Engineering Management

Module-II
Foundations of Planning
Lecturer Muhammad Kashif Farooq
MS Mechanical Engineering
Learning Outcomes
▪ Planning and its importance
▪ Mission, Goals and Plans
▪ SWOT Analysis
▪ What is Strategic Management?
▪ 6 Steps of Strategic Management
▪ Planning Techniques
▪ Techniques for assessing environment (environmental scanning, Forecasting
and Benchmarking)
▪ Techniques for allocating resources
Established since 1960
Planning

Planning: defining organization goals, establishing the best strategies, and

develop plans to integrate and coordinate activities.
▪ Specific goals covering a specific time period are defined.
▪ Goals are written and shared with organizational members to reduce
ambiguity
▪ These goals create a common understanding of what needs to be done
and outlines specific plans to achieve these goals.
• Key Questions: What are our goals? How do we achieve them?
Importance of Planning
▪ Planning provides direction to managers and nonmanagers alike. When
employees know what their organization or work unit is trying to accomplish
and what they must contribute to reach goals, they can coordinate their
activities, cooperate with each other, and do what it takes to accomplish those
goals.
▪ Planning reduces uncertainty by forcing managers to look ahead, anticipate
change, consider the impact of change, and develop appropriate responses.
▪ It minimizes waste and redundancy. When work activities are coordinated
around plans, inefficiencies become obvious and can be corrected or eliminated.
▪ Planning establishes the goals or standards used in controlling. When managers
plan, they develop goals and plans. When they control, they see whether the
plans have been carried out and the goals met.
▪ Good Planning results in positive financial results and higher performance.
Mission, Goals, Plan
▪ Mission: An organization’s overriding purpose, It explains why the
organization exists and what goods or services it aims to provide to
the customers.
▪ Goals (objectives): Desired outcomes or targets, they guide
management decisions and form the criterion against which work
results are measured.
▪ Plans: Documents that outline how goals are going to be met, They
usually include resource allocations, schedules, and other necessary
actions to accomplish the goals
“ Goals must be clearly defined before establishing plans”
SWOT Analysis
▪ SWOT analysis is a framework for identifying and analyzing an
organization’s internal organizational Strengths and Weaknesses, external
environment Opportunities and Threats. These words make up the SWOT
acronym.
▪ It’s a way of analyzing the internal and external factors that will impact a
product or a project. It also uncovers opportunities for success and
highlights threats.
▪ The primary goal of SWOT analysis is to increase awareness of the factors
that go into making a business decision or establishing a business strategy.
▪ By completing the SWOT analysis, managers can continue planning and
develop targeted strategies to achieve the organization’s mission and goals.
Assignment 1
▪ Select a small organization or a company and perform the SWOT
analysis to determine its strength, weaknesses, opportunities
(products or services they can offer or enhance their business) and
potential emerging threats. ("A detailed analysis is required. Grading
will be based on the depth of analysis, not the size of the company”)

▪ Deadline: 21st April (Not Extendable)

Home Work:
Case Study: Kmart vs Walmart

Identify the factors and strategies that led

to failure of Kmart.
It is self study based assignment.
Strategic Management
▪ Strategic management is what managers will do to develop the
organization’s strategies.
▪ It involves developing and implementing plans to achieve a company's
long-term goals by analyzing the environment, setting objectives,
formulating strategies, and implementing and controlling them.
▪ It includes the four key management functions:
▪ Planning – Setting objectives and outlining strategies.
▪ Organizing – Allocating resources and structuring operations.
▪ Leading – Guiding and motivating employees.
▪ Controlling – Monitoring progress and making adjustments.
Strategic Management
▪ Strategies: Plans for how the organization will do whatever it’s in
business to do, how it will compete successfully, and how it will
attract and satisfy its customers in order to achieve its goals.
▪ Business Model: How a company is going to make money. It focuses
on two things:
▪ Whether customers will value what the company is providing.
▪ Whether the company can make any money doing that.
Strategic Management Process
▪ Six Step Process
Strategic Management Process
Step 1: Identifying the Organization’s Current Mission, Goals, and
Strategies
▪ Every organization needs a mission – a statement of purpose
▪ Defining the mission forces managers to identify what it’s in business to do.

