
distributor and is able to control its output
▪ Use of horizontal integration: a company grows by
combining with competitors.
▪ Use of diversification: either related or unrelated
✓ Related: happens when a company combines
with other companies in different, but
related, industries
✓ Unrelated: happens when a company
combines with firms in different and 34
unrelated industries
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Growth strategy -
Tool
35
Stability strategy Renewal strategy
▪ It is a corporate strategy in which an ▪ It is a corporate strategy that addresses

organization continues to do what is declining performance of a company
currently doing. ▪ Retrenchment strategy:
✓ Short-run renewal strategy used for
✓ Serving the same clients minor performance problems
✓ Offering the same products or ✓ Helps the organization stabilize
service operations, revitalize organizational
✓ Maintaining market share resources and capabilities and prepare
✓ Sustaining the organization’s to compete again
current business operations ▪ Turnaround strategy:
✓ The organization doesn’t grow,
but doesn’t fall behind, either. ✓ It is a drastic action for more serious
problems of the organization
Cutting costs
Restructure organizational operations
36
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Competitive strategies
Competitive strategy
▪ Competitive strategy is an organizational strategy for how an organization will

compete in its business(es)
▪ There are four types according with Porter:

✓ Cost leadership strategy
✓ Differentiation strategy
✓ Focus strategy
✓ Stuck in the middle
▪ There are four types based on its market share:

✓ Market Leader
✓ Market Challenger
✓ Market Follower
✓ Market Niches
37
Porter´s Generic Strategies
https://www.statista.com/statistics/2697
03/global-market-share-held-by-pc-
vendors-since-the-1st-quarter-2009/
https://www.youtube.com/w
atch?v=1u3mczy61J8 38
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Competitive Positions Strategies
39
Another Competitive Strategies: Strategic business unit (SBU)
▪ The single independent businesses of an

organization that formulate their own
competitive strategies
▪ When SBU-level strategy is adopted by large
organizations, they form independent
departments that are fully functional and
manage specific areas or products.
40
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How Are Corporate Strategies Managed?
BCG matrix / Tool:
▪ A strategy tool that guides resource

allocation decisions based on market
share and growth rate of SBUs
✓ Stars
✓ Cash cows
✓ Question marks
✓ Dogs
41
The Need for Strategic Flexibility
Strategic flexibility
The ability to recognize major

Technique
external changes, to quickly
commit resources, and to Encourage leadership unity by making sure everyone is on the same
recognize when a strategic page.
decision was a mistake Keep resources fluid and move them as circumstances warrant.
Have the right mindset to explore and understand issues and
challenges.
Know what’s happening with strategies currently being used by
monitoring and measuring results.
Encourage employees to be open about disclosing and sharing
negative
information.
Get new ideas and perspectives from outside the organization.
Have multiple alternatives when making strategic decisions. 42
Source: Robbins Coulter. Management
Fourteenth Edition. Pearson 2018 Learn from mistakes.
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Activity
BCG and Ansoff
▪ In groups of three to four individuals, students will

choose a business well known to them.
▪ Then, they will design the BCG Matrix, assigning at

least one product in each quadrant.
▪ They will also design the Ansoff Matrix, selecting

only one strategy for growth. The example must be
specific.
▪ After 10 minutes, the students will share their work

with everybody.
43
3. Controlling
44
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Controlling
▪ It’s the process of monitoring, comparing, and
correcting work performance.
▪ All managers should control even if their units are
performing as planned because they can’t know unless
they’ve evaluated what activities have been done and
compared actual performance against the desired
standard.
▪ Effective control ensures that all activities are
completed in ways that lead to the attainment of
goals.
“If you can’t measure it,

you can’t improve it.”
Drucker
Kaplan & Norton 45

Why Is Control So Important?
▪ Planning: If managers do not control, they’d have no way of knowing

whether their goals and plans are being achieved and what future
action to take
▪ Empowering employees: Controlling can provide information and
feedback on employee performance and minimize the change of
potential problems
▪ Protecting the workplace: Comprehensive controls and backup plans
will help assure the minimal loss of assets
Kaplan & Norton 46
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The POLC business cycle
Source: Robbins Coulter. Management Fourteenth Edition. Pearson 47

