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UNIT 6PlanningCopyright 2009 by Thames Business School. All right s reserved. No part of these lecture notes may be reproduced in any form or by any means, without the permission in writing from Thames.BBA105 MANAGEMENT CONCEPTS IN PRACTICE U NIT 06 Learning ObjectivesBy the end of this lesson, students should be able to:1.Define planning.2.Describe the purposes of planning.3.Differentiate between formal and informal planning.4.Discuss the contingency factors that affect planning.5.Describe each of the different types of plans.6.Describe the types of goals organisations might have.7.Describe the characteristics of well-designed goals.8.Discuss how traditional goal setting works.9.Explain the steps in setting goals.10.Describe the management by objective (MBO) approach.6.1 IntroductionPlanning can be considered as the most important function of managers in an organisation. Planning addresses the future of the firm and everything else stems from planning. Planning is not a single event, with a clear beginning and end. It is an ongoing process that adapts to the changing environment.6.2 What is Planning?Planning can be defined as a primary functional managerial activity that involves:♦Defining the organisation’s goals;♦Establishing an overall strategy for achieving those goals;♦Developing a comprehensive set of plans to integrate and coordinate organisational work.UNIT 06 BBA105 MANAGEMENT CONCEPTS IN PRACTICE 6.3 Why do managers plan? (Importance of planning)There are four reasons why managers plan:♦Provides direction – when everyone knows what the goals are of the organisation, they can then coordinate their activities and cooperatewith one another to move towards the goals.♦Reduces uncertainty – by forcing managers to look ahead, planning helps to anticipate change.♦Minimizes waste and redundancy – planning reduces overlapping and wasteful activities.♦Sets the standards for controlling – planning sets the goals against which performance are measured. Deviations from the goals can beidentified and corrective actions taken.6.4Factors that affect planning♦Level in the organisationUpper level management performs more strategy-oriented planning.Lower level management is more concerned with operationalplanning.♦Degree of environmental uncertaintyWhen environmental uncertainty is high, plans should be specificbut flexible.The higher the level of uncertainty, the more frequently plans haveto be reviewed.♦Commitment conceptThis refers to the level of commitment that management has to agoal.The more committed managers are to achieving a goal, the longerthey may have to plan to achieve that goal.BBA105 MANAGEMENT CONCEPTS IN PRACTICE UNIT 06 6.5 Types of planningManagers can make plans informally or formally:♦Informal planning: not written down, short-term focus; specific to an organisational unit.♦Formal planning: written, specific, and long-term focus, involves shared goals for the organisation.6.6 Levels of PlanningPlanning is carried out by all managers in an organisation. The only difference is that managers at the top levels spend much more time planning than managers at lower levels. The types of planning done at different levels of management are highlighted below.6.6.1 Strategic Planning♦This is the type of planning that is done by the top managers.♦It is the process of charting out long term, future course of action for the organisation as a whole.♦It establishes the organisation’s overall goals.♦Strategic planning requires managers to think about where they want the organisation to be at some point in future.♦It seeks to position the organisation in terms of its environment.♦The time horizon for strategic planning is usually about 3 to 5 years.♦Issues in Strategic Planning:What business should we be in?Who should our customers be?How to achieve our organisation’s goals?UNIT 06 BBA105 MANAGEMENT CONCEPTS IN PRACTICE6.6.2 Tactical Planning♦Such planning is carried out by middle level managers.♦Tactical planning is concerned with developing action plans for different departments so as to achieve the overall goals of the firm.♦Managers here have to plan carefully how they are going to use the resources efficiently.♦Tactical planning covers a time horizon of 1 to 2 years.♦Issues in Tactical Planning:What should our profit be next year?What products should we sell?How much should we spend on a new product launch?6.6.3 Operational Planning♦Operational planning is the process through which managers design specific activities and steps to accomplish objectives.♦It is detailed in nature.♦It has a very short time frame, usually a few months to a year.♦Issues in Operational Planning:How many workers do we need for the night shift?Where shall we hold our next sales conference?When do we need the raw material to arrive?The three levels of planning are related to each other. There is a closer relationship between the tactical and operational plans. Yet, there must be proper interaction between all three in order to ensure the success and survival of the firm.BBA105 MANAGEMENT CONCEPTS IN PRACTICE UNIT 06Fig. 6.1 Types of Plans(Source: S.P. Robbins & M. Coulter, 2005, Management. 