ENGINEERING MANAGEMENT
Planning gives you the luxury of deciding ahead of time what you're going to do.
PLANNING & FORECASTING - I
Why Plan?
Plans are methods formulated for achieving a desired result. All plans specify goals (such as "boost sales by 10 %") and courses of action (such as "hire a new salesperson and boost advertising expenditures by 20 %"). Plans should specify, at a minimum, what you will do, how you will do it, and by when you'll get it done.
Planning is the primary management function, the one on which all others depend.
Managers engaged in planning develop strategies for success, establish goals and objectives for the organization, and translate their strategies and goals into action plans.
To develop long-term strategies and goals, managers must be well informed on a number of key issues and topics that could influence their decisions.
Planning, therefore, is "the process of establishing objectives and courses of action, prior to taking action." Goals, or objectives, are specific results you want to achieve. Wal- Mart's data warehouse helps its managers forecast what its customers will buy, and therefore to plan to have that merchandise in their stores when it is needed.
Planning:
• Provides method for identifying objectives
• Design sequence of programs and activities to achieve objectives
As you can see from these descriptions, planning and decision making are closely intertwined. Planning means choosing your objectives and the courses of action that will get you there. In other words, when you make a plan, you're really deciding ahead of time what you or your company are going to do in the future. A plan is thus a group of premade decisions that will allow you to achieve a future goal.
So if you're planning a trip to Paris, your plan might include the following decisions:
The date you leave;
How you get to the airport;
Your airline and flight;
the airport of arrival;
how you'll get into Paris;
your hotel; and (of course)
A fairly detailed itinerary (or plan) for each day you're in Paris.
If you don't decide ahead of time how you're getting to or from the airport or what you'll be doing on each of your days in Paris, what will happen? Perhaps nothing! More likely, though, you'll find yourself having to make a lot of last-minute decisions under stressful conditions. Instead of arranging ahead of time to have a friend take you to the airport, you may be scrambling at the last minute to find a cab. Instead of researching and pricing your options ahead of time, you may find yourself at Airport, tired, and faced with a bewildering variety of buses and cabs, including some high-priced "gypsy"
cabs. And instead of deciding ahead of time in the comfort of your home (and with all your guidebooks) what you'll do each day, you may kill two hours or more each day deciding what to do and finding out what is open, or drifting aimlessly through the Paris streets (which is not necessarily all bad, of course). Done right, planning also forces you to get in touch with what's actually happening "on the ground"—for instance, to check to see if the Louvre is closed the day you arrive because it's a national holiday.
Your Paris plans thus will be quite useful, and your trip a lot more pleasant than it might be without a plan.
The point, again, is that planning gives you the luxury of deciding ahead of time what you're going to do. You don't have to plan, but if you don't, you're going to find yourself scrambling, probably under less-than-hospitable conditions, to make those decisions on the run. And this can lead to lots of errors.
Types of Plans
While all plans specify goals and the courses of action chosen for reaching them, the plans themselves can come in all shapes and sizes, and each makes sense under different circumstances. For example, plans differ in format, or the way they are expressed.
Descriptive plans state in words what is to be achieved and how. Plans stated in financial terms are called budgets. Graphic plans show what is to be achieved and how in charts. Plans also differ in the spans of time they cover.
Top management usually engages in long-term (5- to 10-year) strategic planning. A strategic plan—such as Wal-Mart's plan to expand abroad and apply its leading-edge planning methods globally—specifies the business or businesses the firm will be in and the major steps it must take to get there.
Middle managers typically focus on developing shorter-term tactical plans (of up to five years' duration). Tactical plans(also sometimes called functional plans) show how top management's plans are to be carried out at the departmental level.
First-line managers focus on shorter-term operational plans, or detailed day-to-day planning. These might show, for instance, exactly which workers are to be assigned to which machines or exactly how many units will be produced on a given day.
Andrew Carnegie, an early-20th-century multimillionaire, supposedly once happily paid $10,000 (a royal sum at the time) for a remarkably simple day-to-day operational planning system, one that millions of people use to this day. "I will show you a way to plan your day," a planning expert supposedly told Carnegie, "and if you like my idea, you'll pay me $10,000 for it." The idea—which may seem obvious today—was to write a daily to-do list.
