Chapter 7

Planning and controlling

 Chapter 7
Planning and controlling

 Study questions
– How do managers plan?
– What types of plans do managers use?
– What are the useful planning tools, techniques
and processes?
– What is the control process?
– What control systems are used in
organisations?
 How do managers plan?

 Planning
– The process of setting objectives and
determining how to best accomplish them.

 Objectives
– Identify the specific results or desired outcomes
that one intends to achieve.
 How do managers plan?

 Steps in the planning process

1. Define your objectives.

2. Determine where you stand vis-à-vis
objectives.
3. Develop premises regarding future conditions.
4. Analyse and choose among action alternatives.
5. Implement the plan and evaluate results.
 How do managers plan?

 Benefits of planning

– Improves focus and flexibility

– Improves action orientation
– Improves coordination
– Improves time management
– Improves control.
 What types of plans
do managers use?

 Short-range and long-range plans

– Short-range plans = 1 year or less
– Intermediate-range plans = 1 to 2 years
– Long-range plans = 3 or more years.

 People vary in their capability to deal effectively

with different time horizons.

 Higher management levels focus on longer time

horizons.
 What types of plans
do managers use?

 Strategic and operational plans

– Strategic plans define long-term needs and
set action directions for the organisation.
– Operational plans define specific activities to
implement strategic plans
• Production plans
• Financial plans
• Facilities plans
• Marketing plans
• Human resource plans.
 The importance of strategic planning

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Kevin Graetz, Chief Executive Officer, Story Bridge Adventure Climb

 What types of plans
do managers use?

 Policies and procedures

– Standing plans
• Policies and procedures that are designed for
repeated use
– Policies
• Broad guidelines for making decisions and
taking action in specific circumstances
– Rules or procedures
• Plans that describe exactly what actions are
to be taken in specific circumstances.
 What types of plans
do managers use?

 Budgets and project schedules

– Single-use plans
• Used once to meet the needs of a well-defined
situation in a timely manner
– Budgets
• Single-use plans that commit resources to
activities, projects or programs
• Fixed, flexible and zero-based budgets
– Project schedules
• Single-use plans that identify the activities
required to accomplish a specific major project.
 Budgeting in an SME manufacturing
environment

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Simon Bottomley, General Manager, HaveStock Manufacturing

 What are the useful planning tools,
techniques and processes?

 Forecasting
– Making assumptions about what will happen in
the future
– A forecast is a vision of the future.
– Qualitative forecasting
– Quantitative forecasting
– All forecasts rely on human judgement.
 What are the useful planning tools,
techniques and processes?

 Contingency planning
– Identifying alternative courses of action that can
be used if and when original plan proves
inadequate
– Early identification of possible shifts in future
events
– Forward thinking:
• using devil’s advocate method
• developing worst-case scenarios.
 What are the useful planning tools,
techniques and processes?

 Scenario planning

– A long-term version of contingency planning

– Identifying alternative future scenarios
– Plans made for each future scenario
– Increases organisation’s flexibility and
preparation for future shocks
 Figure 7.2
A sample hierarchy of objectives for
total quality management
 What are the useful planning tools,
techniques and processes?

 Benchmarking
– Use of external comparisons to better evaluate
one’s current performance
– Identify possible actions for the future
– Incorporate successful ideas into one’s own
organisation.
 What are the useful planning tools,
techniques and processes?

 Use of staff planners

– Lead and coordinate the planning function
– Responsibilities include:
• Assisting line managers in preparing plans
• Developing special plans
• Gathering and maintaining planning
information
• Assisting in communicating plans
• Monitoring plans in progress and suggesting
changes.
 What are the useful planning tools,
techniques and processes?

 Participation and involvement

– Participatory planning requires that the planning
process include people who will be affected by
the plans and/or will help implement them.
– Benefits of participation and involvement:
• Promotes creativity in planning
• Increases available information
• Fosters understanding, acceptance and
commitment to the final plan.
 Figure 7.3
How participation and involvement help
build commitments to plans
 What is the control process?

 Controlling
– The process of measuring performance and
taking action to ensure desired results

– Has a positive and necessary role in the

management process

– Ensures that the right things happen, in the

right way, at the right time.
 Quality control in a service
environment

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 What is the control process?

 Steps in the control process

1. Establish objectives and standards
2. Measure actual performance
3. Compare results with objectives and standards
4. Take corrective action as needed.
 Figure 7.4
Four steps in management control
 What is the control process?

 Step 1: establish objectives and standards

– Output standards
• Measure performance results in terms of
quantity, quality, cost or time

– Input standards
• Measure effort in terms of amount of work
expended in task performance.
What sort of control mechanisms
are in place to ensure quality at
Ocean Spirit Cruises?

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Footage courtesy John Campling

 What is the control process?

 Step 2: measure actual performance

– Goal is accurate measurement of actual results

on output and/or input standards

– Effective control requires measurement.

