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The Basics of
Planning and Project

Management
Chapter Objectives
1. Distinguish among state, effect, and response

uncertainty.
2. Identify and define three types of planning.
3. Write good objectives and discuss the role of
objectives in planning.
4. Describe the four-step management by objectives
(MBO) process and explain how it can foster individual
commitment and motivation.
5. Discuss project planning within the context of the
project life cycle.
Copyright © Houghton Mifflin Company. All rights reserved. Lecture Outline and Line Art Presentation, 6–2
Chapter Objectives (cont’d)
6. Compare and contrast flow charts and Gantt charts,

and discuss the value of PERT networks.
7. Explain how break-even points are calculated.
Coping with Uncertainty
• Planning
• Coping with uncertainty by formulating courses of
action to achieve specified results.
• Three Types of Uncertainty
• State uncertainty: occurs when the environment, or a
portion of the environment, is considered unstable.
• Effect uncertainty: occurs when impacts of
environmental change are unpredictable.
• Response uncertainty: arises when the
consequences of decisions are unpredictable.
Figure 6.1
Planning: The Primary Management Function
Coping with Uncertainty (cont’d)
• Organizational Responses to Uncertainty

• Defenders: relying on a primary technology and/or a
narrow product line to remain competitive.
• Prospectors: seeking first-mover advantage by
aggressively making things happen and not waiting
for them to happen.
• Analyzers: following the market leader and imitating
what works, avoiding expensive R&D mistakes.
• Reactors: waiting for adversity (e.g., declining sales)
to occur before taking corrective action.
Balancing Planned Action and Spontaneity
in the Twenty-First Century
• Command-and-control Model
• Top-down tight control of operations through exacting
planning created organizational inflexibility to deal
with unanticipated events and limited success.
• Contingency Model
• Participative planning and control balance planned
action with creative flexibility to take advantage of
unexpected opportunities and to cope with the need
for change.
The Essentials of Planning
• A Plan:
• Is a specific documented intention consisting of an
objective (end) and an action statement (means).
• States what, when, and how something is to be done.
• Essentials of Sound Planning
• Organizational mission
• Types of planning
• Objectives
• Priorities
• The planning/control cycle
The Essentials of Planning (cont’d)
• Organizational Mission
• A clear, formally written, and publicized statement that guides
the organization by
1. defining the organization for key stakeholders.
2. creating an inspiring vision of the organization.
3. outlining how the vision will be accomplished.
4. establishing key priorities.
5. stating a common goal and foster togetherness.
6. creating a philosophical anchor for the organization.
7. generating enthusiasm and a “can do” attitude.
8. empowering organization members.
• Types of Planning
• Strategic planning: determining how to pursue long-
term goals with available resources.
• Intermediate planning: determining subunits’
contribution with allocated resources.
• Operational planning: determining how to accomplish
specific tasks with available resources.
Figure 6.2
Types of Planning
• Planning Horizon
• The elapsed time between the formulation and the
execution of a planned activity.
• Planning horizon length corresponds to the type of
plan with which it is associated; lengths shorten as
the planning process evolves from strategic to
intermediate to operational plans.
• Objectives
• An objective is a commitment to achieve a
measurable result within a specified period.
• Writing Good Objectives
• Objectives should be expressed in quantitative,
measurable, and concrete terms.
• What specific result is to be achieved?
• When is the result to be achieved?
• How the result is to be measured?
• Who will be responsible for achieving the result?
• The Importance of Objectives (Uses of)

• Targets: sets specific goals to achieve.
• Measuring sticks: gages how much was achieved.
• Commitment: encourages pursuit of the objective.
• Motivation: provides a challenge for achievement.
• The Means-Ends Chain of Objectives
• Achievement of lower-level objectives creates a
means for achieving higher-level objectives
Figure 6.3
A Typical Means-Ends Chain of Objectives
• Priorities
• A ranking of goals, objectives, or activities in order of
importance that guide the order and timing of
decisions that management makes regarding the
allocation of resources.
• The A-B-C Priority System

• A: “Must do” objectives critical to successful
performance.
• B: “Should do” objectives necessary for improved
performance.
• C: “Nice to do” objectives are desirable for improved
performance but not critical to survival or improved
performance.
• The 80/20 Principle (Pareto Analysis)
• A majority of causes, inputs, or effort tend to produce
a majority of results, outputs, or rewards.
• The Planning/Control Cycle