8th ed. Upper Saddle River, NJ, Prentice Hall. P.162)6.7 Process of PlanningFor planning to be effective, managers should ensure it is done systematically. A model of the planning process used by managers is explained below:Fig. 6.2 The Process of Strategic PlanningUNIT 06 BBA105 MANAGEMENT CONCEPTS IN PRACTICE6.7.1 Establish Organisation’s GoalsThe firm must decide on its overall purpose or goal for the future. For example, the overall mission for a university is to provide quality tertiary education. The goals of the departments will be based on the overall mission.6.7.2 Analyse External EnvironmentEnvironmental factors can directly affect the types of goals the company sets for itself. Such changes must be monitored and threats and opportunities identified. For example, shortage of oil may pose a threat to oil companies.6.7.3 Assess Internal SituationManagers must at the same time, assess the strengths and weaknesses ofthe company. They must study the resources they have and set planswithin the firm’s abilities. For instance, managers may wish to enter anew business area but may have to put off such a plan if there areproblems getting the necessary resources.6.7.4 Develop Strategic PlansAt this stage, managers come up with different plans to achieve the overall mission. For instance, if the overall mission is to increase the profits of the firm, then it could be done by developing new products, entering new markets, diversifying into other business operations. The firm will choose which strategy it wishes to follow.6.7.5 Implement Strategic PlansThe strategic plan is broken down into action plans for the various departments and sections of the company and put into action. The organisation may have to get all the required resources, train its staff.6.7.6 Monitor and ModifyOnce the plans have been implemented, managers need to monitor the progress and if necessary, modify and change the overall plans again.BBA105 MANAGEMENT CONCEPTS IN PRACTICE UNIT 066.8 Difficulties of PlanningAlthough companies realise the importance of planning, it does not happen on its own. Planning is difficult because it deals with complex environments and must look toward an uncertain future. Some of the problems related to planning are:♦Difficulty in predicting the future – this is due to uncertainty and the lack of information. Information may be inaccurate or out of-date.♦Costly – planning takes up a lot of management time. Each stage of the planning process may have to be repeated when results do not measureup to expectations. The information that is required for decision-making may cost a lot of money and time to gather.♦Barriers to change – many people are resistant to the changes that planning may require in an organisation. As such, managers in anorganisation may not be committed to planning for change. Topmanagement may be unwilling to take risks. They may not see theneed for change.6.9 Goals (also Objectives)♦These are defined as desired outcomes for individuals, groups, or entire organizations.♦They provide direction for the organisation.♦They are benchmarks against which performance is evaluated.♦Goals are objectives—the two terms are used interchangeably.6.9.1 Types of Goals♦Financial GoalsThese are related to the expected internal financial performance of theorganization.♦Strategic GoalsThese are related to the performance of the firm relative to factors inits external environment (e.g., competitors).♦Stated Goals versus Real GoalsBroadly-worded official statements of the organization (intended forpublic consumption) that may be irrelevant to its real goals (whatactually goes on in the organization).UNIT 06 BBA105 MANAGEMENT CONCEPTS IN PRACTICE6.9.2 Examples of GoalsDifferent departments in the company need to set their own goals based on the overall objective of the firm, which is to make profits. Examples of goals that could be set for the various departments are indicated below:♦Marketing/Sales Departmento To increase the sales of Product A by 10 percent for the next year.♦Finance Departmento To achieve a rate of return of 10 percent on all investments made during the year.♦Production Departmento To reduce the number of rejected items by 10 percent by the end of the year.♦Personnel Departmento To fill up all existing vacancies within the next 6 months.6.9.3 Characteristics of Well-Designed Goals♦They are written in terms of outcomes, not actions.♦They focus on the ends, not the means.♦They are measurable and quantifiable.♦They specifically define how the outcome is to be measured and how much is expected.♦The time frame to achieve the goal is clearly specified.♦They specify how much time should elapse before measuring accomplishment.♦They are challenging yet attainable.♦Low goals do not motivate.♦High goals motivate if they can be achieved.♦They are always written down.♦They are clearly communicated to all, so that everybody is “on the same page.”BBA105 MANAGEMENT CONCEPTS IN PRACTICE UNIT 06 Objectives should be ……..Specific – clearly defined and precise Measurable – expressed in quantitative terms Realistic – neither too high nor too low Achievable – within the means of the firm Time bound – deadlines must be set for achievement6.9.4 Goal Setting♦ Broad goals are set at the top of the organisation.♦ Goals are then broken into sub-goals for each organisational level.♦ Assumes that top management knows best because they can see the “big picture.”♦ Goals are intended to direct, guide, and constrain from above.♦ Goals lose clarity and focus as lower-level managers attempt to interpret and define the goals for their areas of responsibility.6.9.5 Steps in Goal SettingThere are five steps in goal-setting:Fig. 6.3 Steps in Goal-settingUNIT 06 BBA105 MANAGEMENT CONCEPTS IN PRACTICEStep 1 Review organisation’s mission.♦The objectives should reflect what the missionstatement says.Step 2 Evaluate available resources.♦Objectives should not be beyond the means available tothe organisation to achieve.Step 3 Decide on the objectives.♦Obtain input from others in the organisation.♦Objectives should be specific, measurable, achievable,realistic, and set within a time frame for achievement.Step 4 Write down the objectives and communicate them.♦It is important for the goals to be written down andcommunicated to all who need to know.♦They must be understood and accepted by those whoare given the responsibility to achieve them.Step 5 Review results.♦After implementation, the manager must constantlyreview progress to ensure that the objectives areachieved.♦Any deviations from the objectives should be promptlyreported to top management so that corrective actionscan be taken.BBA105 MANAGEMENT CONCEPTS IN PRACTICE UNIT 066.10 Management by Objectives♦Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in his book 'The Practice of Management'.♦MBO is a management tool used by firms to ensure that objectives are achieved.♦MBO is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results fromavailable resources.