The Planning Process. Decision-making. Qualitative Decision Making. We try to avoid mistakes... One thing managers do; NOT the only thing.

Transcription

1 The Planning Process We try to avoid mistakes... Copyright 2000 by Donald Jenner All Rights Reserved 1 Decision-making One thing managers do; NOT the only thing. And we really should ask, do they make prudent decisions, and if they ever do so, when and how so? 2 Qualitative Decision Making Essentially, consulting collected wisdom Expert opinion we study this Experience been there, done that Survey results that s cool; that s not! Informal, Quick, Cheap Works well in groups sometimes Lacks structure and current input... 3

2 SWOT Analysis List Strengths (advantages, what you do well, resources, other people s views of your strengths List Weaknesses (what you can do better, what you do badly, what to avoid) Opportunities (and trends) Threats (obstacles, competition, changes in tech, products, specs, &c., financial problems) and how they threaten your business. 4 Pareto Analysis List problems and rank them List possible changes related to each problem Assess changes for costs and benefits (i. e., will the change help fix the problem, at what cost?) Focus on implementing best options 5 Decision Trees Question: Develop new product or consolidate? New Product thorough development rapid devlopment market reaction This tree shows all the obvious options in the decision to be made Consolidate strengthen products Decision nexus Possible Outcome reap devlopment 6

3 Decision Trees #2 Question: Develop new product or consolidate? New Product Consolidate Decision nexus Possible Outcome thorough development devlopment rapid devlopment strengthen products reap devlopment market reaction $500K $50K $5K $500K $50K $5K $200K $20K $2K $20K $1K Assign values to different possibilities. Assign probabilities to uncertain (circle) nodes (values total 1). Calculate possible outcomes) 7 Decision Trees #2 Question: Develop new product or consolidate? New Product Consolidate Decision nexus Possible Outcome thorough development devlopment rapid devlopment strengthen products reap devlopment market reaction $500K $50K $5K $500K $50K $5K $200K $20K $2K $20K $1K 1 st step: Branch probability times branch value 2 nd step: Sum of 1 st step calcs. These are the values for the circles. 8 Decision Trees #3 Question: Develop new product or consolidate? New Product Consolidate Decision nexus Possible Outcome thorough development devlopment cost=? rapid devlopment cost=? strengthen products cost=? reap devlopment cost=? market reaction $500K $50K $5K $500K $50K $5K $200K $20K $2K $20K $1K Fill in cost figures for each major option branch. Subtract cost from circlenode value. Result is bestguess at which course works 9

4 Business Decision problems The decision-making process looks objective but depends on highly subjective interpretations of data. The data themselves may be less than reliable. Relies heavily on art not science 10 Time Series Eternal Progress Assumption is, a series continues forever, greed will rule the world, resources are ever present, the stock market will always rise. In short, progress is both inevitable and eternal. HAH! 11 Causal Analysis To know a thing is to know its causes. May be post-hoc ( This could happen only because that happened first. ) deductive-nomological problems the term cause is now very restricted Rests on assumptions that all significant factors are known and that trends persist. May appear objective when not at all so 12

5 Quantitative Models More rational Data-based Focused on manageable program parts Provide detailed answers Take time to implement Offputing to folks with experience Involves new approaches Can ignore non- quantifiable factors 13 Probability An advanced mathematical model (well, relatively so ) Covered in greater detail by Professor Berson Effectively, a way of weighting different possibilities. 14 Linear Programming First assumption: All variables are known. In this case, fixed costs and variable costs across a given volume of production in different circs. are known. This is a reasonable assumption. 15

6 Linear Programming Second assumption: Related variables plot in such a way as to establish a measurable constraint. What is possible falls within the constraint, and an optimum case will be apparent. 16 Linear programming (variant) Notice, two variables (# sedans, # sports cars) [not a real limit] Note too, that some of the results are simply silly (try and sell half a car ) Is the optimal choice the only choice? 17 Linear Programming (variant) Source: Boone & Kurtz, Management, 4th Ed. What s wrong with this picture? 18

