Fundamentals of planning in business management

Planning forms a core part of managing a business, helping to establish clear directions and priorities. It involves setting out strategies to guide operations and achieve desired outcomes.

Strategic planning centres on the overall direction of a business. It sets broad goals, specific targets, and measurable objectives to ensure resources are used effectively and progress can be tracked.

Fishbone diagrams for identifying root causes

Fishbone diagrams provide a structured way to explore the underlying reasons behind a problem. Developed by Professor Kaoru Ishikawa, this tool uses a visual format resembling a fish skeleton to map out causes and effects.

The diagram features a central 'head' representing the main issue, with 'bones' branching off to show potential causes grouped into categories. These categories help organise ideas and highlight connections between factors.

Advantages of fishbone diagrams

• Present multiple possible causes in a clear, compact visual format.
• Simplify the process of tracing problems back to their origins through an easy-to-follow structure.
• Group causes into themes, which supports more focused analysis and better-informed decisions.

Disadvantages of fishbone diagrams

• Relationships between causes and effects may not always link directly, complicating the diagram's creation and reducing its value.
• Rely on qualitative insights without numerical data, making it hard to measure the impact of each cause.
• Fail to indicate which issues should take priority for action.

Decision trees for quantitative decision-making

Decision trees offer a methodical approach to evaluating choices by mapping out options and their potential results. This tool uses symbols to represent decisions and uncertainties, with branches showing different paths.

A square symbol marks a decision point, while a circle indicates a chance node where outcomes depend on probability. Each branch includes probability values that must sum to 1.0 for complete scenarios, and rejected paths are crossed out based on calculations.

Expected values are calculated by multiplying outcomes by their probabilities and summing them, helping to compare options numerically.

Advantages of decision trees

• Structure decisions in a clear, unbiased way by allowing objective comparisons of results.
• Provide a logical diagram that includes risks and quantifiable predictions for each choice.
• Encourage consideration of uncertainties associated with various paths.

Disadvantages of decision trees

• Overlook non-numerical influences, such as company goals or opinions from stakeholders.
• Depend on estimated data for outcomes, which may not match real results.
• Can become irrelevant if information changes before a final choice is made.
• Exclude broader external influences and qualitative details.

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Worked example - Calculating expected values in a decision tree

A business is deciding between two marketing campaigns: Campaign A costs £18,000 and has a 70% chance of generating £50,000 revenue or a 30% chance of £12,000 revenue. Campaign B costs £14,000 and has a 60% chance of £45,000 revenue or a 40% chance of £10,000 revenue. Calculate the expected net value for each and determine the better option.

Step 1: Identify the values

• Campaign A: Cost = £18,000; 0.7 probability of £50,000; 0.3 probability of £12,000
• Campaign B: Cost = £14,000; 0.6 probability of £45,000; 0.4 probability of £10,000

Step 2: Calculate expected value for Campaign A

$\text{Expected revenue}=(0.7\times \pounds \mathrm{50,000})+(0.3\times \pounds \mathrm{12,000})=\pounds \mathrm{35,000}+\pounds \mathrm{3,600}=\pounds \mathrm{38,600}$ $\text{Expected net value}=\pounds \mathrm{38,600}-\pounds \mathrm{18,000}=\pounds \mathrm{20,600}$

Step 3: Calculate expected value for Campaign B

$\text{Expected revenue}=(0.6\times \pounds \mathrm{45,000})+(0.4\times \pounds \mathrm{10,000})=\pounds \mathrm{27,000}+\pounds \mathrm{4,000}=\pounds \mathrm{31,000}$ $\text{Expected net value}=\pounds \mathrm{31,000}-\pounds \mathrm{14,000}=\pounds \mathrm{17,000}$

Step 4: Interpretation

Campaign A has a higher expected net value (£20,600 vs £17,000), making it the preferable choice based on these calculations.

Force field analysis for examining change factors

Force field analysis, created by Kurt Lewin, evaluates the balance of influences surrounding a proposed change. It weighs elements that encourage or resist the change to support rational planning.

Driving forces push for the change, while restraining forces oppose it. Each force receives a numerical score, often from 1 to 5, based on its strength, allowing a total to be calculated for both sides.

Advantages of force field analysis

• Brings objectivity to decisions by quantifying and comparing influences logically.
• Uses a straightforward diagram to display supporting and opposing elements.
• Assigns weights to factors, prompting evaluation of their relative significance.

Disadvantages of force field analysis

• May undervalue or ignore influences that are hard to measure numerically.
• Missing key factors can skew the overall assessment significantly.
• Scoring relies on personal judgement, which can introduce inconsistencies.

Gantt charts for project scheduling

Gantt charts, introduced by Henry L. Gantt, display project timelines visually. They outline tasks, their durations, and how they interconnect to form an overall schedule.

Horizontal bars represent tasks, with lengths indicating time required. Arrows or lines show dependencies, highlighting which activities must finish before others start, and resources are allocated accordingly.

This tool estimates the total project duration by sequencing all elements.

Advantages of Gantt charts

• Highlight task connections to optimise the overall timeline.
• Apply to various scenarios, including manufacturing workflows and staff timetables.
• Assist in establishing achievable completion dates.
• Offer an intuitive format for tracking advancements and making adjustments.

Disadvantages of Gantt charts

• Bar lengths reflect time but not necessarily the effort or resources needed.
• Require ongoing reviews and revisions to stay accurate.
• Large projects can become too intricate for a single view.
• Lack depth for highly detailed planning.
• Depend on initial time predictions, which may prove inaccurate.