Business planning


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Business planning

  1. 1. vikas vadakara 1
  2. 2. Planning Function Meaning and nature of planning, types of plans, Planning process Objectives, Setting objectives, MBO method, process Strategies: definition, levels of strategies, its importance in an Organization Policies: meaning, formulation of policies Programs: meaning, nature Planning premises: concept, developing effective planning premises vikas vadakara 2
  3. 3.  Decision making, steps in decision making, approaches to decision making, types of decisions, various techniques used for decision making vikas vadakara 3
  4. 4. Planning meaning Basic and important managerial function Thinking in advance A process of chalking out a future course of action for accomplishing a purpose Bridge the gap between present and the desired future Helps to utilize available time and resources in an efficient and effective vikas vadakara 4
  5. 5. An exercise which determinesin advance; The ends [what is to be done or achieved?] The means [how it is to be done?] The timing [when to do what?] The responsibility and accountability [who should do what?] The reason [why it should be done?] vikas vadakara 5
  6. 6.  Planning transforms options and alternatives into a blueprint or a road map for future actions through selection and decision making Can be done for entire organization – corporate planning, business unit- business planning, division- divisional planning, department-departmental planning, at the level of an individual manager or employee -personal planning vikas vadakara 6
  7. 7. Why Is Planning Important? What has to be done A task can not be accomplished if the manager is not aware of:How is When isit to be it to be done done vikas vadakara 7
  8. 8. Why Do Managers Plan? Purposes of Planning ◦ Provides direction ◦ Reduces uncertainty ◦ Minimizes waste ◦ Sets the standards for controlling vikas vadakara 8
  9. 9. Nature of Planning A primary function of management An intellectual process- involves creative thinking, imagination, foresight, evaluation, sound judgment and decision making Goal oriented Future oriented and involves forecasting Flexibility – contingency plans Involves choosing among alternatives Planning and control are inseparable- vikas vadakara 9
  10. 10. Types of Planning vikas vadakara 10
  11. 11. Based on Breadth Strategic Plans ◦ Apply to the entire organization. ◦ Establish the organization’s overall goals. ◦ Seek to position the organization in terms of its environment. ◦ Cover extended periods of time. Operational Plans ◦ Specify the details of how the overall goals are to be achieved. ◦ Cover short time period. ◦ Different operational plans: policies, procedures, method, rules vikas vadakara 11
  12. 12. Based on Time Frame Long-Term Plans ◦ Plans with time frames extending beyond three years Short-Term Plans ◦ Plans with time frames on one year or less ◦ Guides day to day activities vikas vadakara 12
  13. 13. Based on Specificity Specific Plans ◦ Plans that are clearly defined and leave no room for interpretation Directional Plans ◦ Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation. vikas vadakara 13
  14. 14. vikas vadakara 14
  15. 15. Based on Frequency of Use Single-Use Plan ◦ A one-time plan specifically designed to meet the need of a unique situation. Standing Plans ◦ Ongoing plans that provide guidance for activities performed repeatedly. vikas vadakara 15
  16. 16. Steps in Planning Process Being aware of opportunities Setting objective or goals Considering planning premises Identifying alternatives Comparing alternatives in light of goals Choosing an alternative Formulating supporting plans Quantifying plans by making budgets Implementation of plans Review and revision vikas vadakara 16
  17. 17. Limitations of Planning Lack of accurate information Time consuming process Expensive Environmental constraints Capital invested in Fixed Assets limits planning vikas vadakara 17
  18. 18. ◦ Planning may create rigidity.◦ Plans cannot be developed for dynamic environments.◦ Formal plans cannot replace intuition and creativity.◦ Formal planning reinforces today’s success, which may lead to tomorrow’s failure. vikas vadakara 18
  19. 19. Planning Principles Plan should be in written Clearly defined objectives. Objectives should be specific, realistic, time bound. Should be approved by the person who is having authority Review of past performance and its feedback should be considered Should identify main issues Budgetary and other supporting activities should be done well in advance Timelines and milestones for implementation of plan need to be developed Should have contingency plan Should be reviewed periodically vikas vadakara 19
  20. 20. Objectives Broad aims what an organization wants to achieve Derived from mission statement Shows what we want to accomplish, where we want to be, how we want to do. Objective example: To increase profitability To increase market share Enhance productivity Achieve innovation vikas vadakara 20
  21. 21. Setting Objectives It’s a process of converting vision and mission into performance outcomes Objectives can be set following areas; Customer Service Employee Welfare Social Responsibility vikas vadakara 21
  22. 22. Traditional Objective Setting vikas vadakara 22
  23. 23. Points to remember whilesetting objectives: SMART Objectives S: specific – what to achieve M: Measurable – results should be measurable [ improving sales by 25% by next year] A: Achievable – should not be too difficult to achieve the goal R: Realistic- Should be practical and reasonable T: Time bound- should be achieved in a time limit• Objectives should be developed for both vikas vadakara 23
