-planning (oct 28, 2009)
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Planning Tools and Techniques
Techniques for assessing the environment Environmental scanning,
Forecasting, and
Benchmarking
Techniques for allocating resources
Budgeting,
Scheduling,
Breakeven analysis, and
Linear programming
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Techniques for assessing the environment
Environmental scanningScreening of large amounts of information to anticipate andinterpret changes in the environment
Organizations that don’t keep on top of environmentalchanges are likely to experience the opposite! Example isTupperware!
One of the fastest-growing areas of environmental scanning iscompetitor intelligence. It’s a process by whichorganizations gather information about their competitors andget answers to questions such as: Who are they? What arethey doing? How will what they’re doing affect us?
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Competitors intelligence – Information sources
No spying.
Advertisements, promotional materials, press releases,reports filed with government agencies, annual reports, wantads, newspaper reports, and industry studies.
Attending trade shows and debriefing the salesforce
Buy competitors’ products and have own engineers study
them (through a process called reverse engineering) to learnabout new technical innovations.
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Techniques for assessing the environment (contd.)
Forecasting• Quantitative forecasting
• Qualitative forecasting
Environmental scanning establishes the basis forforecasts, which are predictions of outcomes.
Today, many organizations collaborate onforecasts by using Internet-based software knownas CPFR, which stands for collaborative planning,forecasting, and replenishment. CPFR offers astandardized way for retailers and manufacturersto use the Internet to exchange data.
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• The goal of forecasting is to provide managers withinformation that will facilitate decision making.
• Forecasting techniques are most accurate whenthe environment is not rapidly changing.
• The more dynamic the environment, the more likelymanagers are to forecast ineffectively.
• Forecasting is relatively ineffective in predictingnonseasonal events such as recessions, unusualoccurrences, discontinued operations, and theactions or reactions of competitors.
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Forecasting
Ways to improve its effectiveness.First, use simple forecasting methods. They tend todo as well as, and often better than, complexmethods that may mistakenly confuse random data
for meaningful information.
Second, compare every forecast with “no change.” Ano-change forecast is accurate approximately half
the time.
Third, don’t rely on a single forecasting method.Make forecasts with several models and averagethem, especially when making long-range forecasts.
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Fourth, don’t assume that you can accurately identifyturning points in a trend. What is typically perceivedas a significant turning point often turns out to besimply a random event.
Fifth, shorten the length of forecasts to improve theiraccuracy because accuracy decreases as the periodyou’re trying to predict increases.
Sixth, remember that forecasting is a managerialskill and as such can be practiced and improved.
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Technique Description Application
Quantitative Forecasting
Time series
analysis Fits a trend line to a mathematical
equation and projects into the
future by means of this equation
Predicting next quarter’s sales on
the basis of four years of previous
sales data
Regression
models Predicts one variable on the basis
of known or assumed other
variables
Seeking factors that will predict a
certain level of sales (for example,
price, advertising expenditures)
Econometricmodels
Uses a set of regression equationsto simulate segments of the
economy
Predicting change in car sales as aresult of changes in tax laws
Economic
indicators Uses one or more economic
indicators to predict a future state
of the economy
Using change in GNP to predict
discretionary income
Substitution
effect Uses a mathematical formula to
predict how, when, and under what
circumstances a new product or
technology will replace an existing
one
Predicting the effect of DVD
players on the sale of VHS
players
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Technique Description Application
Qualitative Forecasting
Jury of opinion Combines and averages the
opinions of experts Polling the company’s human
resource managers to predict
next year’s college recruitment
needs
Salesforce
composition Combines estimates from
field sales personnel of
customers’ expected
purchases
Predicting next year’s sales of
industrial lasers
Customer
evaluation Combines estimates from
established customers’
purchases
Surveying major care dealers by
a care manufacturer to
determine types and quantities
of products desired
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Benchmarking
Benchmarking is the search for the best practicesamong competitors or non-competitors that lead to
their superior performance.
The basic idea behind benchmarking is that
managers can improve performance by analyzingand then copying the methods of the leaders invarious fields.
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Planning Tools and Techniques
Techniques for assessing the environment (contd.)
Benchmarking
Prepare andimplement action
plan
Form abenchmarking
planning team
Gather internal and
external data
Analyze data toidentify
performance gaps
BESTPRACTICES
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Benchmarking
A typical benchmarking follows four steps:
1. A benchmarking planning team is formed. The team’s initialtask is to:
•identify what is to be benchmarked•identify comparative organizations, and
•determine data collection methods.
2. The team collects internal data on its own work methodsand external data from other organizations.
3. The data are analyzed to identify performance gaps and thecause of difference.
4. An action plan that will result in meeting or exceeding thestandards of others is prepared and implemented.
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Benchmarking
How does a benchmarking team get data on other organizations?
You need to decide against whom you’re going to benchmark.
Use your network of contacts among customers, suppliers, and
employees for organizations they think are best at the process you’retrying to improve.
Watch for organizations that may have won local, regional, or nationalawards as potential benchmarking partners.
Use Internet. Competitors’ Web sites can be rich sources of information.