7 Breakeven Analysis Comparison of costs and revenues. Compare with the kinds of data used in linear programming models; the two have points in common. Assumptions open to debate. 19 The old-fashioned spreadsheet Do it by hand; do it on the computer. Set up fixed items and formulæ. Relate items as needed. Plug in possible numbers as needed, note changes in vital and less vital areas. 20 Summary: These tools have both predictive and assessment uses. Used predictively, they need to be taken together, and with qualitative insight. The trick is balance between the forms. Used as an assessment tool, they measure changes, as well planning efficiency and effectiveness. 21

8 From Goals to Plans Did Goals Precede Plans? or... A More Complete Look At Plans Copyright 1996 by Donald Jenner All Rights Reserved 22 Ways to look at planning: Short Range Intermediate Range Long Range 1 year or less 1 year to 3 years (five years is too long?) Current actions (with mods of longerrange plans) Model changes (e.g. Taurus) More than 3 years Overall strategy 23 Ways to look at planning: Operational Tactical Strategic implement tactics using measurable criteria Implement activities & resource allocations very short term short to intermediate term Set general objectives for organization Longer term 24

9 Kinds of Plans Strategic plans intended to guide a company for a long time, setting forth policies Program plans and project plans limited, single-use plans with specific budgets and resource allocations, carrying out elements of larger plans. 25 Time Frames 26 General to specific planning Overall Purpose The Stated Mission Programmatic Goals 27

10 Goal Setting step by step Begin Process Inappropriate Goals Unattainable Goals Overemphasis on Quantitative Goals Overemphasis on Qualitative Goals Improper Reward Systems Good Goals 28 Relation of Goals & Plans 29 Planning Dynamics Eine unendliche Geschichte Copyright 1996 by Donald Jenner All Rights Reserved 30

11 Goal Formation Planning The planning process is a recurring, cyclical process in which long-term & short-term objectives are balanced against a changing environment. 31 Remember the environment? 32 Comparison: Corporate Level to Operational Level Concerns Corporate Level Issues Missions (Policies & Goals) Scope and Resource Allocation Financial, Organizational Design Strategy Operational Level Issues Competitive Advantage, Synergy Functional Strategies (Marketing, Production, Personnel, R&D) 33

12 Closer examination... Corporate Level Issues Missions (Policies & Goals) Scope and Resource Allocation Financial, Organizational Design Strategy But... Resource allocation may originate at ops level Organizational Design Strategy should be reflective of feedback from lower echelons? 34 Closer examination... Operational Level Issues Competitive Advantage, Synergy Functional Strategies (Marketing, Production, Personnel, R&D) But... Competitive Advantage & Synergy affects resource allocation Business level functional strategy affects financial, org planning 35 Another way to see the levels: Notice that this is an interactive model, a twoway street... 36

13 The Cycle (slide 1) Top management develops organizational objectives and general strategy Top management briefs divisional / departmental managers, calls for divisional / departmental objectives and strategies consistent with overall strategy. 37 The Cycle (slide 2) Divisional / Departmental goals & strategy checked and approved ( ) at higher echelon Top management requests mid-level echelon implementation programs Senior mid-level managers consult with junior mid-level managers re: program alternatives 38 The Cycle (slide 3) Senior mid-level managers assess program alternatives (with junior mid- level managers), recommend program and related resource allocations Top managers make tentative resource allocations, call for mid-level budget proposals Query: Do supervisors have a role here? 39

14 The Cycle (slide 4) Senior mid-level managers (e. g., divisional) pass budget requests to junior mid-level managers (e. g. departmental) Departmental budgets collected and coordinated, passed to top management for approval 40 The Cycle (slide 5) Top management reviews submitted budgets, requests mods as needed (or accepts as is) and makes final annual budget approval. Notice the time frame: The budget reflects an annual (short term) plan. Notice the problem: Long term planning may suffer. Query: Alternatives? 41