Facebook's mission is to give

people the power to build
community and bring the
world closer together.
Strategic Management Process
Step 2: Doing an external Analysis

▪ Managers do an external analysis, so they know, for instance, what the competition
is doing, what pending legislation might affect the organization, or what the labor
supply is like in locations where it operates.
▪ In an external analysis, managers should examine the economic, demographic,
political/legal, sociocultural, technological, and global components to see the trends
and changes.
▪ Once they’ve analyzed the environment, managers need to pinpoint opportunities
that the organization can exploit and threats that it must counteract or buffer
against.
▪ Opportunities are positive trends in the external environment; threats are negative
trends.
Strategic Management Process
Step 3: Doing an Internal Analysis
▪ Provides important information about an organization resources (financial,
physical, human, intangible) and capabilities (Skills and abilities; core
competencies).
▪ Managers identify organizational strengths (Activities that organization does
well or any unique resources) and weaknesses (Activities that organization
does not do well).
▪ After the internal and external analysis (SWOT analysis) managers formulate
strategies:
(1) Exploit an organization’s strengths and external opportunities
(2) Buffer or protect the organization from external threats
(3) Correct critical weaknesses.
Strategic Management Process
Step 4: Formulating Strategies
▪ While formulating strategies, managers consider external environment and internal resources
and capabilities.
▪ Design strategies that will help achieve organizational goals.
▪ Managers formulate three main types of strategies:
▪ Corporate Strategy: it determines what businesses a company is in or wants to be in, and what it wants
to do with those businesses
▪ Competitive Strategy: how an organization will compete in its business(es).
▪ Functional Strategy: strategies used by organization’s various departments to support the competitive
strategy. It involves department level plans.
Strategic Management Process
Step 5: Implement Strategies
▪ Strategies must be implemented after formulation.
▪ Poor implementation leads to poor performance.
Step 6: Evaluating Results
▪ How effective have the strategies been at helping the organization reach its
goals?
▪ What adjustments are necessary?
▪ Example: Ursula Burns, Xerox’s CEO, made strategic adjustments to regain
market share and improve her company’s bottom line. The company cut jobs,
sold assets, and reorganized management.
Planning Tools and Techniques
Techniques for Assessing the Environment

▪ Larger accounting firms have established external analysis departments to

study the broader business environment.
▪ Global influence: Events in one country (e.g., India) can impact firms in
another (e.g., the U.S.).
▪ Strategic management involves assessing the environment to make informed
decisions.
▪ Three key techniques for environmental analysis:
▪ Environmental Scanning – Identifying trends and external factors affecting the business.
▪ Forecasting – Predicting future conditions based on data and trends.
▪ Benchmarking – Comparing performance against industry standards or competitors.
1. Environmental Scanning
▪ It is the screening of large amounts of information to
anticipate and interpret changes in the
environment.
▪ It helps managers anticipate issues affecting current
or planned activities.
▪ Companies that scan their environments tend to
achieve higher performance.
▪ It involves competitor Intelligence and global
scanning.
A. Competitor Intelligence
▪ It’s a process by which organizations gather information about their
competitors and get answers to questions such as Who are they? What are
they doing? How will what they’re doing affect us?
▪ 80% of competitor insights can be obtained from employees, suppliers, and
customers.
▪ Public sources include ads, press releases, annual reports, government
filings, and industry studies.
▪ Trade shows and salesforce debriefings are additional sources.
▪ Many firms regularly buy competitors’ products and have their own
engineers study them (through a process called reverse engineering) to
learn about new technical innovations.
▪ Information must be gathered legally and ethically.
B. Global Scanning
▪ Global scanning tracks worldwide forces affecting organizations.
▪ It's especially valuable for companies with significant global interests.
▪ Managers expand their scope by using global news sources, clipping
services, and electronic topic updates.

