Planning Tools & Techniques
Planning Tools & Techniques
Planning Tools & Techniques
LEARNING OUTLINE
9–2
Follow this Learning Outline as you read and study this chapter.
9–3
Assessing the Environment
Environmental Scanning
◦ The screening of large amounts of information to anticipate and interpret
change in the environment.
◦ Competitor Intelligence
◦ The process of gathering information about competitors—who they are; what they are doing
◦ Is not spying but rather careful attention to readily accessible information from employees,
customers, suppliers, the Internet, and competitors themselves.
◦ May involve reverse engineering of competing products to discover technical innovations.
9–4
Assessing the Environment
(cont’d)
Environmental Scanning (cont’d)
◦ Global Scanning
◦ Screening a broad scope of information on global forces that might affect the organization.
◦ Has value to firms with significant global interests.
◦ Draws information from sources that provide global perspectives on world-wide issues and
opportunities.
9–5
Assessing the Environment
(cont’d)
Forecasting
◦ The part of organizational planning that involves creating predictions of outcomes
based on information gathered by environmental scanning.
◦ Facilitates managerial
decision making.
◦ Is most accurate in
stable environments.
9–6
Assessing the Environment
(cont’d)
Forecasting Techniques
◦ Quantitative forecasting
◦ Applying a set of mathematical rules to a series of hard data to predict outcomes (e.g., units to
be produced).
◦ Qualitative forecasting
◦ Using expert judgments and opinions to predict less than precise outcomes (e.g., direction of
the economy).
9–7
Exhibit 9–1 Forecasting Techniques
• Quantitative
• Time series analysis
• Regression models
• Econometric models
• Economic indicators
• Substitution effect
• Qualitative
• Jury of opinion
• Sales force composition
• Customer evaluation
9–8
Making Forecasting More
Effective
1. Use simple forecasting methods.
2. Compare each forecast with its corresponding “no
change” forecast.
3. Don’t rely on a single forecasting method.
4. Don’t assume that the turning points in a trend can be
accurately identified.
5. Shorten the time period covered by a forecast.
6. Remember that forecasting is a developed managerial
skill that supports decision making.
9–9
Benchmarking
The search for the best practices among competitors and
noncompetitors that lead to their superior performance.
By analyzing and copying these practices, firms can improve their
performance.
9–10
Exhibit 9–2 Steps in Benchmarking
9–11
Allocating Resources
Types of Resources
◦ The assets of the organization
◦ Financial: debt, equity, and retained earnings
◦ Physical: buildings, equipment, and raw materials
◦ Human: experiences, skills, knowledge, and competencies
◦ Intangible: brand names, patents, reputation, trademarks, copyrights, and databases
9–12
Allocating Resources:
Budgeting
Budgets
◦ Are numerical plans for allocating resources (e.g., revenues, expenses, and
capital expenditures).
◦ Are used to improve time, space, and use of material resources.
◦ Are the most commonly used
and most widely applicable
planning technique for
organizations.
9–13
Exhibit 9–3 Types of Budgets
Source: Based on R.S. Russell and B.W. Taylor III. Production and Operations
Management (Upper Saddle River, NJ: Prentice Hall, 1995), p. 287.
9–14
Exhibit 9–4 Suggestions for Improving Budgeting
9–15
Allocating Resources:
Scheduling
Schedules
◦ Plans that allocate resources by detailing what activities have to be done, the order
in which they are to be completed, who is to do each, and when they are to be
completed.
◦ Represent the coordination of various activities.
9–16
Allocating Resources: Charting
Gantt Chart
◦ A bar graph with time on the horizontal axis and activities to be
accomplished on the vertical axis.
◦ Shows the expected and actual progress of various tasks.
Load Chart
◦ A modified Gantt chart that lists entire departments or specific resources on
the vertical axis.
◦ Allows managers to plan and control capacity utilization.
9–17
Exhibit 9–5 A Gantt Chart
9–18
Exhibit 9–6 A Load Chart
9–19
Allocating Resources: Analysis
Program Evaluation and Review Technique (PERT)
◦ A flow chart diagram that depicts the sequence of activities needed to
complete a project and the time or costs associated with each activity.
◦ Events: endpoints for completion.
◦ Slack time: the time that a completed activity waits for another activity to
finish so that the next activity, which depends on the completion of both
activities, can start.
