Essentials of Planning

Take hold of the future or the future

will take hold of you
 Planning
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)
 New plans

No undesirable
Controlling: deviation
Implementation
Planning Comparing plans with
Of plans
results

Undesirable deviation

Corrective
action

The close relationship of planning and controlling (Siamese Twins)

 Board of
1.Vision Directors
CSR

2. Mission Top level

Bo
managers

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3. Overall objectives
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(long and short range)
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4. More specific overall objectives

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Middle level
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KRA (key results area) managers

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5. Division objectives
To

6. Department and unit objectives Lower level

managers
7. Individual objectives – performance & personal development

Hierarchy of objectives – Objectives and organizational hierarchy

 Type of Plans

Breadth Time frame Frequency of use Specificity

Single use
Long term 1.Programs 1.Financial &
Strategic
Master plan >5 yrs 2. Projects Non-financial
3.Budgets 2. Product &
Project plans
Tactical Medium term
< 3 yrs crisis mgmt Multiple use

Operational
Short term
1.Policies
2. Procedures Day to day plan
3. Methods
4. Rules

Classification of Plans
 The Hierarchy of Plans

Founders, Board of
Mission Statement
Directors, Top Managers

Top and Middle

Responsible for implementation

Managers Strategic Plans

Middle and Frontline

Managers Operational Plans
 Planning – Importance and Limitations

Importance:
• Direction setting
• A holistic picture of consequences
• No haphazard actions
• Economy in operations
• Minimizing risks and uncertainties
• Estimation of needed resources
• Better decision making
• limits planning
Promotion of teamwork
• Provision for control
• Technological innovation /
development
Limitations
• Lack of accurate information
• Time consuming process
• Expensive
• Inflexibility
• Environmental constraints
• False sense of security
• Capital invested in fixed assets
 Characteristics of Planning
• Primary function of management
• Intellectual process (translating knowledge and information into
road map of action, coordinate different action plans, dynamic).
Should be able to convert problems into opportunity. (Rise of the
crane gang – Chandrakant and Anil Sanghvi)
• Goal oriented
• Dynamic (flexible), future oriented and involves forecasting
• Involves choosing among alternatives
• Planning and control are inseparable and has limitations
Being aware of the opportunities
(Environmental scanning)
Market, competition,
Customer preference. Self strengths
and weaknesses (Balaji films)
Setting goals & objectives
Where, when and what?
Considering planning premises
In what environment – internal
or external – will the plan operate
Identifying alternatives
Most promising alternative from the
menu of options
Steps in Planning-The planning process
Pitching alternatives in consonance
with goals
Best chance of meeting goals with lowest
Cost and highest profits
Choosing an alternative
Selecting the optimal path
Formulating supporting plans
Equipment & material purchase, hire
& train workers, develop new product
Quantify plans with budgets
Budgets for volume & price of sales,
Operating & Capital expenses
contingencies
Plan implementation
and review
 Objectives: The Foundation of Planning
• Objectives are goals and desired outcomes for individuals,
groups, or the entire organizations. They provide the direction
for all management decisions and form the criterion against
which actual accomplishments are measured. There are
verifiable (achieve ROI of 12% at the end of the FY) and non-
verifiable (to develop better managers)
• All organizations have multiple objectives. (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.(Number of students in a class;
promises of automobile service center)
 Planning and Strategic Management
• Alfred D Chandler defined ‘strategy’ as the determination of
the basic long-term goals and objectives of an enterprise, and
the adoption of courses of action and the allocation of
resources necessary for carrying out these goals’.
• In 1978, 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.
 Strategic Management Process

Goal Setting
Mission / Vision statement
Strategic Planning

Strategy Formulation

Administration
Strategic
Implementation
Strategic Control
 Strategic Planning
Strategic planning involves analysis and development of the
organizations vision, mission,overall goals, general strategies and
allocation of resources. It produces fundamental decisions and
actions that shape and guide the direction of the entire
organization. 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?
Strategic and Operational Plans differ in three major ways

