PLANNING

By: ENGR. MARIZEN B. CONTRERAS

The Nature of Planning
• To minimize mistakes in decision making, planning is undertaken.
• Plan
• Is the output of planning
• Provides a methodical way of achieving desired results
• In the implementation of activities, it serves as a useful guide
Planning Defined
• According to Nickels and others, refers to the management function
that involves anticipating future trends and determining the best
strategies and tactics to achieve organizational objectives
• Aldag and Stearns define planning as the selection and sequential
ordering of tasks required to achieve an organizational goal
• According to Cole and Hamilton planning is deciding what will be
done, who will do it, where, when and how it will be done, and the
standards to which it will be done.
• Planning is selecting the best course of action so that the desired
result may be achieved
• It must be stressed that the desired result takes first priority and the
course of action chosen is the means to realize the goal.
Planning at various management
levels
• Top management – strategic planning
• Middle management – intermediate planning
• Lower management level – operational planning
Strategic Planning
• It refers to the process of determining the major goals of the
organization and the policies and strategies for obtaining and using
resources to achieve those goals
Strategy
• It is a common vision that unites an organization, provides
consistency in decisions, and keeps the organization moving in the
right direction
Strategy formulation
• Defining primary task
• Assessing core competencies
• Determining order winners and order qualifiers
• Positioning the firm
Competitive priorities
• Cost
• Quality
• Flexibility
Strategic Planning Heirarchy

Mission and Vision

Voice of the Voice of the

Corporate Strategy
Business Customer

Marketing Strategy Operations Strategy Financial Strategy

Policy deployment
• Also known as hoshin planning, is adapted from Japan’s system of
hoshin kanri, which is roughly translated as “shining metal pointing
direction” – a compass
• It translates corporate strategy into measurable objectives
Hoshins
• The action plans generated from the policy deployment process.
Balanced Scorecard
• Measuring more than financial performance
• Four critical areas:
• Finance – How do we look to our shareholders?
• Customer – How do we look to our customers?
• Processes – at which business process must we excel?
• Learning and Growing – How will we sustain our ability to change and
improve?
Intermediate Planning
• it refers to the process of determining the contributions that subunits
can make with allocated resources
Aggregate Production Planning
• Determines the resource capacity needed to meet demand over an
intermediate time horizon
Operational Planning
• It refers to the process of determining how specific tasks can be
accomplished on time with available resources
Master Production Schedule
• Specifies the timing and size of production quantities for each product
in the products.
• The aggregate plan plays a key role in translating the strategies of the
business plan into an operational plan for the manufacturing process
Example: Master production
schedule for a family of chairs
APRIL MAY
1 2 3 4 5 6 7 8
Ladder-back chair 150 150
Kitchen chair 120 120
Desk chair 200 200 200 200
Aggregate production 550 790
plan
Material Requirements Planning
• Is a production planning and inventory control system
• It integrates data from production schedules with that from inventory
and the bill of materials (BOM) to calculate purchasing and shipping
schedules for the parts or components required to build a product
Bill of Materials
• Is a list of the parts or components that are required to build a
product
• It provides the manufacturer’s part number (MPN) and the quantity
needed for each component.
Bill of Materials
The Planning Process
• Setting organizational, divisional, or unit goals
• Developing strategies or tactics to reach those goals
• Determining resources needed
• Setting standards
Types of Plans
• Marketing Plan
• Production Plan
• Financial Plan
• Human Resource Paln
Plans according to Frequency of Use
• Standing plans
• Single-use plans
Standing plans
• These are plans that are used again and again, and they focus on
managerial situations that recur repeatedly
• Standing plans may be further classified as follows:
• Policies
• Procedures
• Rules
Single-Use Plans
• These plans are specifically developed to implement courses of action
that are relatively unique and are unlikely to be repeated
• Single-use plans may be further classified as follows:
• Budgets
• Programs
• projects
FORECASTING
Following are the general steps to make forecasts:
• Select the items or quantities that are to be forecasted.
• Determine the time horizon of the forecast – is it 1 to 30 days (short
term), one month to one year (medium term), or more than one year
(long term)?
• Select the appropriate forecasting method.
• Collect the necessary data
• Make the forecast
Qualitative Methods
• Jury of executive opinion
• Delphi method
• Sales composite
• Consumer market survey
Quantitative Methods
• Naïve approach
• Time-series models Time-series models
• Moving averages Exponential smoothing
• Associative model
• Trend projection Linear regression Associative
model
Naïve Approach
• The simplest way to forecast is to assume that demand in the next
period will be equal to demand in the most recent period.
Example:
• If sales of the a product-say Nokia cell phones-were 68 units in
January, we can forecast that February’s sales will also be 68 phones.
Moving Averages
•  A forecasting method that uses an average of the n most recent
periods of data to forecast the next period
• The formula for simple moving average is

