Reading: Lesson 6 - Using Planning Tools

2.6.A - Using Planning Tools

1. ESTABLISHING DIRECTION

1. It has been said that you will never know when you have arrived if you don’t know where you are going. Goals provide direction for a business. A goal is a specific statement of a result the business expects to achieve. All types and sizes of businesses and all parts of a business need to develop goals.
   
2. Goals keep the business focused on where it wants to be in the future and the results it expects to accomplish. Managers and employees may overreact to short-term problems or the actions of competitors if goals are not clearly stated and communicated. Managers in large companies may take actions that conflict with those of other managers if they are not aware of goals. Here are several characteristics of effective goals:
   
   1. Goals must be specific and meaningful. The goal “make a profit” is vague. However, the goal “increase sales to new customers by $25,000 in the next six months” is much more specific. Goals should relate to the activities and operations of the business so that employees see how their work relates to the goals. Managers must be careful in setting goals and must consider such factors as (1) the general economic conditions facing the business, (2) past sales and profits, (3) the demand for products and services, (4) the reactions of current and prospective customers, (5) the resources of the business, (6) the actions of competitors, and (7) any other factors that can influence the achievement of the goals.
   
   2. Goals must be achievable. It is important that goals move the company forward, but they must also be realistic. It is not useful to set a goal “to increase unit sales by 5 percent” if the company does not have the capability of manufacturing that many more units. If telemarketing salespeople are already completing many more calls each day than the industry average, it may not be realistic to set a higher goal for completing calls without increasing the number of salespeople.
   
   3. Goals should be clearly communicated. Company and departmental goals should be communicated to all employees, because they will be responsible for accomplishing those goals. Communicating the company’s goals will help employees understand that they are part of a team effort working together for a common purpose. Usually, they will work harder to achieve goals they understand.
   
   4. Goals should be consistent with each other and with overall company goals. Each department within a business has its own specific goals, but the goals must be coordinated with those of other departments. Assume, for example, that the sales manager sets a goal of increasing sales in a specific area of the country. The advertising manager, however, sets a goal of reducing expenditures in the same area to use the money for a new product introduction that will occur in another part of the country. If advertising is needed to support the sales efforts, the managers have conflicting goals. Department managers must work together so that their goals will complement each other and support the overall company goals.

2. PLANNING TOOLS

1. Managers must be skilled and efficient in planning. A number of planning tools are available to help them with their work. Using tools such as budgets, schedules, standards, policies, procedures, and research will improve the results of planning.
   
2. The most widely used planning tool is the budget. A budget is a written financial plan for business operations developed for a specific period of time. Financial budgets assist managers in determining the best way to use available money to reach goals. As a part of Eldron Huntley’s business plan, his banker will require him to develop a budget for expanding his business through online sales. This budget will help both the banker and Eldron see how much money he will need as well as if and when the new part of the business could be profitable. When department managers complete operational planning, they prepare budgets for their departments. In addition to the operating budget, the managers often prepare specific budgets for personnel expenses, equipment, costs of materials and supplies, sales, and many others.
   
3. Just as budgets help in financial planning, schedules are valuable in planning for the most effective use of time. For most business purposes, a schedule is a time plan for reaching objectives. Schedules identify the tasks to be completed, the sequence of related tasks, and the time allotted to complete each task. A supervisor may develop a schedule to organize the work done by each employee for a day or a week. Production managers use schedules to plan the completion and shipment of orders. Salespeople use schedules to plan their sales calls efficiently, and advertising people use schedules to make sure the ads appear at the correct time and in the proper media. Administrative managers need to schedule the preparation and printing of mailings and reports to make sure they are completed on time. 
   

   
   

4. Another planning tool for managers is the use of standards. A standard is a specific measure against which something is judged. Businesses set quality standards for the products and services they produce. Completed products are examined using the standards to judge whether or not the quality is acceptable. Companies also set standards for the amount of time that tasks should take. For example, a fast-food restaurant may set a standard that customers will receive their food within three minutes of placing their orders. If managers see that customers are getting their food five minutes after ordering, then the service time is not meeting company standards and is therefore not acceptable. Companies may also set standards related to the number of defective products allowed on an assembly line or the number of calls a salesperson must make during a day. Managers are responsible for setting realistic standards and for using those standards to judge performance. They also must know when to revise outdated standards.
   

5. As part of planning, managers frequently establish policies. Policies are guidelines used in making decisions regarding specific, recurring situations. A policy is often a general rule to be followed by the entire business or by specific departments. Work rules are examples of business policies. A broad policy may state that the performance of each employee must be evaluated at least twice a year using the company’s performance review procedures. Because of that policy, even an employee who has been with the company for 10 years must be evaluated. Policies help to reduce misunderstandings and encourage consistent decisions in situations frequently encountered by managers and employees.
   

6. A procedure is a sequence of steps to be followed for performing a specific task. In order to implement the policy described in the previous paragraph, the company must develop a specific performance review procedure. Procedures for both routine and complex tasks that are completed by many employees improve business efficiency and are of special help to employees who are learning a new job. The procedure shown in the Figure below would be helpful to a new employee assigned to monitor the secured entrance for a company headquarters. Experienced employees can help managers design new procedures and improve existing ones. 
   

   
   

7. To do a good job of planning, managers need a great deal of information. To develop budgets, they need to know how money was spent in past years, what certain tasks will cost, and how competitors are spending their money. Managers can improve schedules if they know how long certain jobs take to complete. They can establish better standards and procedures by analyzing carefully collected information on the way jobs are performed. Research is done to collect data for managers and to provide the information needed to improve their planning decisions.