Chapter 3 - Planning

Lesson 1 – Definition and Nature of Planning

Lesson 2 – Types of Plan
Lesson 3 – Planning at Different Levels in the
Firm
Lesson 4 – P_lanning Techniques and Tools and
their Applications
Lesson 5 – Decision Making
Planning
• In this Chapter, you will begin to
Objective:
study planning, the first
management function, which sets 1.To discuss the nature of planning
an organization’s agenda 2.Compare and contrast the different
• Establishing plans based on set types of plans
goals will provide direction to the 3.Describe planning at different levels
organization’s activities and, thus of the firm
reduce uncertainties and wastage 4.Apply appropriate planning
• You will see that planning is an techniques and tools
extremely complex process since it 5.Formulate a decision from several
requires a systematic method of alternatives
recognizing and analyzing the
elements of the organization’s
external environment and
matching them with the firm’s
internal environment’s factors and
capabilities
• Begin to understand how
assumptions are formulated based
on forecasts of expected future
 Lesson 1 – Definition and Nature of Planning

Planning
A process that involves the setting of the organization’s goals,
establishing strategies for accomplishing those goals, and
developing plans of action or means that managers intend to use
to achieve organizational goals
Is the first management function and for good reason it is a crucial
and essential part of management
Importance of Planning
 Provides direction to all organization’s human resources – both managers as well
as employees
 It reduces uncertainty; it compels managers to consider future events that may
affect their company
 Minimizing of wastes will result if there is proper coordination of activities
 Establishing goals and standards during planning may be used for controlling,
another necessary managerial function

“Without planning, goals and standards will be absent and controlling

will not be possible since there will be no standard to compare or assess
work effort with”.
Relationship of Planning to Individual or
Organizational Performance
 Relationship between planning and performance is mainly due to
systematic planning’s association with the excellent financial status of the
organization and higher return of investments, higher income, and profit
that could be traced to the excellent performance of its human resources
 Planning-performance relationship could also be associated with the time
spent in preparing and executing a formal organizational or individual
plan.
 A well-though-out plan requires a longer period of preparation; its execution
or application must also be done for a certain period of time-months or
years – before it begins to affect performance
Difference between Goals and Plans

Goals
 are the targets or desired ends that management wants to reach
 Serve as the foundation of planning
 Precede plans
Plans
 are the action or means that administrators/managers intend to use to
achieve organizational goals
Group activity
1. Set goals or targets for a fast food business. List them down
2. Look ahead, list down possible future changes in the fast food
business that you made goals for in exercise number one
 Lesson 2 – Types of Plans

 Organizational plans can be generally described in terms of comprehensiveness,

length of time or time frame, specificity, and frequency of use.
Comprehensiveness
 Refers to the completeness of planning coverage; example: it may start from plans that cover
the entire organization – strategic plans, up to operational plans that apply to a particular
operational area only
 The more comprehensive the plan is, the better, as this could completely guide both the
employer and employee toward the fast achievement of company goals
Length of time/time frame
 Plan maybe long-term, or covering more than three years, or short-term, covering
one year or less
 Lesson 2 – Types of Plans

 Organizational plans can be generally described in terms of comprehensiveness,

length of time or time frame, specificity, and frequency of use.
Specificity
 Refers to very detailed, clearly defined plans wherein objectives are clearly stated
and could easily be understood
Frequency of use
 Refers to the number of times or instances a plan may be used
 Example: strategic plans have single use, while operational plans are usually
standing or are used frequently or for several times
 Referring to set plans is often necessary to ensure that all plans are carried out,
thus, hastening the achievement of the organization’s goals
SWOT analysis or matrix
 Is one of the most structured and used planning method to evaluate a business
venture
SWOT External (PESTEL and Five Forces)
 the opportunities and threats make up the external part of the SWOT analysis
TOWS analysis or matrix
 A SWOT analysis helps assessing a company’s current internal and external
situation, but does not provide concrete strategic actions to take.
 One way to map out the strategic options a company has, is by using the so called
TOWS matrix (or TOWS analysis).
 By combining the external environment’s opportunities and threats with the
internal organization’s strengths and weaknesses, management can come up with
four basic strategies to follow based on the situation it is in:
TOWS Matrix

