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Watch the short animated video for a brief overview of the importance of long-term and short-term planning. Long-term and Short-term PlansWhen you decided to attend college, you had a long-term plan in mind. You would spend the next four or five years preparing to become a teacher, a businessperson, or perhaps an ecologist. Or, you may have committed two or three years to become a nurse, a medical technician, or an electrician. Your long-term goal was necessary to make sure that your daily activities would help you achieve your desired outcome. You could have just enrolled in a school and taken classes that looked interesting, but then where would you be in four years? You most likely would not have taken the courses required to qualify you for the job you want. An organization, especially a business, is not so different. It also needs a long-term plan to make sure that the daily activities of its employees are contributing to the mission and value statements of the organization. A long-term plan is crucial to the ultimate success of the organization. A long-term plan for many businesses, such as construction, hospitality, or manufacturing, generally extends four to five years into the future. For other faster-changing industries, especially technology companies, a long-term plan may only look two or three years into the future. After that, it becomes too difficult to predict the future with any degree of certainty. Top management is responsible for the development of the long-term plan. It is up to the CEO to make sure that changing conditions (both external and internal) are reflected in the organization’s long-term plan. The larger and more complex the organization, the larger and more complex the long-term plan will be to include all of the individual departments and functions. Short-term plans generally allocate resources for a year or less. They may also be referred to as operational plans because they are concerned with daily activities and standard business operations. Like long-term plans, short-term plans must be monitored and updated, and this is the role of middle- and first-level management. Different managerial levels have responsibility for implementing different types of short-term plans. For example, a department manager may be comfortable implementing an operational plan for the entire year for her department. A marketing manager may direct a three- to four-month plan that involves the introduction of a new product line. A team leader may only be comfortable planning and implementing very specific activities over the period of a month. Organizational Plan Hierarchy: The figure above summarizes the relationship between these types of management planning Operational Plans: Standing Plans and Single-Use PlansAn operational plan describes the specific goals and objectives and milestones set by an organization during a specific period. (Objectives are specific tasks undertaken to meet broader goals. A goal may be to increase product sales by 3 percent; an objective may be to hire two additional sales agents.) It will allocate the tangible resources (labor, equipment, space) and authorize the financing necessary to meet the objectives of the plan. There are two types of operational plans: standing plans and single-use plans.
Policies, Procedures, and RegulationsAs stated above, the most common examples of standing use plans are policies, procedures, and regulations. These plans are usually published and handed out to new hires or posted on the organization’s employee website for easy reference.
The Role of Budgets in the Planning ProcessRefer to the “Organizational Plan Hierarchy” figure earlier and locate the box labeled “Budgets.” Notice that budgets are examples of single-use, short-term plans. An organization’s budget is a document that details the financial and physical resources allocated to a project or department. They are single-use plans because they are specific to a particular period or event. For example, departments may have a hiring budget that allocates a certain number of positions and a total salary value for a calendar year. Next year, that budget may be the same or it may change, depending upon conditions in the organization. But it cannot be assumed that the budget will stay the same. Zero-based budgets look at each budget as if it were brand new and require managers to justify each of the budgeted items. This process ensures that budgets are closely tied to the latest organizational goals. Managers deal with a variety of budget types:
Budgets are a very important planning tool, and organizations take their budgeting process very seriously. Some managers spend most of their time making sure that the expenses and projects they control do not exceed authorized spending limits. To routinely “go over budget” is a sign of a poor planning—and planning is one of the basic management functions. In some cases, to routinely come in under budget is also viewed negatively, because with more accurate budgeting those committed resources could have been allocated to other projects. Often, projects compete for limited resources so the best budget is the one that most closely projects actual expenses and revenue. Forecasting, Scenario Planning, and Contingency PlanningForecasting is simply making a prediction about the future. Anyone can make a forecast—the trick is to be right or close enough so that important planning decisions can be based on the forecast. Some “botched” forecasts by business leaders follow:
