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CE 00317 - 2

Management and Planning

Diane Bishton – K229(d.k.bishton@staffs.ac.uk)

Planning & Control Techniques

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In this lecture

We will

Introduce a variety of Planning Methods that cover both quantitative & qualitative approaches

Finish with an overview of some reasons for failure of the planning process

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Introduction

We have already seen that a whole range of Plans can be developed for different purposes within an organisation.

Forecasting is only one precursor to Planning; we also need to use one or more practical planning methods to gather other information for input into the planning process & to construct the Plan.

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A Variety of Planning MethodsPlanning Methods can be Qualitative orQuantitative, and take different views of theOrganisation e.g.Gap Analysis, including BenchmarkingPerformance Indicators & accounting Ratio Analysis

Network Methods including CPA & PERTAPACS (includes SWOT Analysis)POISE

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Gap Analysis with BenchmarkingPlanner sets long term Targets Compares Targets against Forecasts made on

the basis of continuation of current activity & circumstances

Analyses DivergencesImplements ways to ‘bridge the gap’Where might the Targets come from ?through determination of Industry Average &

Specific Competitors’ Performance Measures (see Ratios later)

- ‘Benchmarks’

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Performance Indicators & RatiosCan be Results - or Effort-orientedUsually Quantitative, but can be QualitativeTypical Results-oriented indicators include accounting ratios such as Rate of Return, P/E Ratio, Stock Turnover etc.

Effort-oriented indicators include :Rates of Absenteeism, No. of Complaints processed,

No. of reports sent to Management (!), Employee development, through IiP for example

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Return on Capital EmployedIs the ratio of Profit / Capital employedCan useGross Capital = Fixed + Current AssetsNet Capital = Fixed + Current Assets - Current Liabilities

Proprietors’ Capital = Net Capital - long-term loans

Typical Problems : How to adequately value assets & determine ‘profit’

What about organisations with few assets ?What about ‘goodwill’ etc ?

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Price / Earnings (p/e) RatioIs Market Price of a share / Earnings per

Sharewhere Earnings per share is Annual after-tax profit / total shares (but usually just ordinary shares)

It shows how many years it would take an investor to get back their investment (if they invested now) given continuation of earnings all paid out as dividend

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Network MethodsNetworks are drawings showing all the ‘activities’ in a ‘project’ linked together by lines showing ‘dependencies’ between the activities.

The ‘critical path’ (shortest path) through a network is the set of activities which, if delayed in any way, would extend the completion date of the whole project.

There can be multiple critical paths, but any activity off those routes have ‘float’ - spare resource (time) that can be used up without affecting over all project time.

Logical, supports work scheduling & monitoring

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CPASees individual activity times as predetermined & constant

Activity-oriented because Networks simply show the dependencies between the operations that must be performed

Assumes that throwing more resources (hence higher cost) at an activity can reduce the time to do it, but the absolute minimum time regardless of resource cost (the ‘crash cost’) is the ‘crash time’

Choose the least cost solution from alternatives.

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PERTSees activity times as having optimistic (earliest) , pessimistic (latest) , most likely (‘average’) values.

(See also its use as a qualitative forecasting method)

Event-oriented because it includes timings needed to reach each stage or ‘node’ in the project.

Assumes pessimistic completion times will be seen more often than optimistic ones

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APACS(adaptive planning and control sequence)

A planning model that includes S(trengths) W(eaknesses) O(pportunities)

T(hreats) analysis1) Produce a Statement of Objectives2) Do SWOT analysis3) Specify activities to achieve objectives4) Evaluate consequences of alternative

courses of action5) Predict results of doing chosen actions6) Issue orders to implement the plan(s)7) Assess results8) Modify plan when necessary

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POISE (philosophy,organisation,information,strategy,efficiency)

Organisation asks itself questions such as :

What is the rate of technological change in our industry ?

How does our output differ from our competitors’ ?

Do we have a guaranteed supply of labour, raw materials etc ?

And develops plans, or even strategies, to tackle unsatisfactory answers

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Top-Down Planning

Top management keep close control of the planning process, either by :

Handing down plans as a fait accompli

Expressing expectations & broad guidelines, then expecting these to be developed into plans

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Bottom-Up Planning

Departments or Sections generate their own plans on the basis of broadly defined objectives produced by a central planning committee

The Corporate Plan emerges from co-ordination of those Plans developed by individual units

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Reasons for Planning Process Failure(adapted from (Bennett, 1999 pp 360-361))

• Concentration on short-term at the expense of long-term

• Craft v Academic conflict• Marginalising & not supporting planning• Confusing planning with forecasting• Lack of or poor information, and excluding expertise• Inadequate assessment of good & bad outcomes• ‘Pet projects’ & enthusiasm not maintained

Plans need to relate to definitive, coherent strategies. Is producing a plan a ‘box ticking’ exercise, or is it for

real ?

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Further Reading

Bennet Chapters 16 onwards Butel et al Unit 9 Wilsonmar.com

Same as last lecture