• Planning sets in motion activities to accomplish the
planned objectives.
• Control functions to direct and monitor activities for
deviations from plans (i.e., attainment of objectives).
• Planning uses feedback from controls to improve/alter
plans and implement corrective actions where
necessary.
Figure 6.4
The Basic Planning/Control Cycle
Management by Objectives and
Project Planning
• Management by Objectives (Peter Drucker)
• A comprehensive management system based on
measurable participatively set objectives.
• The MBO Cycle
• Step 1: Setting objectives
• Step 2: Developing action plans
• Step 3: Periodic review
• Step 4: Performance appraisal
Figure 6.5
MBO’s Strengths and Limitations
Project Planning and
Management
• Project
• A temporary endeavor to achieve a particular aim.
• The Project Life Cycle
• Conceptualization: setting project goals and
objectives.
• Planning: organizing facilities and equipment,
personnel and task assignments, and scheduling.
• Execution: actual work on the project begins.
• Termination: project is turned over to the end user
and project resources are phased out.
Figure 6.6
The Project Life
Cycle and
Project Planning
Activities
Project Planning and
Management (cont’d)
• Project Management Guidelines
• Projects schedule-driven and results-oriented.
• The big picture and the little details are of equal
importance.
• Project planning is a necessity, not a luxury.
• Project managers know the motivational power of a
deadline.
Graphic Planning/Scheduling/Control
Tools
• Sequencing with Flow Charts
• Sequencing: arranging events in the order of their
actual or desired occurrence.
• Work simplification: eliminating wasted steps and
activities.
Figure 6.7
A Sample Flow
Chart
Tools (cont’d)
• Scheduling with Gantt Charts
• Gantt chart: a graphic scheduling technique
historically used in production operations.
• Useful for scheduling large projects where time for
each activity can be specified and progress
assessed.
• Overly complex endeavors are too cumbersome
for Gantt charts.
Figure 6.8
A Sample Gantt Chart
Tools (cont’d)
• Program Evaluation and Review Technique
(PERT) Networks
• Graphic sequencing and scheduling tool for large,
complex, and nonroutine projects.
• Developed in 1958 for use in the development of the
U.S. Navy’s Polaris submarine-launched missile
project.
Tools (cont’d)
• PERT Terminology
• Event: denotes a performance milestone.
• Activity: work (jobs) in process.
• Time: estimated weighted times for completion of an
activity—optimistic, most likely, and pessimistic.
• Critical path: the most time consuming (longest) chain
of required activities and events in a PERT network
that must be completed on time or else the entire
project will be delayed.
Tools (cont’d)
• Formula for Calculating Estimated PERT Times
Toˆ + 4Tmˆ + T pˆ
Teˆ =
6
Tools (cont’d)
• Positive and Negative Aspects of PERT
• Excellent scheduling tool for large, nonroutine
projects.
• Requires envisioning projects in their entirety.
• Provides a tool for predicting resource needs,
potential problem areas, and the effect of delays.
• Inappropriate for repetitive assembly-line operations.
• Only as good as its underlying assumptions about
event completion times.
• Can be too time consuming if not computerized.
Figure 6.9
A Sample PERT Network
Break-Even Analysis
• Break-Even Point
• The level of sales at which there is no loss or profit.
• The point at which the total of fixed and variable costs
is equal to total sales revenues.
• Fixed Versus Variable Costs
• Fixed costs: contractual costs that must be paid
regardless of output or sales.
• Variable costs: costs that vary directly with production
and sales.
Break-Even Analysis (cont’d)
• The Algebraic Method
• FC = total fixed costs
• P = selling price (per unit)
• VC = variable costs (per unit)
• BEP = breakeven point (in units)
• The difference between unit selling price P and unit variable
costs VC is the contribution margin that can be applied to
recovering fixed costs.
FC
BEP (in units) =
P - VC
• Price Planning
• Determining the impact of changes in unit selling
price on the breakeven point in units.
• Rising prices decrease the breakeven point, lower
prices increase the breakeven point.
30,000
BEP (in units) = = 10,000
7-4
30,000
6-4
• Profit Planning
• Determining the required level of output to achieve a
profit objective.
FC + desired profit
BEP (in units) =
P - VC
30,000 + 30,000
7-4
Figure 6.10
Graphic Break-
Even Analysis
Break-Even Analysis: Strengths
and Limitations
• Uses of Break-Even Analysis

• Forces planners to interrelate cost, volume, and profit
in a realistic way.
• Allows planners to ask what-if questions concerning
the impact of price, costs, and profit objective
changes.
• It is difficult to achieve a neat separation of fixed and
variable costs.
• Complex factors in supply and demand interfere with
the linear projections (point estimates) of the analysis.

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The Basics of

Planning and Project

1. Distinguish among state, effect, and response

6. Compare and contrast flow charts and Gantt charts,

• Organizational Responses to Uncertainty

• The Importance of Objectives (Uses of)

• The A-B-C Priority System

• The Planning/Control Cycle

• Uses of Break-Even Analysis

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