"Each night before you go to bed," the advisor told Carnegie, "list in priority order the things you need to get done the following day. Then, when tomorrow comes, methodically cross off each task as you do it." Carnegie was reportedly so impressed with how it boosted his efficiency that he paid the adviser the very next day.
Some plans are made to be used once, and others over and over. For example, some plans are programsestablished to lay out in an orderly fashion all the steps in a major one-time project. In contrast, standing plansare made to be used repeatedly, as the need arises.7Policies, procedures, and rules are examples of standing plans. Policies usually set broad guidelines. For example, it might be the policy at Saks Fifth Avenue that "we sell only high-fashion apparel and top-of-the-line jewelry." Procedures specify what to do if a specific situation arises. For example, "Before refunding the customer's purchase price, the salesperson should carefully inspect the garment and then obtain approval for the refund from the floor manager." Finally, a rule is a highly specific guide to action.
For example, "Under no condition will the purchase price be refunded after 30 days."
Standing plans like procedures or rules are usually written so that the standing plan's purpose is clear.
Understanding the Strategic Planning Process
Strategic plansoutline the firm's long-range (two to five years) organizational goals and set a course of action the firm will pursue to reach its goals. These long-term goals encompass eight major areas of concern: market standing, innovation, human resources, financial resources, physical resources, productivity, social responsibility, and financial performance. A good strategic plan answers: Where are we going? What is the environment? How do we get there?
To answer these questions and establish effective long-term goals, managers require extensive amounts of information. For instance, managers must study budgets, production schedules, industry and economic data, customer preferences, internal and external data, competition, and so on. Managers use this information to set a firm's long- term course of direction during a process called strategic planning.
Following are the seven interrelated critical tasks:
Develop a Clear Vision
Most organizations are formed in order to realize a vision, a realistic, credible, and attainable view of the future that grows out of and improves on the present.
Translate the Vision into a Meaningful Mission Statement
To transform vision into reality, managers must define specific organizational goals, objectives, and philosophies. A starting point is to write a company mission statement, a brief document that defines why the organization exists, what it seeks to accomplish, and the principles that the company will adhere to as it tries to reach its goals.
Assess the Company's Strengths, Weaknesses, Opportunities, and Threats Before establishing long-term goals, a firm must have a clear assessment of its strengths and weaknesses compared with the opportunities and threats it faces.
Such analysis is commonly referred to as SWOT, which stands for strengths, weaknesses, opportunities, and threats.
Strengths are positive internal factors that contribute to a company's success such as having a steady supply of knowledgeable employees or having a dynamic leader. Weaknesses are negative internal factors that inhibit the company's success such as obsolete facilities, inadequate financial resources to fund the company's growth, or lack of managerial depth and talent. Identifying a firm's internal strengths and weaknesses helps management understand its abilities and current operating position. Management uses this internal analysis as a guide when establishing future goals.
Once managers have taken inventory of a company's internal strengths and weaknesses, they must next identify the external opportunities and threats that might significantly affect their ability to attain certain goals.
Opportunities are positive external factors, such as new potential markets or customers. Threats are negative external forces that could inhibit the firm's ability to achieve its objectives. Threats include new competitors or entrants into the market, new government regulations, economic recession, increase in interest rates, technological advances that could make a company's product obsolete, and so on.
Develop Forecasts
To plan for the future, managers must make a number of educated assumptions about future trends and events and modify those assumptions once new information becomes available. To predict the future managers rely on expert forecasts. However, these sources may not always include key variables specific to an individual company or industry. Therefore, managers must also develop their own forecasts.
Analyze the Competition
"Business is like any battlefield. If you want to win the war, you have to know who you're up against," says one management consultant. Thus, sizing up the competition is another important task in planning for a company's future. It
gives management a realistic view of the market, the company's position in it, and its ability to attain certain goals.
Managers begin the competitive analysis process by identifying existing and potential competitors. Next they determine the competencies, strengths, and weaknesses of their major competitors—just as they did for their own organization. Armed with competitive information, they look for ways to capitalize on a competitor's weaknesses or match or surpass their strengths to gain a competitive edge.
