LECTURE 5 NOTES
PLANS AND PLANNING TOOLS
CHAPTER SUMMARY:
Lecture 5 begins the student’s in-depth look at the managerial functions, beginning
with the planning process. The chapter discusses the concept of Planning, types of
plans, steps in the planning process, organizational objectives, Management by
Objectives, and planning tools. The chapter concludes with a discussion of the main
reasons the planning function fails.
Students should be able to easily relate to the concepts of planning, as well as
understanding the primacy of the planning function. Talk to the students about their
personal plans. Ask them why they are enrolled in the course. Is the course a part of
their personal plan toward achieving their degree or certificate goals? They could also
be enrolled for reasons of opening their own business or because they are unsure what
their college degree plans are. They may also be pursuing a promotion in their current
workplaces.
Another great reference to use when discussing planning is the role of a vehicle’s GPS
system. We can’t easily arrive at our destination if we don’t know what that
destination/address is before expecting the GPS to know the route to take toward route
achievement.
LEARNING OBJECTIVES:
1. An understanding of the general characteristics of planning
2. Knowledge regarding different types of plans
3. Insights about the major steps of the planning process
4. An understanding of the relationship between planning and organizational
objectives
5. An appreciation for the potential of a management by objectives (MBO) program
6. Knowledge about different types of planning tools
TARGET SKILLS:
Planning Skill: the ability to take action to determine the objectives of the
organization as well as what is necessary to accomplish these objectives
OUTLINE:
This is divided into six sections:
1. General Characteristics of Planning
2. Types of Plans
3. Steps in the Planning Process
4. Organizational Objectives
5. Management by Objectives (MBO)
6. Planning Tools
General Characteristics of Planning:
This section of the chapter provides an overall, broad look at the definition, purposes,
advantages and disadvantages, and primacy of planning.
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Defining Planning
o Planning is the process of determining how an organization can get where it
wants to go and what it will do to accomplish its objectives
o In a simpler sense, the planning function provides answers to the following
two questions:
 Where are we going?
 How do we get there?
o Planning is a critical management activity regardless of the type or size of
organization being managed.
Purposes of Planning
o Roney - Organizational planning has two types of purposes:
 Protective – To minimize risk by reducing the uncertainties
surrounding business conditions and clarifying the consequences of
related management actions
 Affirmative – To increase the degree of organizational success – Whole
Foods relies on this purpose in its planning – the growth of Whole
Foods stores is a direct result of careful planning
o Another purpose – Establish a coordinated effort within the organization
 Work toward ensuring integration among an organization’s various
business units
o Fundamental purpose – to help the organization reach its objectives
 Koontz/O’Donnell – facilitate the accomplishment of enterprise and
objectives
 All other purposes are spin-offs of this fundamental purpose
Planning: Advantages and Disadvantages
o Advantages
 Helps managers to be future-oriented
 Enhances decision coordination
 Emphasizes organizational objectives
In new businesses and ventures, planning helps ensure sustainability
of the business when over 65 percent of all new businesses are known
to fail by their fifth anniversary
 Is important to realize planning does not eliminate all risk, but it does
help managers identify and deal with organizational problems before
they can create problems for the business
o Disadvantages
 Can take up too much managerial time
 Does also cause managers to be rigid and may not be able to adapt to
new conditions or environmental changes because the change is not in
the plan
 Requires managers to balance between time spent on planning and
time spent on organizing, influencing, and controlling
Primacy of Planning
o Planning in the primary management function
o Planning serves as the basis for the organizing, influencing, and controlling
functions of management
o Only after managers have completed the planning process can they then
determine how to structure their organizations through the organizing
function, hire employees, lead employees, and monitor/measure progress
toward the organization’s objectives accomplishment
o Figure 5.1 can be shown to help students understand the Planning function is
the foundation for all other managerial functions
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Types of Plans:
This section of the chapter helps students understand the different types of plans, as well as the
reality the policies, procedures, rules, and budgets they follow and are impacted by in their
jobs are actually a part of the planning process.
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Two Types of Plans:
o Standing Plans – Figure 5.2 and Figure 5.3
 Routine plan, used over and over again in organizational situations
that occur repeatedly
 Policies – provides broad guidelines for taking action consistent
with reaching organizational objectives
 Procedures – outlines a series of related actions that must be
taken to accomplish a particular task – outline more specific
actions than policies do
 Rules – designates specific required actions – indicates what an
organization member should or should not do and allows no
room for deviation
 Steps for Success – provides tips for writing effective policies and
procedures
o Single-Use Plans – Figure 5.2
 Designed to carry out a special project within an organization
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Exist to achieve a single purpose that helps contribute to the
organization’s long-term success
 Program – designed to carry out a special project within an
organization – exists to achieve a purpose that, if accomplished,
will contribute to the organization’s long-term success
 Budget – financial plan covering a specified length of time –
details how funds will be spent
Steps in the Planning Process:
This section of the chapter provides a discussion of the six steps managers should follow during
the planning process. It is important to point out to students that this process is dynamic for
organizations, just as it is for them in their personal and work lives. Managers need to
consistently and continuously revisit the planning process as changes within the managerial
environment evolve.
