Chapter 2: Planning Flashcards
key issue in management
high difficulty in predicting the future of human affairs
planning
involves setting goals and figuring out ways to reach them
involves the following overlapping elements:
- strategic planning: firm’s overall master plan that shapes its destiny
- tactical planning: translates strategic plans into specific goals for organizational units
- operational planning: requires specific procedures and actions at lower levels in an organization.
both tactical + operational planning support the strategic plan
rational framework for planning (8)
define current situation (critical to establish goals)
set goals/strategies
evaluate environment + possible barriers (int/external)
develop action plan to reach targets (specific steps)
develop budgets
implement plans
control implementation of plans
make contingency plans (if plan goes sideways)
eg. exit strategy
define business strategy
organization’s plan for achieving its vision, mission, and goals in its environment.
four components of business strategy
devised my Michael Porter
- strategy involves more than operational effectiveness
- not enough for sustained profitability
- fit drives both competitive adv + sustainability
- combine activities for making product + service
- strategy rests on unique activities
- deliver unique value (USP)
- sustainable strategic position requires trade-offs
- when activities are incompatible
vision statement
idealized picture of organization’s future
great perspective
mission statement
identifies firm’s purpose and where it fits in the world
mission is more grounded in present realities than vision
- some companies use the terms interchangeably.
inputs needed to formulate strategy (5)
- advise with a large group of individuals
- receive info from various sources (quantitative + qualitiave reports, meeting, survey…)
- define + comprehend competitive environment
- analyze realities of business situation
- define key assumptions as to: environment, clients, skills, suppliers, competitors
SWOT analysis
method of considering the strengths, weaknesses, opportunities, and threats in a given situation
- useful visual tool
limitations:
- might overly simplify complex issues
- only a current snapshot, needs to be updated regularly
five competitive forces
Michael Porter conclude that business-level strategies are the result of five competitive forces in the company’s environment
- power of customers to affect pricing + profits
- power of suppliers to affect prices
- threat of similar or substitute products
- competition impacting investment in marketing + research
- threat of new market entrants (impact profits)
three major levels of business strategy
corporate: concerned with total direction of enterprise and selection of specific businesses
business: how to compete in each of the businesses
functional: actions required to implement the two strategies (corporate and business level)
examples of the major levels of business strategy
corporate level strategy: strategic alliance + diversification + sticking to core competences
business level strategy: product differentiation + cost leadership + focus on specific markets
functional level strategy: finding and retaining best people + higher speed
vehicles through which strategic plans and strategy are converted into action (4)
operating plans: means through which strategic plans out to be used to alter firm’s future
policies: general guidelines to follow for decision making
procedures: establish customary method of handling future activities
rules: specific courses of action/conduct that must be followed
management by objectives (MBO)
systematic application of goal setting and planning to help individuals and firms be more productive
- establish organization goals
- establish unit objectives
- review subordinates proposals
- negotiate or agree
- create action plan
- review performance
degree of change
stability incremental change (moderate applications) disruptive change (new tech)
product/company life cycle (4)
launching
growth
maturity
decline
possible to renew lifecycle: cut prices, product enhancement, redesigning packaging, exporting…
first mover advantages + disadvantages
first mover: \+ leadership \+ reputation \+ brand loyalty \+ market knowledge
second mover:
- uncertainty
- financial risks
- higher development costs
- risk of facing faster competitors
difference between a programmed and non-programmed decision
programmed decision is a decision you know you need to take and can made into a procedure, whereas, a non-programmed decision is not expected
- difficult because of its complexity and the fact that the person faces it infrequently
rational decision making model (also suitable for non-programmed decisions) (5)
identify + make diagnostic of problem develop alternative solutions evaluate alternative solutions implement the decision evaluate and control
factors affecting decision making (8)
intuition (related to your: ethics, instinct, values, emotions)
personality (pattern of systematic behaviour) + cognitive intelligence (capacity of solving problems)
emotional intelligence: self awareness, self management if emotions, social awareness and relationship management
crisis + conflict quality of information (bias) political considerations (favouritism, alliances, revenge...) degree of certainty/uncertainty procrastination
advantages + disadvantages of group decision making
\+ many contributions > high quality solutions \+ enhance creativity \+ often leads to commitment to decision - slower decision progress - groupthink
ways to reduce groupthink
nominal group technique:
- members are selected
- leader presents specific question
- member write their ideas independently
- present ideas to group without discussion
- each suggestion is evaluated at end of presentation
