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In theory,
operational planning takes over where strategic planning leaves
off. In practice, there is a great deal of overlap and a certain
amount of desirable redundancy.
Largely,
however, the operational planning provides specific, detailed,
comprehensive, integrated goals, procedures, schedules and
budgets to fulfill the objectives of the master strategy. And
while the time frame of the strategic plannning may be from one
to five or more years, operational planning typically focuses on
the annual with sequential segments for the 52 weeks, the 12
months, the four quarters, and the half-year.
The sales forecast
The revenue
forecast is even more pivotal here than in strategic planning.
Financing of all marketing, production, procurement, staffing
and others plans are directly related to this source of income.
Techniques for forecasting range from simple historical
projections, to surveys of salespeople and customers, to
sophisticated statistical methods. But it is important that all
these techniques should weigh the impact of environmental
influences on projected sales objectives.
The
expense forecast
Projected
operating and administrative expenses are developed two ways:
from the top down based on the accepted sales forecast and from
the bottom up based on expectations about impending costs of
materials, energy, personnel, and the likes.
Operational objectives
These take
into account three factors: (1) master strategic objectives (2)
the sales forecast and (3) the expense forecast. Here again,
theory and practice don’t always match. Conceptually, some
authorities believe that operational objectives should first be
set to fulfill the master strategic goals; then they should be
modified and adjusted in light of the sales and expense
forecasts. In practice, there tends to be an amalgam of these
two approaches with the planning process moving simultaneously
in two directions from top to bottom and the reverse. In any
event, the operational planning process should yield a set of
interlocking objectives that encompass all the major functional
activities of the organization.
Typically,
these would include:
Financial objectives,
such as increase or decrease in capital funds, long-term and
short-term borrowings; improvements in rate of working capital
turnover, accounts receivable turnover, profitability related to
sales and investment, etc.
Production objectives,
such as improvement in equipment utilization rates, labor
productivity, production scheduling, inventory levels, etc.
Sales and marketing objectives,
such as sales revenue targets for various products, improvement
of share of market, increase in advertising and direct sales
effectiveness, introduction of specific new products, etc.
HR management objectives, such as increase
of employee satisfaction index, improvement in recruitment &
selection, improvement in employees' competencies, reduction in
employee turnover, etc.
Coordinating objectives
The
objectives in one functional area must be coordinated with all
others so that one activity does not advance at the expense of
another so that all move in concert to support the overall
master objectives. Similarly, within each functional area the
objectives of each department and sub-department must serve the
overall objectives of the function. If, for example, the main
objective of the ales department is to improve share of market
by 5%, the objective of the advertising department would be to
invest advertising in such a way as to gain greater product
penetration in the market. The objective of a regional sales
manager would be to improve sales in his district by more than
5% over competing products.
Format of
operational plans
Once
objectives have been agreed upon, the detailed formulation of
specific functional and departmental plans begins. Regardless of
the level of the organization, these operational plans typically
take three forms:
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Procedures. These are sometimes called
standing plans since their greatest usage is for activities
that follow the same sequence, with minor alterations from
planning period to planning period. Procedures establish the
manner and sequence in which certain activities must be
carried out. They are particularly appropriate for
establishing uniform methods for accounting, purchasing,
manufacturing, personnel matters and the like. Similar to
procedures are rules and regulations. These are usually
associated with restrictions that prohibit certain kinds of
activities, especially those involving employee conduct.
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Schedules. These are typically single-use
plans because they are rarely used in identical fashion more
than once. The most commonly used production schedule is
based upon a Gantt chart illustrated in Figure 8. This
schedule uses a charting technique in which the times needed
to accomplish various jobs are blocked out on a calendar of
days, weeks, or months strung out longitudinally from left
to right. The Gantt chart simplifies control by enabling a
manager to see at once the progress of a particular job with
regard to the present date and its due date. Another
single-use plan is a PERT chart (Program Evaluation and
Review Technique). This uses a complex charting technique
called the Critical Path Method (CPM), and is especially
suitable for scheduling construction and research projects.
Figure 9 illustrates typical PERT and CPM charts.
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Budgets. These are almost always single-use
plans and they are by far the most commonly used. They are
essential for communicating plans to department heads in
terms of numbers and monetary units. Budgets serve a dual
purpose. At the beginning of an operational period, they
represent plans – what each operating department is supposed
to accomplish in the way of output and in respect to
management of expenses. At the end of the period, budgets
provide the standard against which progress or
accomplishment is measured. Budget may be fixed or flexible.
Fixed budgets provide only one set of standards for the
period. A flexible budget provides two or more sets of
standards that bear a relationship to some controlling
factor, such as the amount of sales revenue actually
generated during the period or the amount of production
actually scheduled – as differentiated from what may have
originally been planned.
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