BUA 325 chapter 7 terms

Tips for setting a budget

- Be aware of how much money you make. Know the amount of income you can truly count on, not what you hope to make - Have a solid grasp on expenses. Keep track of all of the money "going out" - Be realistic. If you're certain that you'll get an income increase this year, assume it's probably 2 to 3 percent not 50. - Determine a savings amount. Set aside a certain percentage or dollar figure to go into savings. - Pay off debt. Make certain your budget includes figures to pay off any outstanding loans. - Evaluate your budget. Check the budget each month to ensure that you stay on track. - Rework your budget, if necessary. Unexpected expenses do occur, so if one month is particularly devastating for expenses, adjust accordingly for the following months.

Advantages of planning

- Helps managers to be future-oriented. They are forced to look beyond their everyday problems to forecast what situations may confront them in the future - A sound planning program enhances decision coordination. No decision should be made today without some idea of how it will affect a decision that might have to be made tomorrow. Thus pushes managers to coordinate their decisions - Planning emphasizes organizational objectives. Because organizational objectives are the starting points for planning, managers are continually reminded of exactly what their organization is trying to accomplish.

3 basic parts of the MBO (management by objectives) strategy

1. All individuals within an organization are assigned a specific set of objectives that they try to reach during a normal operating period. These objectives are mutually set and agreed upon by individuals and their managers. 2. Performance reviews are conducted periodically to determine how close individuals are to attaining their objectives 3. Rewards are given to individuals on the basis of how close they come to reaching their goals

When plans fail

1. Corporate planning is not integrated into the total management system. 2. There is a lack of understanding the different steps of the planning process. 3. Managers at different levels in the organization have not properly engaged in or contributed to planning activities. 4. Responsibility for planning is incorrectly vested solely in the planning department 5. Management expects that plans developed will be realized with little effort. 6. Too much is attempted at once in starting formal planning 7. Management fails to operate by the plan. 8. Financial projections are confused with planning. 9. Inadequate inputs are used in planning. 10. Management fails to grasp the overall planning process. Study founded by K.A Ringbakk

Critical components of of the planning process

1. Defining organizational objectives 2. Pinpointing areas in which organizational objectives should be established 3. Illustrating how managers work with organizational objectives 4. Discussing management by objectives, an approach to management based mainly on organizational objectives

General guidelines for managers to increase the quality of their objectives

1. Let the people responsible for attaining the objectives have a voice in setting them 2. State the objectives as specifically as possible 3. Relate objectives to specific actions whenever necessary 4. Pinpoint expected goals 5. Set goals high enough that employees will not have to strive to meet them but not so high that employees will give up trying to meet them 6. Specify when goals are expected to be achieved 7. Set objectives only in relation to other organizational objectives 8. State objectives clearly and simply

Advantages of the MBO approach

1. MBO programs continually emphasize what should be done in an organization to achieve organizational goals 2. MBO process secures employee commitment to attaining organizational goals

8 key areas in which Peter F. Drucker advised managers to set management system objectives

1. Market standing: management should set objectives indicating where it would like the company to be in relation to its competitors. 2. Innovation: Management should set objectives outlining its commitment to the development of new methods of operation. 3. Productivity: Management should set objectives outlining the target levels of production. 4. Physical and financial resources: Management should set objectives regarding the use, acquisition, and maintenance of capital and monetary resources. 5. Profitability: Management should set objectives that specify the profit the company would like to generate. 6. Managerial performance and development: Management should set objectives that specify rates and levels of managerial productivity and growth. 7. Worker performance and attitudes: Management should set objectives that specify rates of worker productivity as well as desirable attitudes for workers to possess. 8. Public responsibility: Management should set objectives that indicate the company's responsibilities to its customers and society and the extent to which the company intends to live up to those responsibilities. (first five goals are tangible, impersonal characteristics of organizational operations)

Organization objectives three points

1. Profit is the motivating force for managers 2. Service to customers by the provision of desired economic values (goods and services) justifies the existence of the business 3. Managers have social responsibilities in accordance with the ethical and moral codes of the society in which the business operates (John F. Mee)

Purposes of planning

1. Protective: to minimize risk by reducing the uncertainties surrounding business conditions and clarifying the consequences of related management actions. 2. Affirmative: to increase the degree of organizational success. Other purposes: - to establish a coordinated effort within the organization - to ensure integration among an organization's various business units - Fundamental purpose: to help the organization reach its objectives.