 What is the control process?

 Step 3: compare results with objectives and

standards
– Control equation
– Need for action reflects the difference between
desired performance and actual performance.
– Methods of comparing desired and actual
performance:
• Historical comparison
• Relative comparison
• Engineering comparison
– Benchmarking, using different comparison
methods.
 What is the control process?

 Step 4: take corrective action as needed

– Taking action when a discrepancy exists
between desired and actual performance

– Management by exception:
• Giving priority attention to situations showing
the greatest need for action.
• Types of exceptions:
– Problem situation
– Opportunity situation.
 What is the control process?

 Feedforward controls
– Employed before a work activity begins
– Ensure that:
• objectives are clear
• proper directions are established
• right resources are available
– Focus on quality of resources.
 What is the control process?

 Concurrent controls
– Focus on what happens during work process
– Monitor ongoing operations to make sure they
are being done according to plan
– Can reduce waste in unacceptable finished
products or services.
 What is the control process?

 Feedback controls
– Take place after work is completed
– Focus on quality of end results
– Provide useful information for improving future
operations.
 What is the control process?

 Internal and external control

– Internal control
• Allows motivated individuals and groups to
exercise self-discipline in fulfilling job
expectations
– External control
• Occurs through personal supervision and the
use of formal administrative systems.
 Figure 7.5
Feedforward, concurrent and feedback
controls in the management process
 What control systems
are used in organisations?

 Compensation and benefits

– Attractive and competitive base compensation
results in:
• attracting and keeping a qualified workforce
• having capable, motivated workers who
exercise self-control.
 What control systems
are used in organisations?

 Compensation and benefits

– Unattractive and uncompetitive base
compensation results in:
• attracting a less qualified workforce
• greater need for external controls.
 What control systems
are used in organisations?

 Attracting and keeping qualified employees

who exercise self-control can be helped or
hindered by:
– Merit pay incentives
– Pay-for-performance incentives
– Fringe benefits.
 What control systems
are used in organisations?

 Employee discipline systems

– Discipline is the act of influencing behaviour

through reprimand.

– Progressive discipline ties reprimands to the

severity and frequency of the employee’s
infractions.
 What control systems
are used in organisations?

 To be effective, reprimands should:

– be immediate
– be directed toward actions, not personality
– be consistently applied
– be informative
– occur in a supportive setting
– support realistic rules.
 What control systems
are used in organisations?
 Important financial aspects of organisational performance
– Liquidity
• The ability to generate cash to pay bills

– Leverage
• The ability to earn more in returns than the cost of debt

– Asset management
• The ability to use resources efficiently and operate at minimum cost

– Profitability
• The ability to earn revenues greater than costs.
 What financial control mechanisms
are in place in your organisation?

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Geoff Rollason, Chief Financial Officer, Story Bridge Adventure Climb

 What control systems
are used in organisations?

 Purchasing control
– A productivity tool
– Trends in purchasing control:
• Leveraging buying power
• Committing to a small number of suppliers
• Working together in supplier–purchaser
partnerships.
 What control systems
are used in organisations?

 Inventory control
– Goal is to ensure that inventory is just the right
size to meet performance needs, thus
minimising the cost

– Methods of inventory control:

• Economic order quantity
• Just-in-time scheduling.
 Managing inventory in an SME
manufacturing environment

Dial-Up Broadband

Simon Bottomley, General Manager, HaveStock Manufacturing

 What control systems
are used in organisations?

 Statistical quality control

– Quality control involves checking processes,
materials, products and services to ensure that
they meet high standards.

– Statistical quality control involves:

• taking samples of work
• measuring quality in the samples
• determining the acceptability of results.
 What control systems
are used in organisations?

 Management by objectives (MBO)

– A structured process of regular communication

– Supervisor/team leader and worker jointly set
worker’s performance objectives.
– Supervisor/team leader and worker jointly
review results.
 Figure 7.6
Management by objectives — an
integrated planning and control framework
 What control systems
are used in organisations?

 MBO involves a formal agreement specifying:

– worker’s performance objectives for a specific
time period
– plans through which they will be accomplished
– standards for measuring results
– procedures for reviewing results.
 What control systems
are used in organisations?

 Types of MBO performance objectives

– Improvement
– Personal development
– Maintenance.

 Criteria for effective performance objectives

– Specific
– Time defined
– Challenging
– Measurable.
 What control systems
are used in organisations?

 Pitfalls to avoid in using MBO

– Tying MBO to pay
– Focusing too much attention on easily
quantifiable objectives
– Requiring excessive paperwork
– Having managers tell workers their objectives.
 What control systems
are used in organisations?

 Advantages of MBO
– Focuses worker’s efforts on most important
tasks and objectives
– Focuses supervisor’s efforts on important areas
of support
– Contributes to relationship building
– Gives worker structured opportunity to
participate in decision making.