- meeting ends with independent rating
- best-rated one is chosen
most common decision making errors (11)
excess of confidence need for immediate gratification anchoring effect (focus on initial info received) selective perception confirmation bias framing bias (decisions based on positive or negative connotations) availability bias (mental shortcut) randomness historical costs hindsight bias self-serving bias
conditions for creativity
expertise, creative thinking skills and internal motivation
environment needs conflict + tension (stimulating)
encouragement from others
characteristics of creative organizations
atmosphere encourages creative expression (no punishment) financial rewards for creative suggestions open-minded atmosphere freedom allocating time for creative thinking greater diversity in groups resources challenge
programs to enhance creativity
training programs
brainstorming
systematically gathering ideas
appropriate physical surrounding
self-help techniques for improving creativity
specific: keep track of ideas, be curious, improve sense of humour, take risks and pause when facing a creativity block
play roles of explorer, artist, judge and lawyer: explorer speaks to people in different fields, artist stretch their imagination, as a judge evaluate your own ideas and as a lawyer negotiate to have them implemented
engage in appropriate physical exercise: to help boost cognitive skills, keep body stimulated…
forecasting methods
qualitative approach: based on subject hunches, judgements and subjective opinions
quantitative approach: based on past trends
most common forecasts
economic forecasting
sales forecasting
technological forecasting
delphi technique
- panelists receive each other’s forecasts + comment
- the forecasts are refined and the facilitator submits the final forecast
scenario planning
process of preparing responses to predicted changes in conditions
Two basic tools for monitoring the progress of scheduled projects
Gantt chart
milestone chart
Gantt chart
depicts the planned and actual progress of work during the life of the project
+ easy to check if progress is on track
- doesn’t provide enough details
Milestone chart
extends the Gantt chart by providing list of sub activities needed for the major activities
PERT
program evaluation and review technique
model used to track the planning activities required to complete a large- scale non-repetitive project
depicts all of the interrelated events that must take place.
steps involved in preparing a PERT network
- list activities and events needed to complete project
- design the network, relating activities in a sequence
- estimate the expected time for each activity
- calculate critical path (most time-consuming events)
- monitor if critical events occur on time
what is the formula for the expected time in PERT
O : optimistic time
M : most probable time
P : pessimistic time
(O + 4M + P) / 6
advanced considerations in complex applications of PERT
refined calculation of expected times: optimistic and pessimistic times become upper and lower ten percentiles
resources + cost estimates
problem-identification technique
Pareto diagram
Pareto diagram
bar graph that ranks types of output variations by frequency of occurrence
identify the most important problems or causes of problems that affect output quality
cause of a problem is plotted on the x-axis
cumulative effects both in frequency and percent are plotted on the y-axis
- Pareto principle: generally 20 percent or fewer of the causes contribute to 80 percent or more of the effects
break even analysis
method of determining the relationship between total costs and total revenues at various levels of production or sales activity
tells managers the point at which it is profitable to go ahead with a new venture
BEP : TR=TC
BE: TFC / P - VC
advantages + disadvantages of break even analysis
+ help decide whether to drop an existing product, replace equipment, or to buy
+ simple
- too simplistic, does not consider many factors
- it is only as valid as the estimates of costs and revenues that managers use to create it
- relationship between variable costs and sales may be complicated
decision trees
graphic illustration of the alternative solutions available to solve a problem
- quantitative tool
- estimates the outcome of a series of decisions
circle: chance node & square: decision
advantages and disadvantages of decision trees
+ great to visualize options
+ shows financial risks of each option
- qualitative factors are ignored (external factors + non-financial info)
- data are only forecasts, can be inaccurate
- data can become out of date by time decision is taken
name the two inventory control techniques
just in time system (JIT)
economic order quantity (EOQ)
JIT advantages and disadvantages
stock control system that avoids holding inventory. Stocks are only supplied and delivered when needed for production
+ no need for stock pilling
+ cost of stock management decreases
- requires very close communication with supplier
- implementation costs are high
- inability to meet unexpected changes in demand
JIT techniques + procedures (6)
Kanbans (cards to communicate production requirements)
demand-driven pull system (producing exactly
what is needed to match the demand)
short production lead times
high inventory turnover
designated areas for receiving
neatness counts (immaculate)
Economic Order Quantity (EOQ)
inventory level that minimizes both administrative costs and carrying costs
- helps managers decide how much stock to have
- most useful when a company has repetitive purchasing and demand for an item
D = annual demand in units for the product O = fixed cost of placing and receiving an order C = annual carrying cost per unit (taxes, insurance, storage cost, interest...)
EOQ = square root of (2DO/C)
