Chapter 3 - Planning (PDF)

CHAPTER 3- PLANNING TO SET DIRECTION Planning  Systematic development of action programs aimed at reaching agreed business objectives by the process of analyzing, evaluating and selecting among the opportunities which are foreseen.  Scheme to achieve objective by; ...

CHAPTER 3- PLANNING TO SET DIRECTION Planning  Systematic development of action programs aimed at reaching agreed business objectives by the process of analyzing, evaluating and selecting among the opportunities which are foreseen.  Scheme to achieve objective by;  Deciding where you want to go Deciding how best to go about it Things to keep in mind when planning: - Planning should accomplish as effectively and efficiently as possible the present needs or task while responding to changing conditions. Planning is the foundation of Management Process Achieving Objectives Influencing Organizing Controlling PLANNING Purpose of Planning  Provides direction  Reduces uncertainty  Minimize waste and redundancy  Establishes goals or standards used in controlling Indicators of Good & Poor Planning Indicators of Poor Planning Indicators of Good Planning  Delivery not met  Jobs turned out on time  Machines idle  Good relationship with other  Material wasted departments  Some machines doing jobs  People using their highest that should be done by skills smaller machines  Working knowing how their  Some men overworked, jobs fit into the total pattern other men underworked  Machines doing their proper  Skilled workers doing jobs unskilled work  Equipment in good shape  Men fumbling on jobs for  Materials available which they have not been  Waste kept to a minimum trained  Quarrelling, bickering, buck- passing and confusion Benefits of Planning  More focus and flexibility  Organization with focus – knows what it does best, knows the needs of its customers and knows how to serve them well  Individual with focus – knows where he wants to go in a career or situation and is able to retain that objective even in difficult situation  Organization with flexibility – able to change and adapt to shifting circumstances and operates with and orientation toward the future rather than the past or present  Individual with flexibility – factors into career plans the problems and opportunities posed by new and developing circumstances personal and organizational Continuation….  Action Oriented - avoid the complacency trap of simply being carried along by the flow of events or being distracted by successes or failures of the moment Results orientated – creating a performance-oriented sense of direction Priority oriented – making sure that the most important things get first attention Advantage oriented – ensuring that all resources are used to best advantage Change oriented – anticipating problems and opportunities so they can be dealt best.  Improved Coordination  Better Control  Better Time Management Planning Process  Define your objectives  Determine where you stand vis-à-vis in your objectives  Develop premises regarding future conditions  Analyze possible action alternatives, choose the best among them and decide how to implement  Implement the plan and evaluate the results Goals and Plans in Planning  Goal/s - a.k.a objectives are desired outcomes - guide management decisions and form the criterion against which actual work being done is measured - foundation of planning  Plan/s - documents that outline how goals are to be met - includes resource allocation, schedules and other necessary data to accomplish the goals Types of Goal  Financial Goal  Strategic Goal  Stated Goal  Real Goal Characteristics of Well-designed Goals Characteristics of Well-Designed Goals  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 Types of Plan Types of Plans Frequency of Breadth Time Frame Specificity Use Strategic Long-term Directional Single-Use Operational Short term Specific Standing Approaches to Planning Approaches to Planning  Top-down - top management to lower management level  Bottom-up – initiated from the lower management level and passed up to the top management  Inside-out - focuses on the internal strength; that determine “how” things could be done better  Outside-in – focuses on the external strength – finding opportunity from the environment to pursue it to best advantages  Traditional – performed entirely by the top management Planning Tools & Techniques  Environmental Scanning - gathering and screening of information to anticipate and interpret changes in the environment  Forecasting - predict future environmental situations that might influence the operation of the organization  Benchmarking - search for the best practices among competitors or non-competitors that lead to superior performance Forecasting Methods A. Qualitative Forecasting – uses judgment and opinions of knowledgeable individuals to predict outcomes. Judgmental forecasts – rely on the analysis of subjective inputs obtained from various sources such as consumer surveys, the sales staff, managers and executives and panels of experts. Delphi Method – involves circulating a series of questionnaires among individuals who possess the knowledge and ability to contribute meaningfully. Responses are kept anonymous which tends to encourage honest responses that aim to achieve a consensus forecast. B. Quantitative Forecasting – applies set of  