Coping with Uncertainty

Planning: Coping with uncertainty by formulating courses of action to achieve specified results

Three Types of Uncertainty

         State uncertainty: Occurs when the environment, or a portion of the environment, is considered unstable

         Effect uncertainty: Occurs when impacts of environmental change are unpredictable

      Response uncertainty: Arises when the consequences of decisions are unpredictable

Planning: The Primary Management Function

Organizational Responses to Uncertainty

Defenders: Relying on a primary technology and/or a narrow product line to remain competitive

Prospectors: Seeking first-mover advantage by aggressively making things happen and not waiting for them to happen

Analyzers: Following the market leader and imitating what works, avoiding expensive R&D mistakes

Reactors: Waiting for adversity (e.g., declining sales) to occur before taking corrective action

Uncertain Environment Balancing Planned Action and Spontaneity in the Twenty-First Century

Command-and-Control Model

Top-down tight control of operations through exact planning which creates organizational inflexibility to deal with unanticipated events and limited success

Contingency Model

Planned action balanced with strategic agility to take advantage of unexpected opportunities and to cope with the need for change

The Essentials of Planning

A Plan: Is a specific documented intention consisting of an objective (end) and an action statement (means). States what, when, and how something is to be done.

Essentials of Sound Planning

—  Organizational mission

—  Types of planning

—  Objectives

—  Priorities

—  The planning/control cycle

Organizational Mission

A clear, formally written, and publicized statement that guides the organization by:

—  Defining the organization for key stakeholders

—  Creating an inspiring vision of the organization

—  Outlining how the vision will be accomplished

—  Establishing key priorities

—  Stating a common goal and fostering togetherness

—  Creating a philosophical anchor for the organization

—  Generating enthusiasm and a “can do” attitude

—  Empowering organization members

Types of Planning

Strategic planning: Determining how to pursue long-term goals with available resources

Intermediate planning: Determining subunits’ contribution with allocated resources

Operational planning: Determining how to accomplish specific tasks with available resources

Types of Planning Planning Horizon

The elapsed time between the formulation and the execution of a planned activity. Planning horizon length corresponds to the type of plan with which it is associated; lengths shorten as the planning process evolves from strategic to intermediate to operational plans.

Objectives & Piroties

An objective is a commitment to achieve a measurable result within a specified period.

Writing Good Objectives

Objectives should be expressed in quantitative, measurable, and concrete terms.

—  What specific result is to be achieved?

—  When is the result to be achieved?

—  How is the result to be measured?

—  Who will be responsible for achieving the result?

The Importance of Objectives (Uses of)

Target: Sets specific goals to achieve

Measuring stick: Gauges how much was achieved

Commitment: Encourages pursuit of the objective

Motivation: Provides a challenge for achievement

The Means-Ends Chain of Objectives: Achievement of lower-level objectives creates a means for achieving higher-level objectives.

A Typical Means-Ends Chain of Objectives

 

Priorities

Priorities are a ranking of goals, objectives, or activities in order of importance to guide the order and timing of decisions. Management looks at its priorities when deciding how to allocate resources.

The A-B-C Priority System

—  A: “Must do” objectives are critical to successful performance.

—  B: “Should do” objectives are necessary for improved performance.

—  C: “Nice to do” objectives are desirable for improved performance but not critical to improved performance.

The 80/20 Principle (Pareto Analysis)

A majority of causes, inputs, or effort tends to produce a majority of results, outputs, or rewards. Avoid the “busyness” trap.

The Planning/Control Cycle

Planning sets in motion activities to accomplish the planned objectives. Control functions direct and monitor activities for deviations from plans (i.e., attainment of objectives). Planning uses feedback from controls to improve/alter plans and implement corrective actions where necessary.

The Basic Planning/Control Cycle

Management by Objectives and Project Planning

Management by Objectives (Peter Drucker): A comprehensive management system based on measurable, participatively set objectives

The MBO Cycle

Step 1: Setting objectives

Step 2: Developing action plans

Step 3: Periodic review

Step 4: Performance appraisal

MBO’s Strengths and Limitations

Project Planning and Management

Project: A temporary endeavor to achieve a particular aim

The Project Life Cycle

Conceptualization: Setting project goals and objectives

Planning: Organizing facilities and equipment, personnel and task assignments, and scheduling

Execution: Beginning actual work on the project

Termination: Turning the project over to the end user and phasing out project resources

The Project Life Cycle and Project Planning Activities

Roles, Challenges, and Strategies for Effective Project Managers

Project Management Software

Important attributes: flexibility and transparency

—  Identify and schedule need-to-do activities.

—  Dynamically shift priorities and schedules.

—  Provide critical path analysis.

—  Provide flexibility for plan modifications.

—  Set priority levels.

—  Manage all resources flexibly.

—  Merge plans.

—  Issue manager alerts for project slippage.

—  Automatically record time to map against project.

—  Identify time spent on activities.

Project Management Guidelines

—  Projects are schedule-driven and results-oriented.

—  The big picture and the little details are of equal importance.

—  Project planning is a necessity, not a luxury.

—  Project managers know the motivational power of a deadline.

PERT Networks

PERT Terminology

Event: Denotes a performance milestone

Activity: Work (jobs) in process

Time: Estimated weighted times for completion of an activity—optimistic (most likely) and pessimistic

Critical path: The most time consuming (longest) chain of required activities and events in a PERT network that must be completed on time or else the entire project will be delayed

Positive and Negative Aspects of PERT

—  Excellent scheduling tool for large, nonroutine projects

—  Requires envisioning projects in their entirety

—  Provides a tool for predicting resource needs, potential problem areas, and the effect of delays

—  Inappropriate for repetitive assembly-line operations

—  Only as good as its underlying assumptions about event completion times

—  Can be too time-consuming if not computerized

 A Sample PERT Network

 

Break-Even Analysis

Break-Even Point: The level of sales at there is no loss or profit. The point at which the total of fixed and variable costs is equal to total sales revenues.

Fixed Versus Variable Costs

—  Fixed costs: Contractual costs that must be paid regardless of output or sales

—  Variable costs: Costs that vary directly with production and sales

The Algebraic Method

The difference between unit selling price P and unit variable costs VC is the contribution margin that can be applied to recovering fixed costs.

Price Planning

Determining the impact of changes in unit selling price on the break-even point in units. Rising prices decrease the break-even point; lower prices increase the break-even point.

Profit Planning: Determining the required level of output to achieve a profit objective. 

Graphical Break-Even Analysis

Break-Even Analysis: Strengths and Limitations

Planners are forced to interrelate cost, volume, and profit in a realistic way. Planners are able to ask what-if questions concerning the impact of price, costs, and profit objective changes. A neat separation of fixed and variable costs is difficult to achieve. Complex factors in supply and demand interfere with the linear projections (point estimates) of the analysis.