  24. 24.  Involve people who should carry out plan Should be a challenging task to achieve them One should not have too many objectives to achieve, may create chaos and may reduce efficiency Prioritize the objectives based on importance and urgency if you have more than one objectives. Periodic review of the performance must be there to ensure that performance is directed towards achieving the objective vikas vadakara 24
  25. 25.  Peter Drucker popularized MBO method in his famous book ―The Practice of Management‖ in 1954. ―MBO is a method whereby managers and employees define objectives for every department, project and person and use them to monitor subsequent performance‖ vikas vadakara 25
  26. 26. Nature of MBO Method Integrates many managerial activities in a systematic manner for effective and efficient achievement of organizational and individual objectives. Focuses on results not on processes or activities Specific objectives for individual employees are derived from organizational objectives. Focuses on accomplishment of specific objectives which are set through participation of employees to engage, empower and motivate them. Specific objectives can be verified Periodic performance appraisal and evaluation is undertaken to assess the achievement of objectives in accordance withvikas vadakara plans. 26
  27. 27. Application of MBO ApproachMBO approach is more appropriate for following type of organizations; Knowledge based organization, where employees are competent and have good technical knowledge Organizations which have self motivated employees Can be used by CEOs of MNCs for their managers abroad.Examples of companies who applied MBO : Canon Production System, Intel Corporation vikas vadakara 27
  28. 28. MBO Process1. Developing overall organizational goals in specific terms: Specific, measurable, realistic objectives are decided for entire organization through participation of different levels of management. While setting goals they have consider internal strengths, weaknesses and external opportunities and threats2. Translating organizational goals into subunit goals for clarifying organizational roles Specific objectives for various departments and sub units should be developed through individual discussion between superior and the subordinate determine role, responsibility and job description of sub ordinate. vikas vadakara 28
  29. 29. 3. Setting subordinates objectives Setting subordinates objectives involves Identify their capacity or strengths Define what they can contribute [potentiality]4. Establishing checkpoints Milestones and timeframe are established to review the performance vikas vadakara 29
  30. 30. 5. Implementing and maintaining self control Employees should be self motivated to perform the plan in a desired manner. From this step, actual performance will start.6. Periodic review of the plans Discuss individual progress towards targets and appraise the performance. Based on the check points, appraisal can be conducted.7. Feedback Get the feedbacks regarding performance, barriers to performance, extra training or knowledge required etc. This feedback can be input for developing new objectives. vikas vadakara 30
  31. 31. Benefits of MBO Method Effective management as focuses on results Clarity in organizational action Encourage commitment for attaining organizational goals Professional satisfaction- there is a scope for rewards and recognition as it is based on the performance Establishment of effective controls. This method helps managers in what should be monitored, evaluated and measured. vikas vadakara 31
  32. 32. Limitations Failure to educate employees about MBO method Lack of adequate guidelines for goal setting [may not set optimum goals] Chance of establishing easily attainable goals by employees Inflexibility: managers and employees may not accept any change in their objectives. Can be stressful to employees: just to impress superiors employees may set too difficult goals Lack of strong commitment from top management vikas vadakara 32
  33. 33. Strategic ManagementProcess vikas vadakara 33
  34. 34. Strategic Management Process Step 1: Identifying the organization’s current mission, objectives, and strategies ◦ Mission: the firm’s reason for being  The scope of its products and services ◦ Goals: the foundation for further planning  Measurable performance targets Step 2: Conducting an external analysis ◦ The environmental scanning of specific and general environments  Focuses on identifying opportunities and threats vikas vadakara 34
  35. 35. Components of a Mission Statement• Customers: Who are the organization’s customers?• Products or services: What are the organization’s major products or services?• Markets: Where does the organization compete geographically?• Technology: How technologically current is the organization?• Concern for survival growth, and profitability: Is the organization committed to growth and financial stability?• Philosophy: What are the organization’s basic beliefs, values, aspirations, and ethical priorities?• Self-concept: What is the organization’s major competitive advantage and core competencies?• Concern for public image: How responsive is the organization to societal and environmental concerns?• Concern for employees: Does the organization consider employees a valuable asset? vikas vadakara 35
  36. 36. Strategic Management Process(cont’d) Step 3: Conducting an internal analysis ◦ Assessing organizational resources, capabilities, activities, and culture:  Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm.  Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage. Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats) vikas vadakara 36
  37. 37. Identifying the Organization’s Opportunities vikas vadakara 37