2018. Exhibit 18-1 shows shows how controlling provides a critical link
back to planning.

The control process
The three-step process of measuring actual performance, comparing actual performance against a
standard and taking managerial action to correct deviations or inadequate standards
Source: Robbins Coulter. Management Fourteenth Edition. Pearson 2018. 48

Exhibit 18-2 illustrates the three-step control process.
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The control process: Types of control
What is Organizational Performance?
▪ Performance: the result of an activity

▪ Organizational performance: the accumulated results of all the
organization’s work activities
Source: Robbins Coulter. Management Fourteenth

Edition. Pearson 2018. Exhibit 18-9 shows the three
kinds of control 49

The control process: Measuring actual performance
How we measure?
Four approaches are used to measure and report actual performance.
Method Benefits Drawbacks

Personal -Get firsthand knowledge -Subject to personal
Observations -Information isn’t filtered biases -Time-consuming
-Intensive coverage of -Obtrusive
work activities
Statistical -Easy to visualize -Provide limited
Reports -Effective for showing information -Ignore
relationships subjective factors
Oral Reports -Fast way to get -Information is filtered
information -Information can’t be
-Allow for verbal and documented
nonverbal feedback
Written Reports -Comprehensive -Take more time to
Source: Robbins Coulter. Management
Fourteenth Edition. Pearson 2018 -Formal prepare 50
-Easy to file and retrieve
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What we measure?
▪ Business metrics are quantifiable measures that track and assess the status of a
specific business process.
▪ You should focus on specific metrics depending on your business and your goals. These
include marketing metrics, sales metrics, accounting and financial metrics, and online
metrics.
▪ The business metrics are well-known as KPI´s.
Metrics Business Examples

Productivity: the number of goods or
services produced divided by the inputs
needed to generate that output
Organizational effectiveness: a measure of
how appropriate organizational goals are
and how well those goals are being met
51

What we measure?
▪ Key performance indicators (KPIs) measure a

company's success versus a set of targets, objectives,
or industry peers.
▪ KPIs can be financial, including net profit (or the
bottom line, gross profit margin), revenues minus
certain expenses, or the current ratio (liquidity and
cash availability).
▪ Customer-focused KPIs generally center on per-
customer efficiency, customer satisfaction, and
customer retention.
▪ Process-focused KPIs aim to measure and monitor
operational performance across the organization.
▪ Businesses measure and track KPIs through business
analytics software and reporting tools.
https://www.investopedia.com/terms/k/kpi.asp
52
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Popular Financial Ratios Source: Robbins Coulter.

Management Fourteenth Edition.
Pearson 2018
Objective Ratio Calculation Meaning

Liquidity Current ratio Current assets Tests the organization’s ability to meet short-
Current liabilities term obligations
Liquidity Acid test Current assets less inventories Tests liquidity more accurately when inventories
Current liabilities turn over slowly or are difficult to sell
Leverage Debt to assets Total debt The higher the ratio, the more leveraged the
Total assets organization
Leverage Times interest Profits before interest/taxes Measures how many times the organization can
earned Total interest charges meet its interest expenses
Activity Inventory Sales The higher the ratio, the more efficiently
turnover Inventory inventory assets are used
Activity Total asset Sales The fewer assets used to achieve a given level of
turnover Total Assets sales, the more efficiently management uses the
organization’s total assets
Profitability Profit margin on Net profit after taxes Identifies the profits that are generated
sales Total sales
Profitability Return on Net profit after taxes Measures the efficiency of assets to generate
investment Total assets profits 53

The control process: Comparing Actual Performance
Against the Standard
Range of variation
Although some variation in performance can
be expected in all activities, it’s critical to The acceptable parameters of variance
determine an acceptable range of variation. between actual performance and the
standard
Product Standard Actual Over (Under)

Vegetable plants 1,075 913 (162)
Perennial flowers 630 634 4
Annual flowers 800 912 112
Herbs 160 140 (20)
Flowering bulbs 170 286 116
Flowering bushes 225 220 (5)
Source: Robbins Coulter. Management Heirloom seeds 540 672 54 132
Fourteenth Edition. Pearson 2018
Total 3,600 3,777 177
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The control process: Taking Managerial Action
1. Do nothing
2. Correct the actual performance: depending on
the problem, a manager can take different
Managers can choose among corrective actions:
three possible courses of ✓ Immediate corrective actions, correct
action: problems at once to get performance back
on track
✓ Basic corrective actions, look at how and why
performance deviated before correcting the
source of deviation
3. Revise standards: it’s possible that the variance was a
result of an unrealistic standard (too low or too high a
goal). In that situation, the standard needs the
corrective action, not the performance
55