▪ For Example: Sealed Air Corporation of Elmwood Park, New Jersey—

tracks global demographic changes. Company managers found that as
countries move from agriculture-based societies to industrial ones,
the population tends to eat out more and favor prepackaged foods,
which translates to more sales of its food packaging products.
2. Forecasting
▪ Forecasting is a critical management tool that uses data from
environmental scanning to predict future outcomes.
▪ It helps managers plan effectively by anticipating changes in various
components of the organization’s environment.
▪ Virtually any component in an organization’s environment can be
forecasted.
Forecasting Techniques:
I. Quantitative Forecasting
II. Qualitative Forecasting
Forecasting Techniques
Quantitative Forecasting: It applies a set of mathematical rules to a series of past
data to predict outcomes; Require sufficient hard data
Qualitative Forecasting: It uses the judgment and opinions of knowledgeable
individuals to predict outcomes. Used when precise data is limited.
▪ Today, many organizations collaborate on forecasts using an approach called CPFR
(collaborative planning, forecasting and replenishment).
▪ CPFR Provides a framework for information, goods, and services exchange
between retailers and manufacturers.
▪ Each organization relies on its own data to calculate a demand forecast for a
particular product.
▪ allows to fully optimized supply chain for greater efficiency at a lower cast.
▪ Note: Forecasting techniques are most accurate when environment is not rapidly
changing.
3. Benchmarking
▪ Benchmarking is a process of comparing an organization’s
performance, processes, or practices against those of leading
companies or industry standards to Identify areas for improvement.
▪ The basic idea behind benchmarking is that managers can improve
performance by analyzing and then copying the methods of the
leaders in various fields.
▪ The key benefits of benchmarking include performance improvement,
identification of best practices, gap analysis and continuous
improvement.
Techniques for Allocating Resources
▪ Resources: assets of an organization (financial, physical, human, and
intangible)
▪ Managers can choose from a number of techniques for allocating
resources, four are discussed here:
▪ Budgeting
▪ Scheduling
▪ Breakeven Analysis
▪ Linear Programming
Budgeting
▪ A budget is a numerical plan for allocating resources to specific activities.
▪ It is a widely used planning tool that enforces financial discipline.
▪ Managers typically prepare budgets for revenues, expenses, and large
capital expenditures such as equipment.
▪ It’s not unusual, though, for budgets to be used for improving time, space,
and use of material resources (dollars to non-dollars numbers).
▪ Items such as person-hours, capacity utilization, or units of production can
be budgeted for daily, weekly, or monthly.
▪ Monetary budgets effectively allocate resources across departments like
manufacturing and IT.
Scheduling
▪ Scheduling involves:
▪ Allocating resources by detailing what activities have to be done.
▪ The order in which they are to be completed.
▪ Who is to do each.
▪ When they are to be completed.

Polish Engineer (Ran American Engineer: After 15

Steelworks): Devised the first years, devised his own version
Gantt chart in mid 1890s. of Gantt Chart which became
popular in western countries.
Scheduling Tools: (1) Gantt Chart:
▪ It is one of the most popular and useful ways of showing activities (tasks or events)
displayed against time.
▪ It is a visual tool for scheduling and managing (or controlling) projects.
▪ On the left of the chart is a list of the activities and along the top is a suitable time scale.
▪ Each activity is represented by a bar; the position and length of the bar reflects the start date,
duration and end date of the activity.
Gantt Chart gives the following information about the tasks:

To summarize, a Gantt chart shows you what has to be done (the activities) and when (the
schedule).
Gantt Chart for Book Production
Make Gantt Chart
Yourself using Excel
Load Chart
Load Chart
▪ Load chart is a tool used for better utilization of manpower or costly
machines in a well organized manner.
▪ Load chart contains the following;

Load Chart is a modified Gantt chart that list either entire department or specific resources. It helps
managers to plan and control capacity utilization effectively.
Engineering Costs
Initial Cost:
• Spent at the beginning of project or investment
• Includes purchasing machinery and equipment, land, build set up
Operation & Maintenance Cost:
• Expenses such as electricity, labor, repairs, taxes etc.
Engineering Costs
Fixed Costs:
• Constant regardless of the level of output or activity
• E.g. factory rent or lease payment, equipment, property taxes, insurance
Variable Costs:
• Depend on level of output or activity.
• E.g. raw material, labor cost, shipping and transport cost, energy costs
• Variable cost = unit cost * no. of units
Total Cost = Fixed Cost + Variable Cost
Engineering Costs…
Marginal Cost:
• Variable cost for one more unit
• Decide whether an additional unit should be purchased, made or
enrolled in → capacity planning
Average Cost:
• Total cost / total number of units
• Basis of normal pricing
Example 2-1
• A student society wants to offer a one-day training workshop. The
fixed cost for room rent (capacity 40 people), advertising and speaker
meal is $225. The variable cost for food and handouts is $20/student.
The society has set the registration fee at $35. Develop equation for
total cost and total revenue and determine the minimum no. of
registrations required for revenue to equal cost. Ans = 15
students
Profit-Loss Breakeven Chart (Example 2-1)
• Total Cost = total fixed cost + total variable cost
Profit-Loss Breakeven Chart…
• Breakeven Point: level of activity
total cost = total revenue
▪ profit = zero
• Profit Region: total revenue > total costs
• Loss Region: total revenue < total costs
Linear Programming
Limitations and Conditions for Applying Linear
Programming
▪ Linear programming is applicable only under specific conditions:
▪ Resources must be limited
▪ The objective must be to optimize outcomes
▪ Resources should be combinable in various ways to yield different
output mixes
▪ A linear relationship must exist between variables
▪ i.e., a change in one variable must lead to a proportional change in another
Feasible Region and Feasible Solution

Identify the corner points in the figure →

Linear Programming Problem
Do yourself
Do yourself