Essentials of Planning
Take hold of the future or the future will take hold of you
Definition: 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)
Implementation Of plans
Controlling: Comparing plans with results
No undesirable deviation
The close relationship of planning and controlling (Siamese Twins)
1.Vision CSR 2. Mission 3. Overall objectives (long and short range) 4. More specific overall objectives KRA (key results area) 5. Division objectives 6. Department and unit objectives 7. Individual objectives – performance & personal development
Board of Directors
Top level managers
m tto Bo
Middle level managers
oa c h
Lower level managers
Hierarchy of objectives – Objectives and organizational hierarchy
Methods 4. Rules
Short term Day to day plan
Classification of Plans
.Programs 2. Product & Project plans
1. Projects 3.Financial & Non-financial 2.Type of Plans
Frequency of use
Long term Master plan >5 yrs Medium term < 3 yrs crisis mgmt
1.Policies 2. Procedures 3.Budgets
Board of Directors.The Hierarchy of Plans
Founders. Top Managers Top and Middle Managers Mission Statement
Responsible for implementation
Middle and Frontline Managers
Planning – Importance and Limitations
• • • • • • • • • • 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
• • • • • • • Lack of accurate information Time consuming process Expensive Inflexibility Environmental constraints False sense of security Capital invested in fixed assets limits planning
coordinate different action plans. future oriented and involves forecasting • Involves choosing among alternatives • Planning and control are inseparable and has limitations
. Should be able to convert problems into opportunity. (Rise of the crane gang – Chandrakant and Anil Sanghvi) • Goal oriented • Dynamic (flexible).Characteristics of Planning
• Primary function of management • Intellectual process (translating knowledge and information into road map of action. dynamic).
competition. hire & train workers. Operating & Capital expenses contingencies Plan implementation and review
Steps in Planning-The planning process
. Self strengths and weaknesses (Balaji films)
Pitching alternatives in consonance with goals
Best chance of meeting goals with lowest Cost and highest profits
Choosing an alternative Setting goals & objectives
Where. Customer preference.Being aware of the opportunities
(Environmental scanning) Market. develop new product
Quantify plans with budgets Identifying alternatives
Most promising alternative from the menu of options Budgets for volume & price of sales. when and what? Selecting the optimal path
Formulating supporting plans Considering planning premises
In what environment – internal or external – will the plan operate Equipment & material purchase.
There are verifiable (achieve ROI of 12% at the end of the FY) and nonverifiable (to develop better managers) • All organizations have multiple objectives. They provide the direction for all management decisions and form the criterion against which actual accomplishments are measured. (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. or the entire organizations.Objectives: The Foundation of Planning
• Objectives are goals and desired outcomes for individuals. groups. promises of automobile service center)
.(Number of students in a class.
Planning and Strategic Management
• Alfred D Chandler defined ‘strategy’ as the determination of the basic long-term goals and objectives of an enterprise.
. 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. and the adoption of courses of action and the allocation of resources necessary for carrying out these goals’. • In 1978.
Strategic Management Process
Goal Setting Mission / Vision statement Strategy Formulation
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?
• • • •
. mission.Strategic Planning
Strategic planning involves analysis and development of the organizations vision.overall goals. general strategies and allocation of resources. It produces fundamental decisions and actions that shape and guide the direction of the entire organization.
For operational plans. are stated in relatively finer details
.Strategic and Operational Plans differ in three major ways
• Time Horizons: Strategic plans tend to look ahead several years or even decades. 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. whereas operational plans have a narrow and more limited scope. • Scope: Strategic plans affect a wide range of organizational activities. a year is generally a relevant period. Operational plans as derivatives.
attitudes and valued behaviors – the way things are done here) Set strategies that would give the organization a competitive advantage
. beliefs.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
• • • • Analyze the external environment Reassess the organizations resources Carry out SWOT analysis Look at the Organization’s culture (its values.
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
. promote or even lay off. select. discipline.The Strategic Implementation Process
Implementing Strategies Successful strategies require properly matched organization structure. Need to recruit. re-engineer if needed New strategies would need people with different skills. transfer. train.
