Planning

PLANNINGCondensed by M.G.G. MedinaAugust 2009

Strategic Planning→ generally defines the long term

position of a firm in its environment

Key Outputs of Strat Plan1. Business Scope (What/which

business the firm wants to be in)

2. Competitive Strategy (How it will compete in that business)

Operations Planning→ supports strategic planning

PLANNING PROCESS

Strategic Planning

Operations Planning

1. Identifying Opportunities and Threats

Collecting and analyzing relevant external information which define opportunities and threats to the business

Examples of Perceived Opportunities

Demand for smaller cars Demand for import substitutes

Gasoline shortage and higher prices of gasoline create the demand for gasoline-efficient cars. In the Philippines, the deterioration of the peso which increase gasoline prices, may contribute to the increase in the demand for smaller cars

Scarcity of foreign exchange and government imposition of controls on imports in a country could present opportunities to firms that could duplicate imported goods in terms of quality and price. Locally manufactured goods could substitute for imported ones if quality is comparable

Examples of Perceived Threats

Increased Competition New Legislation

Business specialty of appliance or furniture stores is now challenged by big department stores that carry these lines and which provide greater convenience to customers through one-stop shopping concept

Chemphil Industries of the Philippines announced that the reason for its decision to diversify into the electric power generation industry is impending legislation in congress to ban the use of alkylbenzene, a basic but non-biodegradable chemical raw material it supplies to detergent manufacturers

2. Evaluating the Present Situation

To determine the gap between the desired level of performance and its present levels of performance

Situation EvaluationDepartment Store

Potential revenue line400M (with expansion)

200M

100M Momentum revenue line(without expansion)

05 years

Gap

3. Setting Goals and ObjectivesGoals→Statements

about desired end states expressed in sufficiently general terms

Objectives→Statements

about desired accomplishments expressed in more specific and measurable terms

Goals and Objectives (Examples)

Statement of Goal Statement of Objective

“The firm shall continue to provide above-average returns to its shareholders”

“Earnings per share will grow at a

compounded rate of 20% per annum in the

next 5 years”

Illustrative Goals and Objectives for a Department Store

GOALS OBJECTIVES

Improve Market Standing Increase sales by 10% each year in the next 5 years

Become More Innovative Increase product lines or services to include supermarket, boutiques, sports products, and jewelry items and increase the share of revenues from these products to 25% at the end of 5 years

Improve Productivity Complete installation of computer systems to facilitate inventory control and faster service at the cashier’s area within 3 years

Upgrade Physical and Financial Resources

Double total parking space in 5 years. Complete new annex building to house new boutiques, etc., at the end of the third year.

Illustrative Goals and Objectives for a Department Store

GOALS OBJECTIVES

Profitability Maintain a minimum of 20% ROI (Return on Investment) on stockholders’ equity for the next 5 years

Improve Managerial Capabilities and Attitudes

Install a formal performance appraisal system for Managers and establish in-house supervisory training programs by the end of the next 2 years

Improve Worker Skills and Attitudes Install in-service training programs and organize Total Quality Control Circles by phases in all store locations

Enhance Company’s Image for Public Responsibility

Allocate 2% of annual profits to undertake projects/programs to improve image in community such as donations for scholarship grants and donations to calamity victims

4. Determining Planning Premises

Planning Premises→ usually concern external and

internal variables which are expected to have major impact on the firm’s future performance

Planning Premises

External Variables Internal Variables

Growth of the economy and/or the industry

Inflation and its expected impact on costs and prices

Continuance or discontinuance of certain government policies which have a favorable or an unfavorable impact to the firm

Expected market strategies of key competitors

Level of internally-generated funds

Level of labor productivity in the company’s factories

Company’s total staffing level Continuance of certain

operating policies, e.g. rate of dividend, choice of production technology, supply sources, etc.

5. Evaluating Alternatives

Alternatives→ different choices available for

achieving an objective

6. Programming→ translates broad plans to specific activities to

be undertaken by an enterprise that extend over a period of several years

→ its output is an integrated plan composed of:

Marketing plan Production plan Capital expenditure plan Staff plan

7. Budget Preparation

Budgeting→ translation of programs to

financial and other quantitative data

Classifications of Plans According to Scope

Goals Objectives Project – plan for activity unit which has specific

starting and ending point Programs – larger activity units; often a collection of

related plans or projects Policies – general statements or understandings that

guide decision making. – at times, expressions of the company culture and

practices Rules – specific statements of what may or may not

be done.– more limiting than policies

Procedures – series of steps designed to achieve high degree of regularity in a frequently recurring event

Examples of Policies

Customer Policy Merchandise can be returned by customers within one week from date purchased

Personnel Policy Promote from within starting from a specific level

New hires should not be first-degree relatives of present employees

Examples of Rules

Customer’s Refund

No refund will be given for returned merchandise if invoice is not returned by customer

Uniform Rule Employees not in uniform will not be allowed to render service during the day

Gate Pass Equipment brought out of company premises must e accompanied by a gate pass

Classifications of Plans According to Frequency of Use

Single-use Plan→ not to be repeated in the future→ usually within a short period of time

Standing Plan→ for activities that recur regularly over a

period of time→ routinizes decision making

Bibliography Mutya, R. Business Management and Organization:

Functions and Principles, Manila: National Bookstore, 2009, p14

Rodriguez, R & Echanis, E. Fundamentals of Management Text and Philippine Cases, Manila: Diwata Publishing, 1990, p130-148