◦ Critical path: the path (ordering) of activities that allows all tasks to be
completed with the least slack time.
9–20
Exhibit 9–7 Steps in Developing a PERT Network
9–21
Exhibit 9–8 Events and Activities in Constructing an Office Building
9–22
Exhibit 9–9 A Visual PERT Network for Constructing an Office Building
Critical Path: A - B - C - D - G - H - J - K
9–23
Allocating Resources: Analysis
(cont’d)
Breakeven Analysis
◦ Is used to determine the point at which all fixed costs have been recovered and
profitability begins.
◦ Fixed cost (FC)
◦ Variable costs (VC)
◦ Total Fixed Costs (TFC)
◦ Price (P)
9–24
Exhibit 9–10 Breakeven Analysis
9–25
A small firm produces and sells
automotives items in 5-state area.
Revenue is $7 per unit, variable cost is $3
per uit, fixed cost is $42,000 per month.
Prepare a table that show the total profit
for these data with monthly volume of
10k, 12k and 15k units. What is the
break even point.
9–26
Seatwork
A producer of pottery is considering the addition of a new plant to
absorb the the backlog of demand that now exis. The primary location
being considered will have affixed cost of $9200 per month and a
variable cost of 70 cents per unit produced. Each item is sold to
retailers at a price that averages 90 cents.
A. What volume per month is required in order to break even?
B. What profit would be realized on a montly voume of 61k? 87k?
C. What volume is needed to provide a revenue of $16,000 per month.
D. What volume is needed to provide a revenue of $23,000 per month.
9–28
4 Components of LP
1. Objective Cost
◦ A. Maximize profits
◦ B. Minimize profits
2. Decision variables
◦ - represents choices available to the decision maker in terms of amounts of
either inputs or outputs
3. Constraints
◦ - limitations that restrict the alternatives available to decision makers. Its
three type are greater than or equal, less than or equal, and equal
4. Parameters
◦ Decision variable and numerical values
9–29
Decision Variables
◦ X1 = Quantity of product 1 to produce
◦ X2 = Quantity of product 2 to produce
◦ X3 = Quantity of product 3 to produce
9–30
Problem:
A firm that assembles computers and computer equipment is about to start production of
two new types of microcomputers. Each type will require assembly time, inspection time,
and storage space. The amounts of each these resources that can be devoted to the
production of the microcomputers is limited. The manager of the firm would like to
determine the quantity of each microcomputer to produce in order to maximize the profit
generated by sales of these microcomputers. In order to develop a suitable model of the
problem, the manager has met with the design and production personnel. As a result of
those meetings, the manager has obtained the following information:
Amount
Type 1 Type 2 Available
9–31
Exhibit 9–11 Production Data for Cinnamon-Scented Products
9–32
Exhibit 9–12 Graphical Solution to Linear Programming Problem
Max. Assembly
Max. Manufacturing
Max. Profits
Max. Assembly
Max. Manufacturing
9–33
Contemporary Planning
Techniques
Project
◦ A one-time-only set of activities that has a definite beginning and ending
point time.
Project Management
◦ The task of getting a project’s activities done on time, within budget, and
according to specifications.
◦ Define project goals
◦ Identify all required activities, materials, and labor
◦ Determine the sequence of completion
9–34
Exhibit 9–13 Project Planning Process
Source: Based on R.S. Russell and B.W. Taylor III, Production and Operations
Management (Upper Saddle River, NJ: Prentice Hall, 1995), p. 287.
9–35
Contemporary Planning Techniques
(cont’d)
Scenario
◦ A consistent view of what the future is likely to be.
Scenario Planning
◦ An attempt not try to predict the future but to reduce uncertainty by playing out
potential situations under different specified conditions.
Contingency Planning
◦ Developing scenarios that allow managers determine in advance what their actions
should be should a considered event actually occur.
9–36
Exhibit 9–14 Preparing for Unexpected Events
Source: S. Caudron, “Frontview Mirror,” Business Finance, December 1999, pp. 24–30.
9–37
Terms to Know
environmental scanning PERT network
competitor intelligence events
forecasts activities
quantitative forecasting slack time
qualitative forecasting critical path
benchmarking breakeven analysis
resources linear programming
budget project
scheduling project management
Gantt chart scenario
load chart
9–38