  38. 38. Strategic Management Process(cont’d) Step 4: Formulating strategies ◦ Develop and evaluate strategic alternatives ◦ Select appropriate strategies for all levels in the organization that provide relative advantage over competitors ◦ Match organizational strengths to environmental opportunities ◦ Correct weaknesses and guard against threats vikas vadakara 38
  39. 39. Strategic Management Process(cont’d) Step 5: Implementing strategies ◦ Implementation: effectively fitting organizational structure and activities to the environment ◦ The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements. Step 6: Evaluating Results ◦ How effective have strategies been? ◦ What adjustments, if any, are necessary? vikas vadakara 39
  40. 40. Levels of Strategy vikas vadakara 40
  41. 41. Corporate-Level Strategies Strategy that determines what business a company is in, should be in or wants to be in and what it wants to do with those businesses.3 types Growth Strategy Stability Strategy Renewal Strategy vikas vadakara 41
  42. 42. Growth Strategy Seeking to increase the organization’s business by expansion into new products and markets Results: increase in sales revenue, no of employees, market share. Example : Wal-Mart planned to open 600 new stores in 2005. Now it has got more than 32000 stores across the world. vikas vadakara 42
  43. 43. Types of Growth Strategies ◦ Concentration ◦ Vertical integration ◦ Horizontal integration ◦ Diversification vikas vadakara 43
  44. 44. Growth Strategies Concentration ◦ Focusing on a primary line of business and increasing the number of products offered or markets served. Vertical Integration ◦ Backward vertical integration: attempting to gain control of inputs (become a self-supplier). ◦ Forward vertical integration: attempting to gain control of output through control of the distribution channel and/or provide customer service activities (eliminating intermediaries). vikas vadakara 44
  45. 45. Growth Strategies (cont’d) Horizontal Integration ◦ Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals. ◦ Example: Oracle Corp acquired PeopleSoft. Related Diversification ◦ Expanding by merging with or acquiring firms in different, but related industries that are ―strategic fits‖. ◦ Ex: Tea Powder Company acquires firm in Milk or Sugar Industry Unrelated Diversification ◦ Growing by merging with or acquiring firms in unrelated industries where higher financial returns are possible. ◦ Ex: Agriculture Products Manufacturing Company acquires automobile firm, petrochemical or telecommunication firm. vikas vadakara 45
  46. 46.  Many companies combine different approaches to achieve growth. Example: McDonald has grown by using Concentration by opening almost 32000 outlets in more than 100 countries of which 30% are owned. It has used horizontal integration by purchasing Donato’s Pizza Chains. It also moved into the premium coffee market with its McCafe Coffee Shops. vikas vadakara 46
  47. 47. Corporate Level Strategies(cont’d)  Stability Strategy ◦ A strategy that seeks to maintain the status quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons. Reasons : ◦ When an organization’s resources stretched to their limits and further expansion might cause failure ◦ Recession ◦ Slow moving industry ◦ Small organizations Effects: Serving same clients by offering same product or service, maintaining same market share. vikas vadakara 47
  48. 48. Corporate Level Strategies(cont’d) Renewal Strategies ◦ Developing strategies to counter organization weaknesses that are leading to performance declines.  Retrenchment: focusing of eliminating non-critical weaknesses and restoring strengths to overcome current performance problems.  Turnaround: addressing critical long-term performance problems through the use of strong cost elimination measures and large-scale organizational restructuring solutions.  Example: Downsizing manpower because of recession vikas vadakara 48
  49. 49. Business-Level or CompetitiveStrategy Business-Level Strategy ◦ A strategy that seeks to determine how an organization should compete in each of its SBUs (strategic business units). vikas vadakara 49
  50. 50. Competitive Strategies Cost Leadership Strategy ◦ Seeking to attain the lowest total overall costs relative to other industry competitors. Differentiation Strategy ◦ Attempting to create a unique and distinctive product or service for which customers will pay a premium. ◦ Ex: Apple iPOD [unique product design] Focus Strategy ◦ Using a cost or differentiation advantage to exploit a particular market segment rather a larger market. vikas vadakara 50
  51. 51. Functional Level Strategies Strategy used by an organization’s various departments to support the business level strategy. vikas vadakara 51
  52. 52. Policy Broad guidelines which tells how decisions have to be made and how to do the work. Provides boundaries around decisions Act as a general guideline for decision making vikas vadakara 52
  53. 53.  George Terry ― A verbal, written or implied overall guide, setting up boundaries that supply the limits and direction in which managerial action will take place‖ Example: Promotion policy based on performance vikas vadakara 53
  54. 54. Policy Formulation Identifying Backgroundrepeated or study by collecting & Policy draft similar will be Feedback situations, analyzing related circulated areas information Communicatio n to all through Final copy Periodic memos, policy Review notices, manuals vikas vadakara 54
  55. 55. Programmes Precise plans of action followed in a sequence Lays down steps that are to be undertaken to achieve objective within a timeframe Suitable for non repetitive activities Ex: Training programme vikas vadakara 55