• Time Horizons: Strategic plans tend to look ahead several

years or even decades. For operational plans, a year is
generally a relevant period.
• Scope: Strategic plans affect a wide range of
organizational activities, whereas operational plans have a
narrow and more limited scope. 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. Operational plans as derivatives, are stated in
relatively finer details
 The Strategic Planning Process
Mission / Vision Statement Strategy Formulation
• Customer Market • Analyze the external
environment
• Product and Services
• Reassess the organizations
• Geographic Domain resources
• Technology • Carry out SWOT analysis
• Concern for Survival and • Look at the Organization’s
growth culture (its values, beliefs,
• Philosophy attitudes and valued behaviors –
the way things are done here)
• Self Concept
• Set strategies that would give
• Concern for Public image the organization a competitive
advantage
 The Strategic Implementation Process
Implementing Strategies Evaluate Results
 Successful strategies require
properly matched organization  How effective the
structure; re-engineer if needed strategies have been?
 New strategies would need
people with different skills. Need
 What adjustments are
to recruit, select, train, discipline, required?
transfer, promote or even lay off.
 Build and manage effective New
 Bring about the
Teams appropriate and well
 Competent / charismatic researched change
leadership at the top and and
motivated middle and lower level
managers
 E
Strategic Planning Process Model V
A
L L
Present & U Medium & E
I •Executive Future external A Short range A
Inputs: N Orientation: Threats & T planning D
•People D •Values opportunities I E
•Capital U •Vision O R
•Mgmt skills S N
S
•Tech skills T H
&
•Others R I
Y Development P
Enterprise S Implementation
Goals of of alternate T
profile strategies
Stakeholders: A R &
•Employees N A
•Consumers A T
C
L E
•Suppliers •Reengineering O
•Mission G
•Stockholders Y •Org. restructure N
•Major Internal I
•Governments S C •staffing T
objectives Strengths &
•Community I R
•Strategic weakness
•others S C O
intent H •Consistency L
O
I testing
C •Contingency
E 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. 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, problem, or threat.
• TOWS Matrix is increasingly used these days for planning
mergers, acquisitions, joint ventures and alliances.
 TOWS Matrix for Strategy Formulations
Internal Strengths (S) Internal weakness (W)
Internal factors
Strengths in management, Weaknesses in areas shown in
operations, finance, the ‘strengths’ box
marketing, research and
development, engineering
External
Factors

External opportunities (O) SO Strategy: Maxi–Maxi WO strategy Mini-Maxi

& risk eg. current & future Potentially the most Development strategy to
economic conditions, political successful strategy, utilizing overcome weaknesses in
and social changes, new the organizations strength to order to take advantage of
products, services and access opportunities opportunities
technology

External threats (T) ST Strategy Maxi-Mini WT strategy Mini-Mini

Energy shortage, competition, Use strengths to cope with Retrenchment, liquidation or
and areas similar to those threats or to avoid threats joint venture to minimize
shown in opportunities both weaknesses and threats
 Boston Portfolio Matrix for allocation of Resources

Stars Question
Business growth rate

(Have opportunities Marks

High
for growth& profit) (Need investment)

Cash Cows Dogs

Low (well established in (Should be closed
the market) down)

Strong Weak

Relative competition (Market Share)

Strategic Management -Three Tier Strategy and their Operational Plans

Multi-business
Corporation

Strategic Strategic Strategic

Business Unit Business Unit Business Unit

Research & Production /

Marketing Finance
Development Operation

Operational Plans Operational Plans Operational Plans Operational Plans

Business unit level Functional

Corporate level level
 Structure

Strategy Systems

Super-ordinate
Goals

Skills
Style

Staff

The Seven S Model (McKinsey & Co) for Strategy Implementation;

neglecting any one of the key factors could make the effort to change
a slow, painful and even a doomed process
Planning Tools (Scanning, Forecasting &
Benchmarking) and Techniques
1. Environmental Scanning: To anticipate and interpret
changes in the environment (Insurance needs for DINK,
DISK, 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
 2. Forecasting
Information obtained from scanning is used to develop scenarios as basis
for forecasting. Two types of forecasting
1. Revenue: Crucial and is based of historical data and environment
scan. What revenue patterns evolved over the years, changes in the
social, economic and political patterns might impact the revenue
generation
2. Technological: Changes in technology and the timeframe when
they are likely to be economically viable. (Case of technology in
music retail – vinyl discs, magnetic tapes, CD, digital tape etc).
Consumers still want to listen to music but on their preferred
medium.
 Forecasting Technique

Two types of forecasting techniques:

• Quantitative forecasting puts a series of historical data to
mathematical scrutiny (time series analysis, regression methods,
economic models & indicators, substitution effect etc) to predict
future outcome
• Qualitative forecasting uses judgment and opinion of
knowledgeable people to predict future outcome
 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, unusual occurrence, discontinued
operations etc
• Five cardinal points: keep the technique simple, compare
every forecast with “no change”,do not rely on single
model – try a few and average them, 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
 3. Benchmarking
Benchmarking is the search for the best practices in the
market that lead to superior performance. It is a very
specific form of environment scanning. (Case of Xerox
and their Japan experience of efficiency). Four step
process:
• Formation of a benchmarking planning team to identify
what is to benchmarked, 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
 Suggestions for Benchmarking Efforts
1. Link benchmarking efforts to strategies
2. Right sized team (6 to 8 people most effective)
3. Involve those employees to be directly affected by BM
4. Focus specific and target issues not on broad & generic
5. Set realistic timetables
6. Choose benchmarking targets carefully
7. Observe appropriate protocol; contact the right person
8. Do not collect unnecessary and excessive data
9. Look at the process behind the information
10. Identify benchmarking targets and then act
 Budgets

