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Planning and Budgeting Systems

Importance of P & B Systems


Companies that plan outperform companies that dont plan While P & B systems are contingent upon environment, there are principles that work

Purposes of P & B Systems I


Planning
force managers to think about future managers understand company environment better quickens response time, reduces risk makes control system proactive, not reactive

Co-ordination
forces sharing info across organization irons out potential conflicts makes decisions that consider everyone

Purposes of P & B Systems II


Top management control
preaction review as plans are examined and approved used for

Motivation
budgets become targets targets are linked to performance evaluations

management by exception

Planning Cycles
Line Executive

Responsible

Strategic Planning

Programming

Operational

Budgeting

Time
Vancil and Lorange HBR 1975

Strategic Planning
Planning that involves:
Long periods of time Large amounts of resources Involves five steps Done at two levels:
Corporate level Business Unit level

Corporate Level StrategiesI


Key Strategic Questions
in what set of businesses should the firm be? What should be the missions of those firms?

Corporate Level Strategies II


Extent of Relatedness

Single business

Related Diversification

Unrelated Diversification

Extent of Diversification

Corporate Level Strategies III


Extent of Relatedness

Total Commitment Share core competencies

Minimize portfolio risk

Extent of Diversification

Boston Consulting Group


Cash Source
High High Low High

Market Growth Rate

?
Cash Use

Low High Low

Low

Relative Market Share

Boston Consulting Group


Cash Source
High High Low High

Market Growth Rate

Build

? Hold
Cash Use

Low

Harvest
High

Divest
Low

Low

Relative Market Share

Final Examination Question


Control system designers need to know what the mission of a particular business unit is, but not necessarily why the firm has chosen that particular mission Discuss, giving examples.

Business Unit Analysis


Three questions for developing a SBUs competitive advantage
What is the competitive structure of the industry in which the SBU operates? How should the SBU exploit the industrys competitive structure? What should be the basis of the SBUs competitive advantage?

Porters Five Force Analysis


Threat of New Entry Power of Suppliers Industry Competition Direct Rivalry Threat of Substitutes Power of Buyers

Strategic Planning
Develop the corporate vision, mission and objectives Do a SWOT analysis Select strategy(ies) for achieving willed

future

Prepare the strategic plan Monitor and modify as necessary

Programming
Identification of specific action programs
focus on any function area or combination must be consistent with strategic plan

must be internally consistent with resource allocation allow for preaction reviews

Budgeting
Short term planning
97% of companies surveyed had a formal budgeting process 91% for one year, balance less than one year

Variations in Practice
Planning horizons Content of Plans Length and Timing of Processes Plan Updating Amount of planning guidance provided Roles of Planners and Controllers

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