WT situation – Mini-Mini strategy

 The company in this case has little development
opportunities.
 It operates in a hostile environment and its
potential for change is small.
 It does not have significant strengths, which
could withstand threats.
 The aim of the Mini-Mini strategy is to minimize
both weaknesses and threats. Mini-Mini strategy
boils down to a pessimistic version of the
liquidation of a company or in an optimistic
situation – to strive for survival by merging with
another organization.
TOWS Matrix

WO situation – Mini-Maxi strategy

 In this situation the company has more
vulnerabilities (weaknesses), but its environment
provides plenty of opportunities to resolve that.
 The Mini-Maxi strategy attempts to minimize the
weaknesses and to maximize the opportunities. The
strategy should include the exploitation of these
opportunities while reducing or correcting
weaknesses within the organization. Outsourcing
activities or acquiring another company with the
right resources could be an option for example.
TOWS Matrix

ST situation – Maxi-Mini strategy:

 In this case we see a strong company
operating in a hostile environment.
 The aim of a Maxi-Mini strategy is to
maximize the strengths of a company
while minimizing the threats through
these strengths. A company with strong
financial capabilities and cost-reducing
skills, could lower its prices to drive out
competition.
TOWS Matrix

SO situation – Maxi-Maxi strategy:

 Any company would like to be in a position where
it can maximize both strengths and opportunities.
Such an enterprise can lead from strengths,
utilizing its resources to take advantage of the
opportunities the market is offering.
 Companies in these situations could think about
expanding internationally or diversifying their
product portfolio to boost revenues. For these
growth opportunities you might want to look at
the Ansoff Matrix in this article
SWOT Analysis converted into TOWS (SO,
ST, WO and WT Strategies)
SWOT Analysis In Sum
 A great thing about the SWOT analysis is the fact that it
combines different research streams and perspectives
(e.g. Resource Based View (RBV) and Industrial
Organization (I/O) perspectives). Frameworks such as
Porter’s Five Forces were critisized that they focused too
much on the external environment to determine a
company’s profit potential, whereas the VRIO framework
relied too much on internal resources and capabilities as
a source for competitive advantage.
 In reality both internal and external factors will have to be
taken into account of course to improve a company’s
chances for success. A
 SWOT analysis combined with a TOWS analysis offers a
good starting point to asses the current situation and
to evaluate potential next steps.
 Managers meet many planning challenges as they go about their tasks and direct their company’s
affairs. In some organizations, the planning environment is steady, but in others, it is dynamic, so
different types of plans result to meet organizational needs.

Types of Planning
Strategic plans
 plans that establish the organization’s overall goals and apply to the entire firm
 They are broad in scope and are the responsibility of the CEO, president and general manager of
the company
Operational plans
 Plans that apply to a particular unit area only
 Their scope is narrow
 Achievement of company goals may not be achieved if operational plans are not clear
Long-term plans
 plans that go beyond three years; everyone must understand the organization’s long-term plans to
avoid confusion that may divert the organization members’ attention
Short-term plans
 Plans that cover one year or less
 Plan must lead toward the attainment of long-term goals and are the responsibility of the unit/department
heads

Directional plans
 Plans that are flexible or give general guidelines only
 Although flexible and general, these plans must still be related to the strategic plans

Specific plans
 Plans that clearly stated and which have no room for interpretation; language must be very understandable

Single-use plans
 Plans used or stated once only as this applies to the entire organization;
 Refer to the strategic plans of the firm

Standing plans
 Plans that are ongoing; provide guidance for different activities done repeatedly
 Refer to the identified activities of operational plans
Steps in Planning
Planning is a process and , as such, involves steps – from carrying out its purpose,
setting of goals/objectives and determining what should be done to accomplish them,
Schermerhorn (2008) gave five steps in the planning process:
1.Define your goals/objectives by identifying desired outcomes/results in very specific ways
2.Determine where you stand in relation to set goals/objectives; know your strength and weaknesses
3.Develop premises regarding future conditions; anticipate future events, generate alternative
“scenarios” for what may happen; identify for each scenario things that may help or hinder progress
towards your goals/objectives
4.Analyze and choose among action alternatives; list and carefully evaluate possible actions and choose
the alternative most likely to accomplish goals/objectives
5.Implement the plan and evaluate results; take corrective action and revise plans as needed.
 Lesson 3 – Planning at Different Levels in the Firm
 Different level in the firm are all engaged in planning; however all the resulting
plans must be related to one another and directed toward the same goals
 Planning at the different levels of management include strategic planning, tactical
planning, and operational planning

