1
Essentials of Planning
&
MBO

How to Bake a Cake?

Develop a business plan for.....
• A retail store in a mall
• Selling used clothes
• House cleaning service
• Pet sitting
• Shopping service for seniors
• Child care
• Lemonade and Hot dog stand
• Travel services

BUSINESS PLAN QUESTIONS
•How can you describe the business...in only one paragraph please?
•What is your product, or service?
•Who will buy it?
•Where should you locate the business?
•How can you attract customers?
•What is your competition?
•How much should you charge for the products or service?
•What advice do you need and who can provide it?
•How will you organize the managers and/or workers of the business?
•How will you split the profits? Who is responsible for the losses?
•What should you consider to be able to produce the product and get it to the customer?

•How much money is needed to get the business started?
•How many customers will you have per month and how much will they buy per
month?
•How much does it cost to make the product or provide the service?
•What are your operating costs? (Include your own salary)
•How much money will your business earn each month by selling your product or
service?
•How much investment will you need to keep the business going until you make a
profit?
•What is your potential profit per year for Year I, Year II, and Year III?
•How much money do you need to borrow to start this business?
•How will you make the business grow in the future?

What Is Planning?
– involves defining the organization’s goals, establishing an
overall strategy, and developing a comprehensive set of
plans to integrate and coordinate organizational work
– Planning is an intellectual process, the conscious
determination of courses of action, the basing of decisions on
purpose, acts and considered estimates
– informal planning - nothing is written down
• little or no sharing of goals
• general and lacking in continuity
– formal planning - written
• defines specific goals
• specific action programs exist to achieve goals
© Prentice Hall, 2002

Reduce the
Impact of
Change
Provide
Direction
Minimize
Waste /
Redundancy
Set Control
Standards
Reasons
for Planning
Growing
complexities
Growth of
trade union
Rapid socio-
Economic
changes
Need for
R&D activity

Benefits of planning
• Reduces uncertainty
• Encourage innovation & creativity
• Improves motivation
• Achieve better coordination
• Facilitates control
• Planning leads to success
• Focuses attention

Arguments
Against
Strategic
Planning
Rigid Assumptions
of Stability
Intuition
and Creativity
Environmental
Turbulence
Focus on Today’s
Competition
Preoccupation with
Current Success

Does Planning Improve Performance?
• Financial results
• Environmental concerns
• Quality and implementation

Hierarchy of Plans (cont..)
Plans can be classified as
(1) mission or purposes,
(2) objectives or goals,
(3) strategies,
(4) policies,
(5) procedures,
(6) rules,
(7) programs, and
(8) budgets

Hierarchy of Plans
(cont..)
• The mission, or purpose, identifies the basic purpose or
function or tasks of an enterprise or agency or any part of it
• Objectives, or goals, are the ends toward which activity is
aimed
• Strategy is the determination of the basic long-term objectives of
an enterprise and the adoption of courses of action and
allocation of resources necessary to achieve these goals
• Policies are general statements or understandings that guide or
channel thinking in decision making
• Procedures are plans that establish a required method of
handling future activities

Hierarchy of Plans –
cont.
• Rules spell out specific required actions or
non actions, allowing no discretion
• Programs are a complex of goals, policies, procedures, rules, task
assignments, steps to be taken, resources to be employed, and other
elements necessary to carry out a given course of action
• A budget is a statement of expected results expressed in numerical
terms

Steps in Planning

STEPS IN PLANNING
• Being aware of opportunity :In light of Market, Competition Customer
desire, Our strengths Our weaknesses
• Setting objectives or goals: Where we want to be& what we want to
accomplish & when
• Considering planning premises: In what environment will our plans
operate
• Identifying alternatives: What are the most promising alternatives to
accomplishing our objectives
• Comparing alternatives in light of goals sought Which alternative meets
our goals at lowest cost &at highest profit
• Choosing an alternative Selecting the course of action
• Formulating derivative plans such plans as to :- Buy equipment Buy
materials, Hire& train workers,
• Budgets: Develop such budgets as Volume & price of sales, operating
expenses necessary for plans, Capital expenditure

Types Of Plans
Breadth
Strategic
Operational
Specificity
Directional
Specific
Frequency
of Use
Single use
Standing
Time Frame
Long term
Short term
© Prentice Hall, 2002

Specific Versus Directional Plans
© Prentice Hall, 2002

Planning In The Hierarchy Of
Organizations
Strategic
Planning
Operational
Planning
Top
Executives
Middle-Level
Managers
First-Level
Managers
© Prentice Hall, 2002

Contemporary Issues In Planning
(cont.)
• Effective Planning in Dynamic Environments
– develop plans that are specific, but flexible
– recognize that planning is an ongoing process
– change directions if environmental conditions
warrant
– stay alert to environmental changes
© Prentice Hall, 2002

Barriers to effective planning
• Difficulty of accurate premising
• Problems of rapid change
• Internal inflexibilities
policy & procedural inflexibility
capital investment
• External inflexibility
political climate
trade unions
technology changes
• Time & cost factors
• Failure of people in planning

How Do Managers Plan?
• Traditional Objective Setting
• Management by objectives (MBO) - specific
performance goals are jointly determined by employees
and their managers
– progress toward accomplishing these goals is periodically reviewed
– rewards are allocated on the basis of this progress
– MBO consists of four elements
» goal specificity
» participative decision making
» explicit time period
» performance feedback
© Prentice Hall, 2002 7-21

Traditional Objective Setting
Individual
Employee’s
Objective
Top
Management’s
Objective
Department
Manager’s
Objective
Division
Manager’s
Objective
“Increase profits, regardless
of the means”
“I want to see a
significant improvement
in this division’s profits”
“We need to improve
the company’s performance”
“Don’t worry about
quality: just work fast”

Management by Objectives

Establishing Goals (cont.)
• Management by objectives (cont.)
– increases employee performance and organizational
productivity
» depends on support of top managers for MBO
» problems with MBO
- can be useless in times of dynamic change
-overemphasis on personal rather than
organizational goals
-may be viewed simply as an annual exercise
in paperwork
© Prentice Hall, 2002

Hierarchy of Goals
FIGURE 4–1

Principles of Goal-Setting
 Set SMART goals—make them specific,
measurable, attainable, relevant, and timely.
Choose areas (sales revenue, costs, and so forth)
that are relevant and complete.
 Assign specific goals.
 Assign measurable goals.
 Assign doable but challenging goals.
 Encourage participation.
 Use executive assignment action plans, or
management by objectives.