♦It aims to increase organisational performance by aligning goals and subordinate objectives throughout the organization.6.10.1 Characteristics of MBOMBO consists of four elements:♦Goal specificity – Goals are specific and performance related.♦Participative decision-making – Employees and their managers jointly determine goals.♦Explicit time period – specific deadlines are set for achieving the agreed goals, and progress is periodically reviewed.♦Performance feedback – managers give feedback to their staff on performance, and rewards are allocated on the basis of this progress.6.10.2 Steps in a Typical MBO ProgramFig. 6.4 Steps in MBOUNIT 06 BBA105 MANAGEMENT CONCEPTS IN PRACTICEStep 1 Setting objectives♦The organization’s overall objectives and strategies are formulated.♦Major objectives are allocated among divisional and departmental units.♦Unit managers collaboratively set specific objectives for their units with their managers.♦Specific objectives are collaboratively set with all department members.Step 2 Agreeing and implementing the strategies♦Action plans, defining how objectives are to be achieved, are specified and agreed upon by managers and employees.♦The action plans are implemented.Step 3 Reviewing progress♦At regular intervals, objectives are reviewed to assess their progress.♦Problems are detected and corrected.Step 4 Appraising overall performance♦At the end of the period, the performance is assessed again.♦Objectives are then set for the next period.♦The MBO process is repeated annually.♦Successful achievement of objectives is reinforced by performance-based rewards.BBA105 MANAGEMENT CONCEPTS IN PRACTICE UNIT 066.10.3 Benefits of MBO♦Realistic goals are set.♦Performance is fairly evaluated.♦Staff have an opportunity to participate in goal-setting.♦Employees have a greater sense of commitment.♦Staff can work independently.♦Communication flow is improved due to the periodic reviews.6.10.4 Limitations of MBO♦Emphasis is placed on achieving short-term goals.♦The whole process is time-consuming.♦Much administrative paperwork is involved in the whole process.♦Since performance is measured based on the achievement of the goals, managers pursue goals at any cost.♦For the same reason, managers find it difficult to set high goals for their staff.UNIT 06 BBA105 MANAGEMENT CONCEPTS IN PRACTICEChapter Summary1.Planning is an ongoing managerial activity that involves defining theorganisation’s goals, establishing an overall strategy for achieving those goals, and developing a comprehensive set of plans to integrate and coordinate organisational work.2.Planning is important because it provides direction for everyone in theorganisation, reduces uncertainty, minimizes waste and redundancy, and sets the standards for controlling.3.Upper level management performs more strategy-oriented planning, whilelower level management is more concerned with operational planning. 4.Environmental uncertainty has an effect on planning. If the environment ishighly uncertain, plans should be specific but flexible. The higher the level of uncertainty, the more frequently plans have to be reviewed.5.The more committed managers are to achieving a goal, the longer theymay have to plan to achieve that goal.rmal plans are not written down. They have short-term focus, and arespecific to an organisational unit.7.Formal plans are written, specific, have long-term focus, and involveshared goals for the organisation.8.Strategic planning is the type of planning done by top managers. It is theprocess of charting out long term action for the whole organisation, and establishes the organisation’s overall goals. The time horizon for strategic planning is usually about 3 to 5 years.9.Tactical planning is carried out by middle level managers. It is concernedwith developing action plans for different departments. Tactical planning covers a time horizon of 1 to 2 years.10.In Operational planning, managers design specific activities and steps toaccomplish objectives. It is detailed in nature, and has a very short time frame, usually a few months to a year.11.There must be proper interaction between all three levels of planning inorder to ensure the success and survival of the firm.12.There are 6 steps in the process of planning: establish goals; analyse theexternal environment; assess the internal situation of the organisation;develop the strategic plans; implement the plans; and monitor and modify performance.BBA105 MANAGEMENT CONCEPTS IN PRACTICE UNIT 0613.Planning is difficult because it is difficult to predict the future, and it iscostly in terms of time and resources. People are sometimes resistant to change.14.Goals (objectives) are defined as desired outcomes for individuals, groups,or entire organisations. They provide direction for the organisation. They are benchmarks against which performance is evaluated.15.Good goals (objectives) are specific, measurable, realistic, achievable andtime-bound.16.The steps in Goal Setting are: review the organisation’s mission; evaluateavailable resources; decide on the objectives; and write down the objectives and communicate them.17.MBO is a systematic and organized approach that allows management tofocus on achievable goals and to attain the best possible results from available resources.18.MBO consists of four elements: goals are specified; employees have theopportunity to participate in setting their own goals; there is an explicit time period for achievement of the goals; managers give feedback to their staff on performance.19.Steps in implementing MBO are: set objectives; agree and implement;review progress; and appraise performance.UNIT 06 BBA105 MANAGEMENT CONCEPTS IN PRACTICEPast Examination Questions1.Why is it important for organisations to plan?2.Discuss the four reasons for planning.3.Distinguish between strategic and operational planning. Provide examplesof each. What difficulties do managers face when planning?4.List and discuss five characteristics of well-defined goals.5.Define Management by Objectives (MBO) and list four elements of thistype of goal setting.。