There are actually much better ways to predict the future than resorting to fortunetellers. Scientific forecasting is using mathematical models, historical data, and statistical analysis to make predictions about what will happen in the future. Businesses use short-term forecasting all the time when creating budgets and anticipating expenses. Mostly, these forecasts are based on what they sold and what they paid providers in the recent past. Long-range forecasting requires both quantitative numerical data and qualitative data based on expert opinions and insights. Often, organizations will create a number of long-range forecasts based on “best-case” and “worst-case” scenarios. They will then make plans on how they would respond to each situation and, as time goes on, they will update and adapt the long-term plan. One other important type of planning is the contingency plan. A contingency plan describes what will happen in a possible—but not expected—situation. Usually, contingency plans are designed to handle emergency situations. For example, airports have contingency plans for plane crashes on takeoffs or landings, and popular tourist attractions have begun developing contingency plans in case of terrorist threats. An example of the critical importance of contingency planning involves the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. Eleven people lost their lives and seventeen were badly injured when an explosion on an oil rig released almost five million barrels of oil into the Gulf of Mexico. It was the worst marine oil spill in history, and its effects were even more devastating because BP Oil did not have contingency plans in place for that kind of disaster. The spill went on for months while BP and its partners tried to figure out how to shut off the oil’s source. Even though BP spent $62 billion on the response and cleanup activities, there was extensive damage to marine and wildlife habitats and fishing and tourism industries. Getting employees involved in planning may help prevent tragedies similar to this one. Management By Objectives (MBO) and SMART GoalsManagement by objectives, or MBO for short, is a tool that can be used to improve the performance of an organization by creating clearly defined objectives agreed upon by management and by the employees. Peter Drucker, a prolific author and a leader in management theory, coined the phrase “management by objectives” in 1954. The intent of MBO is to improve employee motivation and organizational communication by focusing on aligning individual goals to corporate objectives. In MBO, a manager and an employee do the following:
MBO must be a top-down management tool, because organizational goals are cascaded down to create the various operational levels. Drucker showed that as long as employee goals support short-term and long-term organizational objectives, MBO will help move the company forward. Critics, however, charge that managers using the approach focus more on creating goals than on helping the employee achieve them. SMART goals are a technique often paired with MBO. SMART stands for specific, measurable, achievable, realistic, and time-bound. The SMART goal paired well with MBO theory by
The chart that follows summarizes the most important characteristics of each part of a SMART goal.
For example, let’s say you set a goal to become a recognized department expert in a subject relevant to advancement within the organization. How could you turn this into a SMART goal?
BenchmarkingThe last planning tool we’ll discuss in this section is benchmarking. You may think that your organization has an excellent long-term plan and effective short-term plans, but how do you really know? Even if your company is showing growth, is it growing as fast as your competitor? A benchmark is a standard used for comparison purposes. Benchmarking is looking at performance levels outside of your organization, or sometimes across departments or divisions inside your organization, to evaluate your own performance. You can benchmark using several different criteria:
Internal benchmarking means comparing a department’s performance with another department in your company or branch within the same larger organization. The important thing about benchmarking is that it gives you a standard against which to compare your progress. Key PointsPlanning tools are designed to help you determine goals, guide behaviors within the organization, and help you evaluate your performance against external benchmarks. Plans are essential, but good managers know to be flexible when conditions demand. What is defined as the process of identifying and choosing alternative courses of action in a manner appropriate to the demands of the situations?According to Kreitner (1966) decision making is a process of identifying and choosing an alternative course of action in a manner appropriate to the demand of the situation.
What are the types of plans how may they be classified in Engineering Management?While there are many different types, the four major types of plans include strategic, tactical, operational, and contingency.
Are statements that either require or forbid a certain action?Rules — they are statements that either require or forbid a certain action. Single-Use Plans.
What is the process of determining the contribution that sub units can make with allocated resources?In middle management level, managers are assigned in intermediate planning which is a process of determining the contributions that subunits can make with allocated resources.
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