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Step 1 – State organizational objectives
o Managers need to begin the planning process with a clear statement and
understanding of the organization’s objectives
o Objectives stipulate the areas in which organizational planning will occur
Step 2 – List alternative ways of reaching objectives
o Managers need to list as many alternatives as possible for reaching the
objectives
Step 3 – Develop premises on which to base each alternative
o The feasibility of using any one alternative to reach organizational objectives
is determined by the premises/assumptions the alternative is based on.
o Managers need to list these premises and assumptions for all of their
objectives.
Step 4 – Choose the best alternative for reaching objectives
o Alternatives need to be evaluated on the premises/assumptions on which the
alternatives are based
o When premises/assumptions are found to be unreasonable, an alternative is
removed from further consideration
o Continuing on this elimination process helps managers determine which
alternative best accomplishes an organizational objectives
o Further information on the decision-making process involved in this step is
found in Chapter 8
Step 5 – Develop plans to pursue the chosen alternative
o Once an alternative is chosen, managers begin their strategic/long-range and
tactical/short-range plans
o Further information on the strategic and tactical planning processes is found in
Chapter 9
Step 6 – Put the plans into action
o Implement the plans
o Organizations do not directly benefit from the planning process until this step
is performed
o Mention at this point that managers also need to evaluate the plan and make
modifications needed, which further demonstrates the fluidity and dynamic
nature of the planning process mentioned above.
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Figure 5.4 shows the sequencing of these six planning process steps
Organizational Objectives: Planning’s Foundation:
This section of the chapter focuses on organizational objectives – a critical component of the
planning process.
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Definition (and role) of Organizational Objectives
o Target toward which the open management system is directed.
o Figure 5.5 illustrates how the open management system achieves its
organizational objectives
o Reflect the purpose (mission) of the organization – what the organization
exists to do, given a particular group of customers and customer needs
o Flow naturally from the organization’s purpose/mission – When companies
achieve their objectives, they are also achieving their purpose/mission
o Table 5.1 offers examples of actual company’s purposes – Ask students what
their company’s purposes/mission statements are – I have found students will
have memorized their employer’s purposes/missions as they are frequently
tested on knowing the statements – It is also good to then ask if they believe the
company actually demonstrates those purposes/missions through their actions
with employees and customers – Ask students what it means when they are not
aware of their firm’s purpose/mission – I have found good participation and
discussion typically come from this discussion
o Organizations exist for various purposes and have various types of objectives
o Primary purpose of a business is often to achieve profitability – Ask students if
they believe this should be the sole purpose of an organization – or – does
focusing on objectives other than profitability (quality, customer satisfaction)
naturally result in increased profitability? The book has a nice example of
Lincoln Electric Company to use in this discussion.
Areas for Organizational Objectives
o Introduce Peter Drucker and his involvement in the study of management to the
students if you have not done so already.
o Drucker advised managers to focus on the following eight key areas to set
objectives:
 Market standing
 Innovation
 Productivity
 Physical and financial resources
 Profitability
 Managerial performance and development
 Worker performance and attitudes
 Public responsibility
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o Managers tend to focus objectives on tangible, impersonal characteristics of
organizational operation – the first five areas above meet this category.
Managers do tend to stay away from the last three areas above because they
are personal and objective. Reality is companies should have objectives in all
eight areas in order to maximize their probability of success.
Working with Organizational Objectives
o Appropriate objectives are fundamental to the success of any organization
o Organizations set three types of objectives:
 Short-term objectives – targets to be achieved in one year or less
 Intermediate-term objectives – targets to be achieved in one to five
years
 Long-term objectives – targets to be achieved in five to seven years
o Principle of the Objective – before managers initiate any action, they should
clearly determine, understand, and state organizational objectives
o Planning for the future often requires an organization to revisit its original
objectives. This shows another example of the dynamic nature of the planning
process. Audi is used as an example in the text of a manager modifying goals.