Do not overlook the possibility of developing partnerships with otherorganizations, even competitors, to share benchmarking data. Obviously,this will work only if you have something that others want.
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Techniques for allocating resources
Resources are the assets of the organization and include
the following factors:
financial (debt, equity, retained earnings, and other financial holdings);
physical (equipment, buildings, raw materials, or other tangible assets);
human (experiences, skills, knowledge, and competencies of people);
intangible (brand names, patents, reputation, trademarks, copyrights,registered designs, and databases); and
structural/cultural (history, culture, work systems, workingrelationships, level of trust, policies, and structure)
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Techniques for allocating resources
How are these resources allocated effectively
and efficiently so that organizational goals are
met?
Four techniques are used for this purpose:
budgeting
scheduling
breakeven analysis
linear programming
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Budgeting - A budget is a numerical plan for allocatingresources to specific activities.
How can the budgeting process be improved. Some suggestions forimproving budgeting:
Be flexible.
Goals should drive budgets – budgets should notdetermine goals.
Coordinate budgeting throughout the organization.
Use budgeting/planning software when appropriate.
Remember that budgets are tools. Remember that profits result from smart management,
not because you budgeted for them.
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Planning Tools and Techniques
Variable Budget Fixed BudgetTakes into account Assumes fixedthe costs that vary OR level of sales orwith volume production
Revenue BudgetProjects future scales
Cash BudgetForecasts cash on
hand and how muchwill be needed
Expense BudgetLists primary activitiesand allocatesdollar/rupeeamount to each
Profit BudgetCombines revenueand expense budgetsof various units todetermine each unit’s
profit contribution
Techniques for allocating resources
Budgeting – Types of Budget
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Scheduling - It is a process of allocating resourcesby detailing what activities have to be done, the orderin which they are to be completed, who is to do each,and when they are to be completed.
Managers schedule.
Some of the useful scheduling devices are Gantt charts
Load charts
PERT network analysis.
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Gantt Charts –
The Gantt chart was developed during the early1900s by Henry Gantt, and associate of thescientific management expert Frederick Taylor.
It’s essentially a bar graph with time on the
horizontal axis and the activities to be scheduled onthe vertical axis.
The bars show output, both planned and actual,over a period of time.
The Gantt chart visually shows when tasks aresupposed to be done and compares that with theactual progress on each.
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Load Charts –
A load chart is a modified Gantt chart.
Instead of listing activities on the vertical axis,
load charts list either entire departments orspecific resources.
This arrangement allows managers to plan
and control capacity utilization. Load charts schedule capacity by work areas.
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Program Evaluation and Review Technique (PERT) -
Planning a large project such as departmentalreorganization requires coordinating hundreds and
even thousands of activities, some of which must bedone simultaneously and some of which can’t begin
until preceding activities have been completed.
How can managers schedule such a complex project?
The Program Evaluation and Review Technique
(PERT) is highly appropriate for such projects.
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A PERT network is a flowchart diagram that depicts the
sequence of activities needed to complete a project and thetime or costs associated with each activity.
With a PERT network, a manager must think through whathas to be done, determine which events depend on oneanother, and identify potential trouble spots.
PERT also makes it easy to compare the effects alternativeactions might have on scheduling costs.
PERT allows managers to monitor a project’s progress,identify possible bottlenecks, and shift resources asnecessary to keep the project on schedule.
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To understand how to construct a PERT network, you need to
know four terms.
Events are end points that represent the completion of majoractivities.
Activities represent the time or resources required to progressfrom one event to another.
Slack time is the amount of time an individual activity can bedelayed without delaying the whole project.
The critical path is the longest or most time-consumingsequence of events and activities in a PERT network. Anydelay in completing events on this path would delaycompletion of the entire project.
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Breakeven analysis - A technique for identifying the
point at which total revenue is just sufficient to covertotal costs.
It points out the relationship between revenues, costs,
and profits.
To compare breakeven point (BE), a manager needsto know the unit price of the product being sold (P),the variable cost per unit (VC), and total fixed costs(TFC). An organization breaks even when its totalrevenue is just enough to equal its total costs.
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Total cost has two parts:
Fixed costs are expenses that do not changeregardless of volume. Examples – insurance
premiums, rent, and property taxes.
Variable costs change in proportion to output
and include raw materials, labor costs, andenergy costs.
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Breakeven point can be computed graphically or by using the following
formula:
Total Fixed Cost
Breakeven Point =
Unit Price – Variable Cost per unit
As a planning tool, breakeven analysis could help set
sales goal, how much volume has to increase to break
even if operating at a loss.
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Linear Programming - A mathematical technique that solvesresource allocation problems.
It can’t be applied to all resource allocation problems because
it requires:
that there be limited resources,
that the goal be outcome optimization, that there be alternative ways of combining resources to
produce a number of output mixes, and
that there be a linear relationship between variables ( a
change in one variable must be accompanied by an exactlyproportional change in the other).
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What kinds of problems can be solved with linear programming?
Some applications include
selecting transportation routes that minimizeshipping costs,
allocating a limited advertising budget among
various product brands,
making the optimal assignment of people amongprojects.