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WEEK 02: PLANNING: OBJECTIVES / STRATEGY / FORECASTING

Sections: Planning | Strategy | Forecasting

Planning: an Introduction

Definition. Planning is the process of looking into the futue and discovering alternative courses of action. Thus, a Plan is a predermined program or courses of action, while a Program is the explicit statement of the steps to be taken to achieve an objective.

Planning is, also, a conscious choice of pattens of influence to coordinate decisions for a period of time and to direct toward the chosen broad goals.

Mission is the purpose of the organization; the reason for its existence: "What business are we in?"; the basis for oragnizational goals; and the general direction of organization.

Objectives of the organization, or its potential, can be in the form of profit, growth or diversification.

Modes for Planning
1. Set Primary and Intermediate Goals
2. Search Opportunities
3. Formulate Plans
4. Set Targets
5. Follow-up Plan.

Hazards of Planning
1. Imagination conditioned by past experiences
2. Assumptions taken as facts.
3. Reluctance to implement
4. Murphy's Law: If anything can go wrong it will.
5. Catch22 [by Joseph Keller] Theory: Nothing goes as planned.

Sections: Planning | Strategy | Forecasting

Strategy

Definition is the plans for accomplishing the goals; the focus for achieving the mission of the organization by taking maximum advantage of its potential.

Corporate Strategy is the basis of the individual strategies of organizational units.

Factors of Strategy
External Conditions
1. Economic Conditions - direction of econmomy, inflation and deflation.
2. Political Conditions - attitude toward business, political instability, peace and order, war or strife.
3. Legal Environment - laws, government regualtions, trade restrictions, product liability, labor laws [including: minimum wage], patents.
4. Technology - rate of innovations, current and future technology.
5. Competition - strength of competition, basis of competition: product, quality, special features; ease of market entry.
6. Markets - size, location, growth and demographics.

External Conditions
1. Human Resources - skills and abilities, loyalty to organization, dedication, expertise, and experience of personnel.
2. Facilities / Equipment - plant capacity, and capability for expansion.
3. Financial Resources - cash flow, debt burden.
4. Customers - loyalty, relationships
5. Product or Service - existing, potential.
6. Technology - ability to integrate.
7. Suppliers - dependability, flexibility, service.

Sections: Planning | Strategy | Forecasting

Forecasting

Definition Forcasting is making statements of the future. It is used to plan the system and plan the use of the system.

Types.
1. Reactive - states the probable description of demand.
2. Proactive - actively influence the demand.

Features
1. Conservatism. The past to continue to exist in the future.
2. Rarely Perfect. actual resuls usually differ from predicted results or values.
3. Accuracy. Forecast for groups are more accuratethan for individual items.
4. Time-Limited. Accuracy decreases overtime.

Elements
1. Timelines. An amount of time is needed to respond to the forecast info.
2. Accuracy. Enable users to plan for possible errors. Thus forecast have the margin-of-error clause.
3. Reliability. Forsecast should work.
4. Meaningful. units and values used must be understandable.
5. Written. To serve as basis for evaluation of forecast versus actual results.
6. Simple.

Steps
1. Determine the Purpose. This includes a) the level of detail and accuracy, amount of resource, and date of use.
2. Establish a Time Horizon.
3. Select a Technique.
4. Gather, Analyze, Prepare Data.
5. Monitoring

Techniques
1. Qualitative Forecast uses subjective inputs or soft information; judgmental through surveys, Delphi techniwue, consultants, and opinions.

2. Quantitative Forecast uses historical data and causal variables. The most popular one employs the time series or "trending", i.e., searching for an equation that describe the series.

a. Naive. The next value in series is equal to previous value.
b. Moving Average. Uses avearge of recent values.
c. Exponential Smoothing. The new forecast value is equal to the old forecast plus ax(Actual - Old Forecast Value), where a is the smooting constant in percent.
d. classical Decomposition. A series that respond to seasonal, weather variations or during vacation or holidays, and cyclical, two to six years between peaks.