The control process: Taking Managerial Action
Source: Robbins Coulter. Management Fourteenth Edition. 56

Pearson 2018. Exhibit 18-6 summarizes the decisions a
manager makes in controlling
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57

Information Controls
How is the information used in controlling?

Managers need the correct information at the right time and in the right amount to
monitor and measure organizational activities and performance.
Management information system (MIS)

▪ It is a system used to provide managers with needed information regularly.
▪ §It provides managers with processed and analyzed data.
Controlling information
▪ Because information is critically important to everything an
organization does, managers must have comprehensive and
secure controls in place to protect that information.
▪ Such controls can range from data encryption to system

firewalls to data back-ups 58
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Balanced Scorecard
• It is a way to evaluate organizational performance from more than just the
financial perspective.
• It typically looks at four areas that contribute to a company's performance:
financial, customer, internal processes, and people/innovation/growth assets
• Managers should develop in all four of them, but they generally focus on areas that drive
their organization's success and use scorecards that reflect their strategy
https://www.youtube.com/watch?v=zf-d-O7hVhM 59

Benchmarking of Best Practices
Searching for the best practices among competitors or non-competitors
leads to superior performance.
https://www.youtube.com/watch?v=lOohWcE2rCg
60
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Activity
▪ Do you remember the activity of setting goals for something you would
like to achieve in the future? Please return to that goal result.
▪ And now, in groups of three to four people, students must design

metrics to assess their goals—at least two metrics for each goal.
61
Raquel Puente Castro

rpuente@ucam.edu
UCAM Universidad Católica de Murcia
© UCAM
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10/26/2022

PLANNING AND CONTROLLING

Prof. Raquel Puente Castro

1. Planning and goal settings

1. Planning and goal settings

What do you think about planning?

▪ “Planning means the determination of what is to be done, how it is to

1. Planning and goal settings

▪ Management function that involves setting goals,

1. Planning and goal settings

1. Planning and goal settings

• Formal planning is associated with positive financial results

1. Planning and goal settings

1. Planning and goal settings

Oﬃcial statements of what an organization says and what it wants

✓ Financial: are related to the financial

1. Planning and goal settings

US Universities normally say that

1. Planning and goal settings

1. Planning and goal settings

1. Planning and goal settings

1. Planning and goal settings

1. Planning and goal settings

▪ Single use plans

1. Planning and goal settings

▪ An approach to setting goals in which top managers set

1. Planning and goal settings

1. Planning and goal settings

▪ An integrated network of goals

1. Planning and goal settings

▪ A process of setting mutually

Step 7: Progress toward objectives is periodically reviewed, and

1. Planning and goal settings

CHARACTERISTICS OF WELL-WRITTEN GOALS

Written in terms of outcomes rather than actions

Measurable and quantifiable

Clear as to a time frame

Challenging yet attainable

Communicated to all necessary organizational members

1. Planning and goal settings

1. Review the organization’s mission, or purpose.

2. Evaluate available resources.

3. Determine the goals individually or with input from others.

5. Review results and whether goals are being met.

1. Planning and goal settings

• In groups of three to four individuals, students tackle planning and goal-

• Students should refer to Exhibit 8-4 when creating their goals in

• Remember goals associated with the plans should be specific,

IMPORTANT: Save this activity-goal.

1. Planning and goal settings

• Planning is entirely done by top-level

1. Planning and goal settings

• Involve more organizational members in the process

1. Planning and goal settings

• Develop plans that are specific but flexible

There are three reasons:

1) It can make a difference in how well an organization

2) Helps managers decide how to act in face of change and

3) Helps complex and diverse organizations work together Each

It is used by both business organizations and

Three main types of ▪ How effective have

Source: Robbins Coulter. Management Fourteenth Edition. Pearson 2018. Exhibit

• It is one that determines what businesses a