Technique Description Application Qualitative Jury of opinion Combines and Polling the company’s average the opinions human resource of experts managers to predict next year’s college recruitment needs Sales Force Combines estimates Predicting next year’s composition from field sales sales of industrial personnel of lasers customer’s expected purchase Customer Combines estimates Surveying major car Evaluation from established dealers by a car customers’ purchases manufacturer to determine types and quantities of products desired Quantitative Time series Fits a trend line to a Predicting next quarter’s analysis mathematical equation and sales on the basis of 4 projects into future by years of previous sales means of this equations data Regression Predicts one variable on the Seeking factors that will models basis of known or assumed predict a certain level of other variables sales (ex. Price, advertising expenditure, etc.) Economic Uses a set of regression Predicting change in car Models equations to simulate sales as a result of segments of the economy changes in tax law Economic Uses one or more economic Using change in GNP to indicators indicators to predict a future predict discretionary state of the economy income Substitution Uses mathematical formula Predicting the effect of effect to predict how, when and DVD players on the sale under what circumstances a of VHS players new product or technology will replace an existing one Forecast based on Time Series (Historical Data  This approach exemplifies forecasts that use historical or time series, data with the assumption that the future will be like the past A. Forecasting Method for Averaging - Naïve forecasting - Moving Average - Weighted Moving Average - Exponential Smoothing B. Forecasting Method for Trend - Linear Equation Forecasting Method for Averaging  Naïve forecasts – the forecast for any period equals the previous period’s actual value.  Moving Average – technique that averages a number of recent actual values, updated as new values become available. The formula is: n where: A i = refers to the most recent i period n = number of periods (data MAn = i=1 points) in the moving average n Ai = actual value with age I MA = forecast Continuation…  Weighted Moving Average – almost similar to moving average, except that it assigns more weights to the most recent values in a time series WMA = ∑WiAi where: wi = assigned weight for each Ai Ai = actual value with age i Continuation…  Exponential Smoothing – a sophisticated weighted moving averaging method that is still relatively easy to use and understand. Each new forecast is based on the previous forecast plus a percentage of the difference between that forecast and the actual value of the series at that point. That is: Ft =Ft - 1 +α(At - 1 -Ft - 1) Where: Ft = forecast for period t Ft-1 = forecast for period t-1 α = smoothing constant At-1 = actual value for period t-1 Example 3.1 National Mixer Inc., sells can openers. Monthly sales for a seven-month period were as follows: Mont Feb. Mar. Apr. May Jun. Jul. Aug. h Sales 19 18 15 20 18 22 20 (000 units) Forecast September sales volume using each of the following: a. Naïve approach b A five month moving average c A weighted average using 0.60 for August, 0.30 for July and 0.10 for June d. Exponential smoothing with smoothing constant equal to 0.20, and assuming a March forecast of Example 3.2 Given the following data: Period 1 2 3 4 5 No. of 60 65 55 58 64 Complai nts Prepare a forecast for the next period using each of the ff. approaches: a. Naïve approach b. A five month moving average c. A weighted average using 0.60 for period 5, 0.30 for period 4 and 0.10 for period 3 d. Exponential smoothing with smoothing constant equal to 0.20, and assuming a period 2 forecast of 65   Forecasting Method for Trends  The trend component of a time series reflects the effects of any long-term factors on the series. Analysis of trend involves developing an equation that will suitably describe trend (assuming that trend is present in the data. A linear equation in the form: yt =a+bt where: t = specified number of time periods from t=0 b= n ty-  t y a=  y-b t n t -  t 2 yt = forecast for period t a = value of yt at t=0 2 n b = slope of the line Sample Problem 3.3  Calculator sales for a California-based firm over the last 10 weeks are shown in the following table. Determine the equation of the trend line and predict sales for weeks 11 and 12 Week 1 2 3 4 5 6 7 8 9 10 Unit 70 72 72 72 74 74 75 75 77 77 Sales 0 4 0 8 0 2 8 0 0 5 Associative Forecasting Method  The essence of associative technique is the development of an equation that summarizes the effect of predictor variables. The primary method of analysis is known as regression yx =a+bx where: n xy  x y b  n x  ( x ) x = predictor 2 2 (independent) variable yx = predicted (dependent) variable a = value of yx when x=0 a=  y-b x b = slope of the line n Correlation  measures the strength and direction of relationship between two variables n( xy)   x y r [n( x )  ( x) ][n( y )  ( y ) 2 2 2 2 ] Interpretation: +1.00 indicates that changes in one variable are always matched by changes in the other -1.00 indicates that increases in one variable are matched by decreases in the other a correlation close to zero indicate little linear relationship between two variables  Sample Problem 3.4  Healthy