• A budget is a numerical plan for allocating resources to

specific activities. Managers typically prepare budgets for
revenues, expenses and large capital expenditure such as
machinery and equipment. It is not unusual, though, for
budgets to be prepared for improving time and space and
use of material resources.
• Budgets are one planning device that most managers,
regardless of organizational level, help formulate.
 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.
• Profit Budgets: profit budgets combine revenue and expense budgets
into one. 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.
• Capital Expenditure Budget: investments in property, buildings and
major equipment are called capital expenditure. They allow
management to forecast future capital requirements, to keep on top
important capital projects.
• Variable budgets: Most organizations are not able to predict the
volume accurately. A number of costs such as labor, material and
some admin expenses vary with volume. They are taken care in the
variable budgets
 Approaches to Budgeting
• Incremental Budgets: It has two specific characteristics;
(a) Funds are allocated to units. The managers then
allocate funds to activities they see fit. (b) An
incremental budget is based on previous budget, using
that a a reference point. Only incremental changes in the
budget are reviewed.
• Zero Based Budget: It is designed to overcome the
second draw back of the incremental budget; activities
that are being immortalized. ZBS shifts the burden of
proof on the manager why he should get any budget at all
 Processes in the ZBB
• Each discrete departmental activity is separated into a
decision package.
• 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.
• The decision package is a document that identifies and
describes a specific activity.
• Once department managers have completed the decision
packages, they are forwarded to the top executives who
determines how much and where to spend.
 Step 1 Step 2 Step 3

Activity A Decision Package 1 C

A

Decision Package
Activity B 2 E
B
C
Activity C Decision Package 3 E
B
C
A
Decision Package 4 A D
Activity D D
B
Decision Package 5 D
Activity E E
Allocation of
Breakdown of Activities Ranking decision
Resources
Into decision Packages Packages
 Operational Planning Tools

• Scheduling
• The GNATT Charts / Load Charts
• Breakeven Analysis
• PERT Network Analysis
• Linear Programming
• Queuing Theory
• Probability Theory
• Marginal Analysis
• Simulation
 Time Management

• Time is a unique resource; it can neither be stockpiled not

lost time retrieved.
• The majority of manager’s time is spent on responding to
requests, demands and problems initiated by others
(Response Time) and the manager has very little control
on this.
• The portion that is under manager’s control is called the
“Discretionary Time” and is manageable.
 Time Management Steps

1. List your objectives

2. Rank objectives according to their importance
3. List the activities necessary to achieve your objectives
4. For each objective, assign priorities to the various
activities required to reach the objective.
5. Schedule your activities according to the priorities you
have set.
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
 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, participatory
decision making, an explicit timeframe and performance
feedback. The overall objectives are translated into specific
objectives for each succeeding level in the organization and is
therefore, participatory and two way osmosis process. If the
individuals achieve their goals, then their unit’s goals will be
attained and so on up the chain until the organization’s overall
objectives become a reality
 Hierarchy Objectives

We need to improve the

Organization’s performance
Top management

Improvement in
Division Manager division’s profit

Profit rise regardless

of means
Department’s Manager

Work fast,
regardless of quality
Individual Employee

Traditional objective Setting, MBO

 Steps in a Typical MBO Program
1. Organization’s overall objectives and strategies are formulated
2. Major objectives are allocated amongst the divisional and departmental
heads
3. Unit managers collaboratively set specific objectives for their units with
their superiors
4. Specific objectives are set for all department members
5. Action plans for objectives are discussed, fine-tuned, specified and
agreed upon by the managers and staff
6. Action plans are implemented
7. Progress towards objectives is periodically reviewed and feedback
provided
8. Successful achievement of objectives is reinforced by performance based
rewards
 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
• Effective management MBO philosophy
• Clarity of organizational action • Goal setters not provided with
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
 Core job Critical psychological
characteristics Outcomes
states

Higher internal work

Skill variety motivation
Task identity Experienced
Higher growth
Task significance meaningfulness
satisfaction
of the work

Autonomy Experienced responsibility Higher general

for the outcome of the work job satisfaction

Feedback from Knowledge of the actual Higher work

the job results of the work activities effectiveness

Moderators
1. Knowledge and skills
2. Growth need strength
3. Context satisfaction

MBO is most effective if the goals are difficult enough to require to persons to stretch
 Reward System
• Rewards and incentives contribute to strategy
implementation by shaping individual and group behavior.
Well designed incentive plans are consistent with an
organization’s objectives and structure. 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. Incentive plans
should encourage short term or long term decision making,
greater or lesser risk taking, more or less cooperation with
other managers and the like.
QUESTIONS ??