Guidelines for Establishing Quality Objectives
o The quality of goal statements can vary drastically
o Guidelines to help increase the quality of objectives include:
 Let the people responsible for attaining the objectives have a voice in
setting them
 Discuss with students the impact of having a voice in working
toward accomplishing their work goals
 State objectives as specifically as possible
 Many of your students have probably heard of the acronym,
SMART, in relation to goals – Specific – Measurable – Attainable –
Realistic - Timely
 Relate objectives to specific actions whenever necessary
 Pinpoint expected results
 Assists with the measuring of goal accomplishment
 Set goals high enough that employees will have to strive to meet them
but not so high that employees will give up trying to meet them
 Discuss with students the use of “stretch” goals – are managers
correct to use these? Can we set the bar so high we shut down
employee productivity toward a goal before it actually begins?
 Specify when goals are expected to be achieved
 The “Timely” part of SMART goals
 Set objectives only in relation to other organizational objectives
 Are the goals connected to the organization’s purpose/mission?
 State objectives clearly and simply
Management by Objectives (MBO):
This section of the chapter focuses on Drucker’s MBO approach. Students are typically familiar
with MBO, though they may have not heard this name before – but they have typically set goals
for a coming year with their manager/supervisor at the time of performance reviews.
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MBO is a management approach based exclusively on objectives
Includes three basic parts:
o Individuals within an organization are assigned a specific set of objectives
they work toward reaching during a normal operating period. The objectives
are mutually set and agreed upon by individual employees and their
managers
o Performance reviews are conducted periodically to determine how the
individual employees are progressing toward attaining their objectives
o Rewards are given to employees based on how close they come to achieving
their goals
Includes five steps – Figure 5.6 illustrates the connection of the five steps
o Review organizational objectives – Manager needs to share the organization’s
purpose/mission and objectives with the employee
o Set worker objectives – Manager and employee work together to set
objectives the employee will work toward accomplishing during the year (or
other time period the organization uses)
o Monitor progress – Manager meets with employee at time intervals set by the
firm to review the employee’s progress toward accomplishing their assigned
objectives – This is a key element for the MBO program – if managers only meet
with employees at the time of their performance review, the benefits of the MBO
program are lost for the employee…and the firm.
o Evaluate performance – At the end of the year (or other time period the
organization uses), the employee’s performance is evaluated based on the
extent to which the employee met his/her objectives
o Give rewards – Rewards are allocated/assigned based on the extent to which
the objectives have been accomplished and reached
Factors Necessary for a Successful MBO Program
o Top management must be committed to the MBO process and set appropriate
objectives for the overall organization
o Managers and employees together must develop and agree on each
individual’s goals
o Employee performance should be conscientiously evaluated against
established objectives
o Management must follow through on employee performance evaluations by
rewarding employees accordingly
MBO Programs: Advantages and Disadvantages
o Advantages:
 MBO programs continually emphasize what should be done in an
organization to achieve organizational goals
MBO process secures employee commitment to attaining
organizational goals
o Disadvantages:
 Development of objectives can be time-consuming, leaving all parties
(managers and employees) with less time to do their actual work
 Elaborately written goals, careful communication of goals, and detailed
performance evaluations required in an MBO program increase the
volume of paperwork in the organization
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Planning Tools:
This section of the chapter offers techniques managers can use to help develop their plans.
Additionally the forecasting and scheduling processes are discussed – as is the potential for
companies to fail even after completing the planning process.
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Forecasting
o The process of predicting future environmental happenings that will influence
the operation of the organization
o Importance of forecasting lies in its ability to help managers understand the
future makeup of the organizational/managerial environment, which in turn
helps them formulate more effective plans
o Is an imprecise science – research shows forecasts are typically off by 20
percent – this results in the need for managers to continually search for more
accurate forecasting tools
o Tips for Managing the Globe in the text discusses the use of forecasting raw
materials at Mars, Inc.
o How Forecasting Works
 Text example discusses William House and his description of Insect
Control Services Company as an illustration of how forecasting works
 Establish relationships between industry sales and national economic
and social indicators
 Determine impact of government restrictions on use of chemical
pesticides in the pest-control markets
 Evaluate sales growth potential, profitability, resources required, and
risks involved in market areas
 Evaluate potential for expansion of marketing efforts across
geographic markets
 Determine likelihood of technology breakthroughs and advancements
that make existing product lines obsolete
o Types of Forecasts
 Sales forecast – prediction of high and low sales volume for the
organization over a period of time – the sales forecast serves as the
fundamental guideline for planning
 Other types include economic, technology, social trends
o Methods of Sales Forecasting
 Qualitative Methods
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Jury of Executive Opinion Method – straightforward method
asking appropriate managers to give opinions on what will
happen to sales in the future
 Delphi Method – gathers, evaluates, and summarizes expert
opinions as the basis for the forecast – more formal than Jury of
Executive Opinion Method – Includes the following six steps:
o Step 1 – Experts are asked to answer independently and
in writing a series of questions about the future of sales
or other areas involved in the forecast
o Step 2 – Summary of answers is prepared with answers
anonymously included
o Step 3- Copies of summary are given to all individual
experts with requests to modify their answers as needed
o Step 4 – Second summary of answers is prepared and
distributed. Any further deviations have to be justified
in writing
o Step 5 – Third summary is prepared and distributed –
justifications for ALL answers are now required
o Step 6 – Forecast is generated from the opinions and
justifications that come out of step 5
 Sales Force Estimation Method – Predicts future sales by
analyzing opinions of salespeople as a group – the resulting
forecast is a blend of the informed views of the group
o This method is seen universally throughout the world as
being generally good, though managers have found it can
be improved by taking the simple steps of ensuring sales
staff have ample time to forecast and incentives are
offered for accurate forecasts.