  56. 56. Nature of programme Single use plans for non repetitive activities Provides steps in proper sequence to complete task May include policies, procedures, budgets, schedule Can be evaluated based on budgets, results, feedback vikas vadakara 56
  57. 57. Planning Premises Assumptions about environment which affect planning activity George Terry: ― Planning premises are the assumptions providing a background against which the estimated events affecting the planning will take place‖ vikas vadakara 57
  58. 58. Classification Internal & External Planning Premises Tangible & Intangible Planning Premises Controllable & Uncontrollable Planning Premises vikas vadakara 58
  59. 59. Developing effective planningpremises Identifying the premises Developing the alternative premises Verifying the consistency of the premises Communicating the premises vikas vadakara 59
  60. 60. Decision Making Decision ◦ Making a choice from two or more alternatives. ◦ Definition by George Terry: ― Decision making is the election based on some criteria from two or more possible alternatives‖ ◦ Koontz & ODonnel ― Decision is the selection from among alternatives of a course of actions‖ vikas vadakara 60
  61. 61.  The Decision-Making Process ◦ Identifying a problem and decision criteria and allocating weights to the criteria. ◦ Developing, analyzing, and selecting an alternative that can resolve the problem. ◦ Implementing the selected alternative. ◦ Evaluating the decision’s effectiveness. vikas vadakara 61
  62. 62. Steps in Decision Making vikas vadakara 62
  63. 63. Types of Decision2 Categories:1. Programmed Vs Non Programmed Decisions [based on nature of decision making] Programmed Decisions Non Programmed Decisions Decisions taken for non Decisions taken for frequently repeatitive problems, unique and repetitive activities problems Less use of judgement More use of judgment Decisions made by using predefined rules and Decisions made by using regulations experience, creativity vikas vadakara 63
  64. 64. 2. Based on Managerialfunctions Strategic Decision Tactical Decision Operatonal Decision Provides direction to Decision taken in order to These are every day decisions organization by establishing implement and support taken to implement and support vision, mission and long term strategic decision tactical decisions goals Critical and very important Are moderately important Less important compared to for organization to organization tactical and strategic decisions. Have short term impact and Have moderate impact and involve low cost. But series of Have long term impact and less costly compare to poor operational decisions can costly to organization strategic decisions cause a serious damage to organization Taken by middle level Taken by front line management; Taken by Top Management management supervisors, team leaders etc If orgnization decides to ex: Decision to become a become premium player, deciding shift timings to premium player or a mass tactical decision can be employees producer whether to select a brand ambassadar or not vikas vadakara 64
  65. 65. Decision Making Conditions The decision maker faces conditions of:Certainty Risk Uncertainty Level of ambiguity and chances of making a bad decision Lower Moderate Higher vikas vadakara 65
  66. 66.  Rationality ◦ Managers make consistent, value-maximizing choices with specified constraints. ◦ Assumptions are that decision makers:  Are perfectly rational, fully objective, and logical.  Have carefully defined the problem and identified all viable alternatives.  Have a clear and specific goal  Will select the alternative that maximizes outcomes in the organization’s interests rather than in their personal interests. vikas vadakara 66
  67. 67. Exhibit 6–6 Assumptions of Rationality vikas vadakara 67
  68. 68.  Bounded Rationality ◦ Managers make decisions rationally, but are limited (bounded) by their ability to process information. ◦ Assumptions are that decision makers:  Will not seek out or have knowledge of all alternatives  Will satisfice—choose the first alternative encountered that satisfactorily solves the problem—rather than maximize the outcome of their decision by considering all alternatives and choosing the best. ◦ Influence on decision making  Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong. vikas vadakara 68
  69. 69. • Intuitive decision making ◦ Making decisions on the basis of experience, feelings, and accumulated judgment. vikas vadakara 69
  70. 70. Various Techniques used for Decision Making  Individual Decision Making Techniques 1. Risk Analysis: Involves analyzing the risk involved in each alternative. 2. Decision Trees Various decision alternatives and their outcomes are displayed in the form of branches of a tree. Manager, out of his experience and intuition assigns probabilities to outcomes. vikas vadakara 70
  71. 71. Group Decision Making Techniques  Brainstorming: A group of people are encouraged to develop creative ideas or solutions to problem. This can reduce fear of criticism by other members  Nominal Group Technique: Encourages interaction among group members in a structured manner. Problem will be stated to group. Every member will work independently on problem, later all will discuss the solutions developed by each of the member. Each solution will get votes from all the members. A solution with highest votes will be adopted vikas vadakara 71
  72. 72.  Delphi Group: Problem will be submitted to a panel of experts. The panel members never meet face to face, they don’t even know other members. Experts contribute individually and their opinions will be combined and in effect averaged to get the best solution. vikas vadakara 72
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