Bateman and Snell (2008) stated that an effective strategy provides a basis for
answering 5 broad questions about how organizations will meet its goals / objectives.
1. Where will we be active?
2. How will we get there?
3. How will we win in the marketplace?
4. How fast will we move and in what sequence will we make changes?
5. How will we obtain financial returns?
Top-level Management Planning
(Strategic Planning)
 Top-level managers are responsible for the organization’s strategic planning
which involves making decisions about the organization’s long-term goals and
strategies
 CEOs, company presidents, or the organization’s senior executives develop and
execute the said strategic plan, however they do not formulate or execute the plan
on their own; a management team supports and help top-level managers in
carrying out these tasks
 Strategic planning starts with defining the organization’s goals/objectives, the
major targets related to the maintenance of the organization’s stability, and its
organizational culture, values, and growth improving its productivity,
profitability, effectiveness and efficiency, among others
Middle-level Management Planning
(Tactical Planning)
 Operational planning involves identifying the specific procedures and processes required
at the lower levels of the organizations
 This also involves routine tasks or tasks repeatedly done by the organization’s lower level
units
Frontline/Lower-level Management Planning
(Operational Planning)
 Tactical planning refers to a set of procedures for changing or transforming broad
strategic goals and plans into specific goals and plans that are applicable and needed in
one unit/portion of the organization
 It focused on major actions that must be done by unit in order to contribute its share for
the achievement of the strategic plan
Integrating Strategic, Tactical and Operational Planning
 The present organizational planning is not as rigid as the hierarchical planning
earlier discussed . Managers in different hierarchical levels of the organization
may contribute their ideas or suggestions in developing the strategic plan, a task
originally assigned to the senior executives.
 Frontline managers may make decisions that could influence strategy formulation
in the higher level. All plans, however, must be directed toward the achivement of
the organization’s strategic goals
 Finally, CEOs or company presidents must see to it that all communication lines
in their organization are open, that there is excellent dissemination of information
to all levels, and that they are aware of everything that is happening in their firm
 Lesson 4 – Planning Techniques and Tools and
their Applications
For effective planning in today’s dynamic environments, different techniques and
tools must be used such as:
Forecasting
 Is an attempt to predict what may happen in the future
 All planning types without exception, make use of forecasting
 Qualitative or Qualitative
 However, these are just aids to planning and must be treated with caution
 Forecast are predictions and maybe inaccurate, at times, due to errors of human
judgement
Contingency plans
 Contingency factors may offer alternative courses of action when the unexpected
happens or when things go wrong
 Must be prepared by managers, ready for implementation when things do not
turn out as they should be
 Contingency factors called the “trigger points” indicate when the prepared
alternative plan should be implemented
 Trigger point – change in an attribute, condition, factor, parameter, or value that represents
crossing a threshold and actuates or initiates a mechanism or reaction that may lead to a
radically different state of affairs
Scenario planning
 Planning for future states affairs is a long-term version of contingency
planning
 Several future states of affairs must be identified and alternative plans
must be prepared in order to meet the changes or challenges that may
occur in each of the future scenarios.
 This is a big help for organizations because it allows them to plan
ahead and make a necessary adjustments in their strategies and
operations
 Example: environmental pollution, human rights violation, climate
and weather changes, earthquake
Benchmarking
 Another planning technique that generally involves external
comparisons of a company’s practices and technologies with those of
other companies
 Its main purpose is to find out what other people and organizations do
well and then plan how to incorporate these practices into the
company’s operations
 External benchmarking
 Search for best practices used by other organizations that enabled them to achieve
superior performance
 Internal benchmarking
 Is when they encourage all their employees working in their different work units to learn
and improve by sharing one another’s best practices
Participatory planning
 Is a planning process that includes the people who will be affected by
the plans and those who will be asked to implement them in all
planning steps
 Creativity, increased acceptance and understanding of plans, and
commitment to the success of plans are the positive results of this
planning technique
Fast Learning Review
1. What are the bases for describing organizational plans?
2. Name at least five types of plans. Which, in your opinion, is the plan that is
hardest to prepare?
3. Which plan is described to be short-term, specific, and narrow? Explain your
answer
4. Name the five steps in planning. Is there a particular step that could be
bypassed or eliminated? Explain your answer.
 Lesson 5 – Decision-making
Decision-making
 Is a process which begins with problem identification and ends with the
evaluation of implemented solutions
 All managers and workers/employers in organizations make decisions or make
choices that affect their jobs and the organization they work for. This lesson’s
focus is on how they make decisions by going through the eight steps of the
decision-making process suggested by Robbins and Coulter (2009)
The Decision-Making Process
1. Identifying a problem
 Finding a discrepancy (difference) between an existing (current) and a desired state of affairs (things
are not going as they should).
 Three Characteristics (aspects) of Problems.
A problem is identified when:
1.A manager becomes aware (conscious) of it.
2.There is pressure to act and solve the problem.
3.The resources needed to take action are available (means, authority, information).
Note: It is important not to confuse a problem with the symptoms (visible indications) of the problems.
2.Identifying decision criteria
Managers must determine and list the relevant (important, significant) criteria (factors, items) to include in
making a choice — or one criterion that will guide (direct) a decision — aimed at resolving the problem
identified in step
1. Costs that will be incurred (investment required)
2. Risks likely to be encountered (chance of failure)
3. Outcomes that are desired (growth of the firm)
3. Allocating weights to the criteria
 Prioritizing the criteria that were identified in step 2 by assigning (giving) a “weight” to each.
 Decision criteria are not of equal importance Assigning a weight to each item (criterion) places
the items in the correct priority (order of importance) in the decision making process.
 E.g. Giving the most important criterion a weight of 10 and then assign weights to the rest
against that standard: A weight of 10 would be twice as important as a weight of 5.

