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Foundations of Planning
Chapter 7 Sumeyye KUSAKCI, MSc

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Decision-Making Conditions
Certainty
A situation in which a manager can make an accurate decision because the outcome of every alternative choice is known. A situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives. Limited information prevents estimation of outcome probabilities for alternatives associated with the problem and may force managers to rely on intuition, hunches, and gut feelings.

Risk

Uncertainty

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Legal Forms of Business Organizations

Sole trader

Partnership

owned and run by one individual and where there is no legal distinction between the owner and the business. Formed by two or more persons The owners are all personally liable for any legal actions and debts the company may face Distinction of ownership and management Separate legal entity independent from its owners Private Limited Company (Ltd.) Public Limited Company (PLC)

Corporation

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Legal Forms of Business Organizations

Owner OwnershipManagement Separation Liability

Sole Trader
Partnership Corporation Public Limited C. (PLC) Private Limited C. (Ltd.)

One individual
More than one individual More than one individual Offered to the public (Mostly on a stock exchange) Offered to private persons

Not separated
Not separated Separated Separated

Unlimited
Unlimited Limited Limited

Separated

Limited

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What Is Planning?
Henry Fayol defined planning in terms of forecasting future conditions, setting objectives, and developing means to attain objectives. A primary managerial activity that involves:
Defining the organizations goals Developing plans for organizational work activities

Formal planning
Specific goals covering a specific time period Written and shared with organizational members

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How Do Managers Plan?

Steps of Planning
Goals (also Objectives)
Desired outcomes for individuals, groups, or entire organizations Provide direction and evaluation performance criteria Answer the question of WHAT

Plans
Documents that outline how goals are to be accomplished Describe how resources are to be allocated and establish activity schedules Answer the question of HOW

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How Do Managers Plan?

Levels of Planning
Strategic Level
Broad future of the organization

Tactical Level
Translates strategic plans into specific goals

Operational Level
Translates tactical plans into specific goals and actions

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Levels of Planning
Time Horizon Strategic Level Tactical Level Operational Level Long Term Medium Term Short Term Scope Whole Organization Specific Parts of Organization Small Units of Organization Who? Top M. Middle Level M. FirstLine M. Specifcity Directional Specific Frequency of Use Single Use Standing Complexity High Middle Impact High Middle

Specific

Standing

Low

Low

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Types of Plans
Specific Plans

Directional Plans
Single-Use Plan Standing Plans

Plans that are clearly defined and leave no room for interpretation Flexible plans that set out general guidelines and provide focus, yet allow discretion in implementation

A one-time plan specifically designed to meet the need of a unique situation.

Ongoing plans that provide guidance for activities performed repeatedly.

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Approaches to Setting Goals

Traditional Goal Setting
Broad goals are set at the top of the organization. Goals are then broken into sub-goals for each organizational level. Assumes that top management knows best because they can see the big picture. Goals lose clarity and focus as lower-level managers attempt to interpret and define the goals for their areas of responsibility.

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The Downside of Traditional Goal Setting

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Approaches to Setting Goals

Management By Objectives (MBO)
Specific performance goals are jointly determined by employees and managers. Progress toward accomplishing goals is periodically reviewed. Rewards are allocated on the basis of progress towards the goals. Top management commitment and involvement is important

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Well-Written Goals
Written in terms of outcomes, not actions
Focuses on the ends, not the means.

Measurable and quantifiable

Specifically defines how the outcome is to be measured and how much is expected.

Clear as to time frame

How long before measuring accomplishment.

Challenging yet attainable

Low goals do not motivate. High goals motivate if they can be achieved.

Written down
Focuses, defines, and makes goals visible.

Communicated to all necessary organizational members

Puts everybody on the same page.

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Approaches to Planning
Top-Down Approach with a formal planning department
A group of planning specialists who help managers write organizational plans. Planning is a function of management; it should never become the sole responsibility of planners.

Involving organizational members in the process

Plans are developed by members of organizational units at various levels and then coordinated with other units across the organization.

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Why Do Managers Plan?

Purposes of Planning
Provides direction Reduces uncertainty Minimizes waste and redundancy Sets the standards for controlling

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Contemporary Issues in Planning

Criticisms of Planning
Planning may create rigidity. Plans cannot be developed for dynamic environments. Formal plans cannot replace intuition and creativity. Planning focuses managers attention on todays competition not tomorrows survival.