Quantitative Methods
 Moving Average – Utilizes historical data to predict future sales
levels resulting in average sales levels for x historical time
periods – The book includes an example of Toyota using a fiveyear moving average to predict future automobile sales
 Regression – Predicts future sales by analyzing the historical
relationship between sales and time – This information is then
used to prepare a trend line that best illustrates the historical
relationship between sales and time – Figure 5.7 in the book
provides an illustrated example of a trend line used to forecast
future sales
 Product Stages – Utilizes the product life cycle stages
(illustrated in Figure 5.8) – This method shows how the five
stages of the product life cycle are related to sales volume for
seven products over a period of time – Use of this method may
allow managers to prevent some products from entering the
decline stage by improving product quality or by adding
innovations
o Evaluating Sales Forecasting Methods
 The methods above are not the only ones available for managers
 In practice, managers find each sales forecasting method has distinct
advantages and distinct disadvantages
 Best decision is typically to use a combination of methods to forecast
sales rather than just one method
 Research shows combining quantitative and qualitative forecasting
methods results in better forecasts
 Whichever one is chosen has to fit the needs of the organization and
can be adapted to changes in the managerial environment
 Table 5.2 in the text provides an illustration and discussion of the use of
forecasting methods over time
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Scheduling
o Process of formulating a detailed listing of activities that must be
accomplished to attain an objective, allocating the resources necessary to
attain the objective, and setting up and following time tables for completing
the objective
o Practical Challenge: Meeting Schedules “Clark/McCarthy Joint Venture Builds
Navy Hospital Ahead of Schedule” provides an example of the use of scheduling
a complex project
 Gantt Charts
 Developed by Henry L. Gantt
 Bar graph with time on the horizontal axis and resources to be
scheduled on the vertical axis
 Used to schedule resources needed
 Figure 5.9 in text illustrates the use of a Gantt chart to schedule
Workweek 28 activities for Wendy Reese and Peter Thomas –
walking students through this example provides a good look at
the value of Gantt charts as a summary overview of how
organizational resources are being used
 Program Evaluation and Review Technique (PERT)
 Technique developed partly from the Gantt chart, but also
includes a tool that does emphasize the interrelationship of
tasks that the Gantt charts do not include
 A network of project activities showing both the estimates of
time necessary to complete each activity, as well as the
sequence of activities that must be followed to complete the
project
 Contains two primary elements:
o Activity – specified set of behaviors within a project
o Event – completion of major product tasks
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o Each event is assigned corresponding activities that
must be performed before the event can materialize
Figure 5.10 in text provides an illustration of a sample PERT
network designed for building a house
Critical Path – that part of the PERT network requiring the
longest period of time to complete – A delay in completing this
sequence results in a delay in completing the entire project
Steps in Designing a PERT Network
o Step 1 – List all activities/events that must be
accomplished for a project and the sequence in which
these activities and events should be performed
o Step 2 – Determine how much time is needed to
complete each activity and event
o Step 3 – Design a PERT network that reflects all of the
information contained in steps 1 and 2
o Step 4 – Identify the critical path
Why Plans Fail
o Understanding why plans fail helps managers take the necessary steps to
eliminate the factors that cause failure and thereby increase the probability
that their plans will be successful
o Study by Ringbakk showed plans fail when:
 Corporate planning is not integrated into the total management system
 Lack of understanding exists in the different steps of the planning
process
 Managers at different levels of the organization have not properly
engaged in or contributed to planning activities
 Responsibility for planning is incorrectly vested solely in the planning
department
 Management expects that plans developed will be realized with little
effort
 In starting formal planning, too much is attempted at once
 Managers fail to operate by the plan
 Financial projections are confused with planning
 Inadequate inputs are used in planning
 Management fails to grasp the overall planning process
o Managers need to understand failed plans do not always lead to permanent
business failures – sometimes a failing plan can be salvaged through an
adjustment or bit of fine-tuning
o Plan B – contingency plan – may just be the right fit to avoid total failure