• Where d1, d2, …. dn are the most recent data and n is the number of
periods.
Example
• The demands of computers at Amir Computers Sdn. Bhd. From
January until December are shown in the following:
Month Actual Demand 3-month moving average

January 61  
February 66  
March 60  
April 75
May 71
June 70
July 77
August 80
September 66
October 70
November 75
December 67
Weighted Moving Average
•  When a detectable trend or pattern is present, weights can be used to
place more emphasis on recent values. A weighted moving average
may be expressed mathematically as:
Month Actual Demand 3-month weighted moving average

January 61  
February 66  
March 60  
April 75
May 71
June 70
July 77
August 80
September 66
October 70
November 75
December 67
Exponential Smoothing
•• A  weighted-moving-average forecasting technique in which data points are weighted
by an exponential function. The basic exponential smoothing formula can be shown
as follows:
• New forecast = Last period’s forecast + α (Last period’s actual demand – Last period’s
forecast)
• Where α is a weight, or smoothing constant, chosen by the forecaster, that has a
value between 0 and 1. It can also be written mathematically as:

Where:
• =new forecast
• = previous period’s forecast
• = smoothing (or weighting) constant (0≤≤1)
• = previous period’s actual demand
Example
• In January, a car dealer predicted February demand for 142 Ford
Mustangs. Actual February demand was 153 autos. Using a smoothing
constant chosen by management of α = 0.20, the dealer wants to
forecast March demand using the exponential smoothing model.
• New forecast (for March demand) = 142+0.2(153-142) = 144.2
• Thus, the March demand forecast for Ford Mustangs is rounded to
144.
MEASURING FORECAST ERROR
•Mean
  Absolute Deviation (MAD)
• A measure of the overall forecast error for a model
Example
• During the past 8 quarters, the Port of Baltimore has unloaded large
quantities of grain from ships. The port’s operations manager wants
to test the use of exponential smoothing to see how well the
technique works in predicting tonnage unloaded. He guesses that the
forecast of grain unloaded in the first quarter was 175 tons. Two
values of α are to be examined: α=0.10 and α=0.50.
Quarter Actual Forecast with α=0.10 Forecast with α=0.50
Tonnage
Unloaded

1 180 175 175

2 168

3 159

4 175

5 190

6 205

7 180

8 182

9 ?
• To evaluate the accuracy of each smoothing constant, we can
compute forecast errors in terms of absolute deviations and MADs:
Quarter Actual Tonnage Forecast with Absolute Forecast with Absolute
Unloaded α=0.10 Deviation for α=0.50 Deviation for
α=0.10 α=0.50

1 180
2 168
3 159
4 175
5 190
6 205
7 180
8 182
Sum of absolute deviations
Mean Squared Error (MSE)
•  The average of the squared differences between the forecasted and
observed values.
Example:
Quarter Actual Tonnage Unloaded Forecast with α=0.10 (Error)2

1 180
2 168
3 159
4 175
5 190
6 205
7 180
8 182
Sum of errors squared
• 
2
∑ |𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡𝑒𝑟𝑟𝑜𝑟𝑠|
𝑀𝑆𝐸= =¿
𝑛
Mean Absolute Percent Error
(MAPE)
•  The average of the absolute differences between the forecast and
actual values, expressed as a percent of actual values.
Quarter Actual Tonnage Forecast with α=0.10 Absolute Percent Error
Unloaded

1 180
2 168
3 159
4 175
5 190
6 205
7 180
8 182
Sum of % errors
•  M
TREND LINE FORECAST
• A  linear trend equation has the form Y = a + bx
Where:
• b is the slope
• a is the y-intercept
• And
• is the mean of y values
• is the mean of x values in scatter diagram

• n = number of points in a scatter diagram

Standard Error of Estimate
•