4. Developing alternatives
 Listing viable (workable) alternatives (other possible actions) that could resolve the problem.
Alternatives are only listed without evaluation.

5. Analyzing alternatives
 Appraising (evaluating, analyzing) each alternative’s strengths and weaknesses against the
criteria established in steps 2 and 3.
 Alternatives are analyzed for their effectiveness in resolving the issue.
6. Selecting an alternative
 Choosing the best alternative from among those considered.
 Once the criteria in the decision have been weighted, and viable alternatives analyzed, the
alternative with the highest total in step 5 is chosen.

7. Implementing the alternative

 Putting the chosen alternative into action. Conveying (communicating) the decision to those who
will implement it and gaining (getting) their commitment (cooperation) to the decision.

8. Evaluating decision effectiveness

 Evaluating (measuring) the outcome (result) of the decision to see if the problem has been resolved.
 The soundness (quality, goodness) of the decision is judged by its outcomes.
 How effectively was the problem solved resulting from the chosen alternatives? If the problem was
not solved, what went wrong?
Types of Decisions
 A decision is a choice among possible alternative actions
 Like planning, decision-making is a challenge and requires careful consideration
for both types of decisions:

Structured or programmed decision

 A decision that is repetitive and can be handled by using a routine approach
 Such repetitive decision applies to resolving structured problems which are
straightforward, familiar, and easily defined
 Example restaurant customer complains about the dirty utensils the waiter has
given him. This is not an unusual situation, and , therefore, standardized
solutions to such problem may be readily available
 Inventory control, scheduling,
Unstructured or non-programmed decision
 Applied to the resolution of problems that are new or unusual, and for which
information is incomplete
 Are described to be unique, non-recurring and need custom-made decisions
 Example: a hotel manager is asked to make decision regarding the building of a
new hotel branch in another city to meet the demands of businessmen there. This
is an unstructured problem and, therefore needs unstructured or non-
programmed decision resolve it.
 Choosing a vacation destination
Types of Decision-making Conditions
 Conditions, under which decisions are made, also vary:

Certainty conditions
 Ideal conditions in deciding problems; theses are situations in which manager can
make precise decisions because the results of all alternatives are known
 Example: bank interest

Risk or uncertainty conditions

 A more common decision in deciding problems
 Compel the decision maker to do estimates regarding the possible occurrence of
certain outcomes that may affect his or her chosen solution to a problem.
 Example a manager is asked to invest some of their company funds in the money
market offered by financial institution.
Fast learning Review
1. Enumerate the steps involved in decision making. Which, in your opinion, is the
most important step? Explain your answer
2. Why is it easier to make structured or programmed decision?
3. Describe the characteristics of an unstructured or non-programmed decision.
4. Compare the two types of decision-making conditions. Do you agree with the
statement that risk conditions in decision-making are more common in
occurrence?
Group Activity
1. Choose one problem in any company. Solve your identified problem by going
through the eight steps of the decision-making process
2. Give your own three examples of decision-making under risk or uncertainty
conditions