Strategic Planning Process Model
I N D U S T R Y A N A L Y S I S •Executive Orientation: •Values •Vision Present & Future external Threats & opportunities
Inputs: •People •Capital •Mgmt skills •Tech skills •Others Goals of Stakeholders: •Employees •Consumers •Suppliers •Stockholders •Governments •Community •others
E V A L U A T I O N &
Medium & Short range planning
Development of alternate strategies
•Mission •Major objectives •Strategic intent
Internal Strengths & weakness
S T R A T E G I C C H O I C E
L E A D E R S H I P & C O N T R O L
•Reengineering •Org. restructure •staffing •Consistency testing •Contingency planning
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. • TOWS Matrix is increasingly used these days for planning mergers. problem. or threat. joint ventures and alliances.
. 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. acquisitions.
utilizing and social changes. new the organizations strength to products. services and access opportunities technology
WO strategy Mini-Maxi Development strategy to overcome weaknesses in order to take advantage of opportunities
External threats (T) ST Strategy Maxi-Mini Energy shortage. liquidation or joint venture to minimize both weaknesses and threats
. political successful strategy. Use strengths to cope with and areas similar to those threats or to avoid threats shown in opportunities
WT strategy Mini-Mini Retrenchment. operations.TOWS Matrix for Strategy Formulations
Internal Strengths (S) Strengths in management. competition. marketing. engineering Internal weakness (W) Weaknesses in areas shown in the ‘strengths’ box
External opportunities (O) SO Strategy: Maxi–Maxi & risk eg. research and development. current & future Potentially the most economic conditions. finance.
Boston Portfolio Matrix for allocation of Resources
Business growth rate
Stars Question (Have opportunities Marks for growth& profit) (Need investment) Cash Cows (well established in the market)
Dogs (Should be closed down)
Relative competition (Market Share)
Strategic Management -Three Tier Strategy and their Operational Plans
Strategic Business Unit
Strategic Business Unit
Strategic Business Unit
Research & Development Operational Plans Corporate level
Production / Operation Operational Plans
Marketing Operational Plans
Finance Operational Plans
Business unit level
neglecting any one of the key factors could make the effort to change a slow.Structure Strategy Systems
Super-ordinate Goals Skills
The Seven S Model (McKinsey & Co) for Strategy Implementation. painful and even a doomed process
Forecasting & Benchmarking) and Techniques
1. 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
. DISK. Environmental Scanning: To anticipate and interpret changes in the environment (Insurance needs for DINK.Planning Tools (Scanning.
. changes in the social. magnetic tapes. Two types of forecasting 1. Technological: Changes in technology and the timeframe when they are likely to be economically viable. What revenue patterns evolved over the years. Consumers still want to listen to music but on their preferred medium. digital tape etc). Forecasting
Information obtained from scanning is used to develop scenarios as basis for forecasting. Revenue: Crucial and is based of historical data and environment scan. (Case of technology in music retail – vinyl discs. economic and political patterns might impact the revenue generation 2.
substitution effect etc) to predict future outcome • Qualitative forecasting uses judgment and opinion of knowledgeable people to predict future outcome
. economic models & indicators. regression methods.Forecasting Technique
Two types of forecasting techniques: • Quantitative forecasting puts a series of historical data to mathematical scrutiny (time series analysis.
compare every forecast with “no change”. 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
. unusual occurrence.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. discontinued operations etc • Five cardinal points: keep the technique simple.do not rely on single model – try a few and average them.
It is a very specific form of environment scanning. (Case of Xerox and their Japan experience of efficiency). 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
• • • •
.3. Four step process: Formation of a benchmarking planning team to identify what is to benchmarked. Benchmarking
Benchmarking is the search for the best practices in the market that lead to superior performance.
3. Link benchmarking efforts to strategies Right sized team (6 to 8 people most effective) Involve those employees to be directly affected by BM Focus specific and target issues not on broad & generic Set realistic timetables Choose benchmarking targets carefully Observe appropriate protocol. contact the right person Do not collect unnecessary and excessive data Look at the process behind the information Identify benchmarking targets and then act
. 7. 2. 6. 10. 8. 9. 5. 4.Suggestions for Benchmarking Efforts
for budgets to be prepared for improving time and space and use of material resources. though. It is not unusual. help formulate.