A company can gain a competitive edge through at least one of three competitive strategies:
Differentiation. A company using differentiation develops a level of service, a product image, unique product features (including quality), or new technologies that distinguish its product from competitors' products.
Volvo, for instance, stresses the safety of its cars. Caterpillar Tractor emphasizes product durability.
Cost leadership.Businesses that pursue this strategy aim to become the low-cost leader in an industry by producing or selling products more efficiently and economically than competitors. Cost leaders have a competitive advantage by reaching buyers whose primary purchase criterion is price. Wal-Mart is a typical industry cost leader.
Focus. When using a focus strategy, companies concentrate on a specific regional market or consumer group, such as the Southwest United States or economy car drivers. This type of strategy enables organizations to develop a better understanding of their customers and to tailor their products specifically to customer needs.
Establish Company Goals and Objectives
As mentioned earlier, establishing goals and objectives is the key task in the planning process. Although these terms are often used interchangeably, a goalis a broad, long-range accomplishment that the organization wishes to attain in typically five or more years, whereas an objectiveis a specific, short-range target designed to help reach that goal. For AOL, a goal might be to become the number-one Internet service provider in the Brazilian marketplace, and an objective might be to add 100,000 new Brazilian subscribers by year-end.
To be effective, organizational goals and objectives should be specific, measurable, relevant, challenging, attainable, and time-limited. For example it is better to state "increase our customer base by 10 percent over the next three years" than "substantially increase our customer base."
Setting appropriate goals has many benefits:
It increases employee motivation,
Establishes standards for measuring individual and group performance,
By establishing organizational goals, managers set the stage for the actions needed to achieve those goals. If actions aren't planned, the chances of reaching company goals are slim.
Develop Action Plans
Once managers have established a firm's long-term strategic goals and objectives, it must then develop a plan of execution.
Tactical plans lay out the actions and the allocation of resources necessary to achieve specific, short-term objectives that support the company's broader strategic plan.
Tactical plans typically focus on departmental goals and cover a period of one to three years. Their limited scope permits them to be changed more easily than strategic plans.
Operational plansdesignate the actions and resources required to achieve the objectives of tactical plans. Operational plans usually define actions for less than one year and focus on accomplishing a firm's specific objectives such as increasing the number of new subscribers by 5 percent over the next six months.
USING MANAGEMENT BY OBJECTIVES
Management by objectives (MBO) is a technique used by many firms to assist in the process of setting organization-wide objectives as well as goals for subsidiary units and their employees. Supervisor and subordinate jointly set goals for the latter and periodically assess progress toward those goals.
A manager may engage in a modest MBO program by setting goals with his or her subordinates and periodically providing feedback. However, the term MBO almost always refers to a comprehensive organization-wide program for setting goals, one usually reserved for managerial and professional employees. One advantage of this technique (in terms of the goal-setting studies just reviewed) is that, implemented properly, it can lead to specific, measurable, and participatively set objectives.
The MBO process generally consists of five steps:
1. Set organization goals. Top management sets strategic goals for the company.
2. Set department goals. Department heads and their superiors jointly set supporting goals for their departments.
3. Discuss department goals. Department heads present department goals and ask all subordinates to develop their own individual goals.
4. Set individual goals. Goals are set for each subordinate, and a timetable is assigned for accomplishing those goals.
5. Give feedback. The supervisor and subordinate meet periodically to review the subordinate's performance and to monitor and analyze progress toward his or her goals.
Managers can do several things to make an MBO program successful. They can state goals in measurable terms, be specific, and make sure each person's goals are
challenging but attainable. Goals should also be reviewed and updated periodically, and be flexible enough to be changed if conditions warrant.
Again, however, an effective MBO program requires more than just setting goals. The main purpose is integrating the goals of the individual, of the unit in which the individual works, and of the company as a whole. In fact, to Drucker, the creator of MBO, the method was always more a philosophy than a rigid sequence of steps. As he said, "the goals of each manager's job must be defined by the contribution he or she has to make to the success of the larger unit of which they are part." MBO therefore basically gives managers a road map for how to link the goals at each level and across the firm's departments, and to thereby create the company's hierarchy of goals.