MBO process

1. Review organizational objectives: the manager gains a clear understanding of the organization's overall objectives 2 Set worker objectives: the manager and the worker meet to agree on worker objectives to be reached by the end of the normal operating period 3. Monitor progress: at intervals during the normal operating period, the manager and the worker check to see whether the objectives are being reached 4. Evaluate performance: at the end of the normal operating period, the worker's performance is judged by the extent to which the worker reached the objectives 5. Give rewards: rewards given to the worker are based on the extent to which the objectives were reached.

3 set of objectives managers should set

1. Short-term objectives: targets to be achieved in one year or less 2. Intermediate-term objectives: targets to be achieved in one to five years 3. Long-term objectives: targets to be achieved in five to seven years

Steps of the planning process

1. State organizational objectives 2. List alternative ways of reaching objectives 3. Develop premises on which to base each alternative 4. Choose the best alternative for reaching objectives 5. Develop plans to pursue the chosen alternative 6. Put the plans into action

Disadvantages of the MBO approach

1. The development of objectives can be time-consuming, leaving both managers and employees less time to do their actual work. 2. The elaborately written goals, careful communication of goals, and detailed performance evaluations required in an MBO program increase the volume of the paperwork in an organization.

Factors necessary for a successful MBO program

1. Top management must be committed to the MBO process and set appropriate objectives for the organization 2. Managers and subordinates together must develop ad agree on each individual's goals. 3. Employee performance should be evaluated conscientiously against established objectives 4. Managers must follow through on employee performance evaluations by rewarding employees accordingly.

Sales forecast

A prediction of how high or low sales of the organization's products or services will be over the period of time under consideration.

Gantt Chart

A scheduling device developed by Henry L. Gantt, is essentially a bar graph with time on the horizontal axis and the resource to be scheduled on the vertical axis. It is used for scheduling resources, including management system inputs such as human resources and machines. Managers can (1) use it as a summary overview of how organizational resources are being employed. (2) use it to help coordinate organizational resources: chart can show which resources are not being used during specific periods, thereby allowing managers to schedule those resources for work on other production efforts. (3) can be used to establish realistic worker output standards; if scheduled work is being completed too quickly, output standards should be raised so that workers are scheduled for more work per time period. Weakness: is does not contain any information about the interrelationship of tasks to be performed.

Budget

A single-use financial plan that covers a specified length of time. It details how funds will be spent on labor, raw materials, capital goods, information systems, marketing, and so on, as well as how the funds will be obtained.

Program

A single-use plan that is designed to carry out special project within an organization. The project itself is not intended to exist over the entire life of the organization. Rather, it exists to achieve a purpose that, if accomplished, will contribute to the organization's long-term success. - The purpose is to produce competent managers who are equipped to help the organization be successful over the long term.

Rule

A standing plan that designates specific required actions. - In essence, it indicates what an organization member should or should not do and allows no room for deviation. - An example: no smoking

PERT (Program Evaluation and Review Technique)

A technique that evolved partly from the Gantt chart, is a scheduling tool that does emphasize the interrelationship of tasks. A network of project activities showing both the estimates of time necessary to complete each activity and the sequence of activities that must be followed t complete the project. -Contains two primary elements: activity (a specified set of behaviors within a project) and an event (is the completion of major project tasks) -Within the network, each event is assigned corresponding activities that must be performed before the event can materialize. Features: Left-to-right presentation of events shows how the events interrelate or the sequence in which they should be performed. The number in parenthesis above each arrow indicate how the units of time necessary to complete each activity. (These two features help managers ensure that only necessary work is being done on a project and that no project activities are taking too long.

Disadvantages of planning

An overemphasized planning program can take up too much managerial times. Managers must strike an appropriate balance between time spent on planning and time spend on organizing, influencing, and controlling. If they don't, some activities are extremely important to the success of the organization may be neglected.