. regardless of organizational level. • Budgets are one planning device that most managers. expenses and large capital expenditure such as machinery and equipment.Budgets
• A budget is a numerical plan for allocating resources to specific activities. Managers typically prepare budgets for revenues.
to keep on top important capital projects. • Profit Budgets: profit budgets combine revenue and expense budgets into one. • Capital Expenditure Budget: investments in property. material and some admin expenses vary with volume. • Variable budgets: Most organizations are not able to predict the volume accurately. buildings and major equipment are called capital expenditure. They are taken care in the variable budgets
. They allow management to forecast future capital requirements. A number of costs such as labor.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. 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.
Only incremental changes in the budget are reviewed. activities that are being immortalized. ZBS shifts the burden of proof on the manager why he should get any budget at all
. using that a a reference point. (a) Funds are allocated to units.Approaches to Budgeting
• Incremental Budgets: It has two specific characteristics. The managers then allocate funds to activities they see fit. Zero Based Budget: It is designed to overcome the second draw back of the incremental budget. (b) An incremental budget is based on previous budget.
.Processes in the ZBB
• Each discrete departmental activity is separated into a decision package. they are forwarded to the top executives who determines how much and where to spend. • The decision package is a document that identifies and describes a specific activity. • Once department managers have completed the decision packages. • 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.
Step 1 Activity A Decision Package A Decision Package B Decision Package C Decision Package D Decision Package E 1
Step 2 C
Activity B Activity C
2 3 4
E C B A A B D E
D Ranking decision Packages Allocation of Resources
Breakdown of Activities Into decision Packages
Operational Planning Tools
• • • • • • • • • Scheduling The GNATT Charts / Load Charts Breakeven Analysis PERT Network Analysis Linear Programming Queuing Theory Probability Theory Marginal Analysis Simulation
• The majority of manager’s time is spent on responding to requests. • The portion that is under manager’s control is called the “Discretionary Time” and is manageable.Time Management
• Time is a unique resource. it can neither be stockpiled not lost time retrieved. demands and problems initiated by others (Response Time) and the manager has very little control on this.
5. 2. Schedule your activities according to the priorities you have set. List your objectives Rank objectives according to their importance List the activities necessary to achieve your objectives For each objective.Time Management Steps
. 3. 4. assign priorities to the various activities required to reach the objective.
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
participatory decision making. The overall objectives are translated into specific objectives for each succeeding level in the organization and is therefore. then their unit’s goals will be attained and so on up the chain until the organization’s overall objectives become a reality
. an explicit timeframe and performance feedback. participatory and two way osmosis process.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. If the individuals achieve their goals.
We need to improve the Organization’s performance
Improvement in division’s profit Profit rise regardless of means
Department’s Manager Work fast. regardless of quality
Traditional objective Setting.
Organization’s overall objectives and strategies are formulated Major objectives are allocated amongst the divisional and departmental heads Unit managers collaboratively set specific objectives for their units with their superiors Specific objectives are set for all department members Action plans for objectives are discussed. 7. 2.Steps in a Typical MBO Program
1. 5. 3. specified and agreed upon by the managers and staff Action plans are implemented Progress towards objectives is periodically reviewed and feedback provided Successful achievement of objectives is reinforced by performance based rewards
. 4. 8. 6. fine-tuned.
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
• • • • •
• Failure to educate employees about MBO philosophy Effective management • Goal setters not provided with Clarity of organizational action adequate guidelines Encouraging commitment for • Difficulty in setting appropriate goals attainment of organizational goals that are optimum and measurable Professional satisfaction • Establishment of easily attainable goals Establishment of effective control • 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
Higher internal work motivation Higher growth satisfaction
Higher general job satisfaction Higher work effectiveness
Feedback from the job
MBO is most effective if the goals are difficult enough to require to persons to stretch
.Core job characteristics
Critical psychological states
Skill variety Task identity Task significance
Experienced meaningfulness of the work Experienced responsibility for the outcome of the work Knowledge of the actual results of the work activities Moderators
1. Growth need strength 3. Knowledge and skills 2.
Well designed incentive plans are consistent with an organization’s objectives and structure.Reward System
• Rewards and incentives contribute to strategy implementation by shaping individual and group behavior. Incentive plans should encourage short term or long term decision making. more or less cooperation with other managers and the like.
. greater or lesser risk taking. 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.