Hamburgers has a chain of 12 stores in Northern Illinois. Sales figures and profits for the stores are given (in millions of dollars) in the following table. Obtain a regression line for the data and predict profit for a store assuming sales of $10M Sale 7 2 6 4 14 15 16 12 14 20 15 7 s Profit 0.1 0.10 0.1 0.15 0.2 0.2 0.2 0.2 0.2 0.4 0.3 0.1 5 3 5 7 4 0 7 4 4 7 Techniques for Allocating Resources  Budgeting – process of making a numerical plan for allocating resources to specific activities Cash Budget Expense Budget forecasts cash on lists primary activities and hand and how much Revenue Budget allocate peso amount to each will be needed projects future sales Variable Budget Fixed Budget Takes into account the costs OR Assumes fixed level of sales that vary with volume or production Profit Budget combines revenue and expense budget of various units to determine each unit’s profit contribution Suggestions for Improving Budgeting Collaborate and communicate. Be flexible. Goals should drive budgets – budgets should not determine goals. Coordinate budgeting throughout the organization. Use budgeting/planning software when appropriate Remember that budgets are tools Remember that profits result from smart management, not because you budgeted from them. Continuation….  Scheduling – process of formulating a detailed listing of activities that must be accomplished to attain an objective. It’s detailing what activities to be done, the order in which they are to be completed, who is to do each and when they are to be completed. Two popular scheduling methods are Gantt Chart and PERT-CPM  Breakeven analysis – technique for identifying the point at which total revenue is just sufficient to cover total costs Gantt Charts  A scheduling device developed by Henry Gantt that shows actual and plan output over a period of time.  It is composed of a bar chart with time on the horizontal axis and the resource/activity to be scheduled on the vertical axis.  A scheduling device developed by Henry Gantt that shows actual and plan output over a period of time. It is composed of a bar chart with time on the horizontal axis and the resource/activity to be scheduled on the vertical axis Program Evaluation Review Technique and Critical Path Method (PERT-CPM)  flowchart diagram that depicts the sequence of activities needed to complete a project and the time or cost associated with each activity.  It is the most widely used method for planning and coordinating large-scale projects  using this method managers are able to obtain:  A graphical display of project activities.  An estimate of how long the project will take.  An indication of which activities are the most critical to timely project completion.  An indication of how long any activity can be delayed without lengthening the project. PERT-CPM Procedure: 1. Develop a list of activities that make up the project. 2. Determine the immediate predecessors for each activity in the project. 3. Estimate the completion time for each activity. 4. Draw the project network depicting the activities and immediate predecessors listed in step 1 and 2. 5. Use the project network and the activity time estimates to determine the earliest stat and the earliest finish time for each activity by making a forward pass through the network. The earliest finish time for the last activity in the project identifies the total time required to complete the project. PERT-CPM….. 6. Use the project completion time identified in step 5 as the latest finish time for the last activity and make a backward pass through the network to identify the latest finish time for each activity. 7. Use the difference between the latest start time and the earliest start time for each activity to determine the slack (float) for the activity. 8. Find the activities with zero slack, these are the critical path activities. 9. Use the information from step 5 to 6 to develop the activity schedule for the project Sample Problem 3.5  The owner of the Western Hills Shopping Center is planning to modernize and expand the current 32-business shopping complex. The project is expected to provide room for 8 to 10 new businesses. Financing has been arranged through a private investor. All that remains is for the owner of the shopping center to plan, schedule and complete the expansion project. The table below shows the pertinent information for the project Activit Activity Description Immediat Activity y e Time (in Code Predecess weeks) or A Prepare architectural drawings - 5 B Identify potential new tenants - 6 C Develop prospectus for tenants A 4 D Select contractor A 3 E Prepare building permits A 1 F Obtain approval for building E 4 permits G Perform construction D,F 14 H Finalize contracts with tenants B,C 12 Activity 2 4 6 8 1 1 1 1 1 2 2 2 2 2 3 Description 0 2 4 6 8 0 2 4 6 8 0 Prepare architectural drawings Identify potential new tenants Develop prospectus for tenants Select contractor Prepare building permits Obtain approval for building permits Perform construction CRITICISMS OF PLANNING  Planning may create rigidity  Planning can’t be developed for a dynamic environment  Formal plans can’t replace intuition and creativity  Planning focuses managers’ attention on today’s competition, not on tomorrow’s survival  Formal planning reinforce success, which may lead to failure  Just planning isn’t enough.