Jury of Executive Opinion Method

Appropriate managers within the organization assemble to discuss their opinions on what will happen to sales in the future. Because these discussion questions usually revolve around hunches or experienced guesses, the resulting forecast is a blend of informed opinions. (Qualitative method)

Maturity stage (product life cycle)

Competitors enter the market, and although sales are still climbing, they are climbing at a slower rate than they did in the growth stage (e.g., smartphones, personal computer).

Types of forecasting

Economic, technological, social trends, and sales

Decline stage (product life cycle)

Finds the product being replaced by a competing product (e.g., conventional-not high definition- television) Managers may be able to prevent some products from entering this stage by improving product quality or by adding innovations. Items like scissors will never reach this stage because there are no competing products to replace them.

Salesforce estimation method

Is a sales forecasting technique that predicts future sales by analyzing the opinions of salespeople as a group. Salespeople continually interact with customers, and from these interactions, they usually develop a knack for predicting future sales. -Like the jury of executive opinion method, the resulting forecast normally is a blend of the informed views of the group. -managers think this method could provide salespeople with sufficient time to forecast and offer incentives for accurate forecasts. (Qualitative method)

Policy

Is a standing plan that furnishes broad guidelines for taking action that is consistent with reaching organizational objectives.

Procedure

Is a standing plan that outlines a series of related actions that must be taken to accomplish a particular task. - Outline more specific actions that policies do. - Organizations usually have many different sets of these covering the various tasks to be accomplished. Managers must therefore apply the appropriate organizational procedures carefully and properly for the situations they face.

Product life cycle

Is made up of five stages through which most products and service pass. Stages are introduction, growth, maturity, saturation, and decline.

Scheduling

Is the process of formulating a detailed listing of activities that must be accomplished to attain an objective, allocating the resources necessary to attain the objective, and setting up and following time tables for completing the objectives. Two popular techniques are Gantt Chart and the Program Evaluation and Review Techniques (PERT)

Saturation stage (product life cycle)

Nearly everyone who wanted the product has it (e.g., refrigerators, microwaves). Sales during this stage typically are due to the need to replace a worn-out product or due to population growth.

Regression method

Predicts future sales by analyzing the historical relationship between sales and time. - Using this information, analysts can use regression to forecast future sales. - Provides forecasters with a trend line that best illustrates the historical relationship between sales and time - General rule: managers should include as many time periods as necessary to ensure that important sales trends to not go undetected.

Product Stages method

Predicts future sales by using the product life cycle to better understand the history and future of a product.

Methods of sales forecasting

Qualitative and quantitative

Planning tools

Techniques that managers can use to help develop plans.

Planning

The process of determining how the organization can get where it wants to go and what it will do to accomplish its objectives. - "the systematic development of action programs aimed at reaching agreed-upon business objectives by the process of analyzing, evaluating, and selecting among the opportunities which are foreseen."

Forecasting

The process of predicting the likelihood of uncertain events or outcomes that will influence the operation of the organization. - The importance lies in its ability to help managers understand the future makeup of the organizational environment, which in turn helps them formulate more effective plans. Survey found that manufacturers think it is an imprecise science (on average, off by 20%)

Growth stage (product life cycle)

The product has been in the marketplace for some time and is becoming more accepted, so product sales continue to climb (e.g., tablet computers).

Critical path

The sequence of events and activities requiring the longest period of time to complete. - Is called this because a delay in completing this sequence results in a delay in completing the entire project. - Helps managers predict which features of a schedule are becoming unrealistic and provides insights into how those features might be eliminated or modified. - Managers need pay attention to this in the PERT network.

Organizational objectives

The target toward which the open management system is directed. - Organizational input, process, and output: help managers reach organizational objectives (chapter 3)

Goal of an organization

To make a better and better product to be sold at a lower and lower price. Profit cannot be the goal. Profit must be a by-product.

Single-use plan

Used only once- or, at most, a few times- because it focuses on unique or rare situations within the organization. - Can be subdivided into programs and budgets.

Standing plan

Used over and over again because it focuses on organizational situations that occur repeatedly. - Can be divided into policies, procedures, and the rules

Moving average method

Utilizes historical data to predict future sales levels. (quantitative method)

Organizational purpose

What the organization exists to do, given a particular group of customers and customer needs.

Introduction stage (product life cycle)

When a product is brand new, sales are just beginning to build (e.g., virtual reality headset).