BUSINESS & MANAGEMENT

BUSINESS & MANAGEMENT Unit 1.6 Organizational Planning Tools

KEY TOPICS Standard Level • Business Plans • SWOT Analysis • Decision-making framework • Higher Level Extension • Scientific versus Intuitive decision-making processes • Decision-making frameworks: Decision trees and Fishbone/Ishikawa/Cause-and-Effect models • Internal and external constraints on decision-making

Organizational Planning tools • Decision making are deciding on choices that a business can make. • If managers make the wrong decisions with their limited resources then the business can suffer.

Three levels of Decision making • Operational decisions – junior managers who decide when workers take breaks and handle customer concerns. • Tactical decisions – midlevel managers who handle pricing and recruitment of staff. • Strategic decisions – senior managers decide: what products to offer, what markets to enter and what benefits to give to staff. Effective managers have to consider what is best for the business when making decisions

Business Plans • A Business plan is used to say how a company will complete their objectives • Its says how a company will be organized (by function, area, customer etc.) • Used by shareholders to gauge potential gains from investment

Business plans are used to convince financers (lenders) to give them loans • Financers look at the plan to see how much riskthey are willing to take • Start up costs can be high with new businesses so financers want to see a potential cash flow analysis • Working capital can be a problem with new ventures

Typical business plans consists of:(Page 97) • The business • Name and address of business • Type of business (partnership, incorporated.) • Aims and objectives • Start up costs • Details of experience of key personnel

Typical business plans consists of:(Page 97) • The product • Details about the good or service • Level of demand (why customers will want this and what will they pay) • Production will be done how • What suppliers will be used • Costs of production • Price strategies

Typical business plans consists of:(Page 97) • The market • Market gap (if any) • How many customers are there • Customer profile • Rate of growth for the market • Direct and indirect competitors (their strengths/weaknesses)

Typical business plans consists of:(Page 97) • The Finance • Where will the money to get started come from • Break-even level • How will cash flow problems be handled • Security of borrower if load is not paid back (collateral) • Cash flow forecast (expected money in and out) every month • Projected profit/loss for a year • Projected balance sheet (assetsvs. liabilities) • Forecast rate of return for investors

Typical business plans consists of:(Page 97) • The personnel • Number of employees • Organization chart (how employees will be organized) • Details of benefits

Typical business plans consists of:(Page 97) • The marketing • How will the business promote its product or service • Distribution plan • Evidence of market research • Unique selling points

Typical business plans consists of:(Page 97) • Businesses will also have a contingency planin case of failure. • Also a business will include reference material (statistics, charts) in the appendix of the business plan • AnExecutive Summarymay be used as a cover letter

SWOT Analysis • Strengths – internal factors that a business is strong with compared to competitors. • Weaknesses - internal factors that a business is week with compared to competitors. • Opportunities – external factors for future development. • Threats – external factors that can cause a problem for a business.

SWOT can be used to investigate different business situations • Evaluating business ideas • Assessing opportunities • Strategic planning • Competitor analysis • Reviewing strategy – position a business plans to take • Risk assessment – what can go wrong on a project

Advantages of SWOT • SWOT analysis can be easy and fast • It can be used for many decisions • SWOT can help determine the position of a business in a market which helps corporate objectives • SWOT encourages thinking ahead • Reduces the risks because answers are more thought out

Limitations of SWOT • SWOT can be overly simple and does not have detailed analysis • SWOT analysis does not change while the business environment does change. • Managers need to be honest about weaknesses for SWOT to be effective • Needs to be used in conjunction with other analysis (PEST) to be affective.

Typical business decisions include: • What to produce • How to produce it • Who are your market

Decision-making framework is a process of dealing with business problems Seven steps to solve problems: • Identify the business problem • Gather information to make a decision • Analyze options • Analyze costs and benefits of each option • Select the best option • Communicate the decision to the staff • Review and evaluate the outcome

IDEAL • Identify the problem • Define the problem • Explore solutions • Action to fix the problem • Look back and review progress

Decision-making Models • Many different models are used to decide on the right action. Examples are: • Cost & Benefit Analysis • Six Thinking Hats • Force Field Analysis • Pareto Analysis • The 5 Whys

Cost-benefit analysis (CBA) • Ignores the non-financial aspects of a decision (not concerned with employees or ethics) • If benefits outweigh costs than the decision to act is usually made

Six thinking hats • Decisions need to be made by thinking about things from six different points of view represented by hats • If every “hat” is represented in a meeting then senior managers can see different points of view.

Different hats are: • White hat – facts • Red hat – thinking based on emotion • Black hat – only the negative aspects of a decision • Yellow hat – all the benefits of a decision • Green hat – creative solution • Blue hat – neutral hat someone who will be in charge of the meeting and make a decision.

Force Field Analysis • Driving Forces – advantages of making a decision • Restraining Forces – disadvantages to making a decision After giving weight to each factor, the analyst then adds up each side to make a decision

Pareto Analysis • Uses the Pareto principle (20% of the work can generate 80%of the output) • Using this analysis a manager can weigh the decisions by order of importance to solve a problem

The 5 Why’s • This problem-solving analysis says you need to ask five why question about why a problem continues to happen to get to the root of the problem.

Example on The 5 Why’s • My car will not start. (the problem) • Why? - The battery is dead. (first why) • Why? - The alternator is not functioning. (second why) • Why? - The alternator belt has broken. (third why) • Why? - The alternator belt was well beyond its useful service life and has never been replaced. (fourth why) • Why? - I have not been maintaining my car according to the recommended service schedule. (fifth why, root cause)

Comment: • Business environments change rapidly. Hence, managers need to detect and forecast challenges quickly.

Limitations to decision making • Availability of finance • Organizational culture – Traditions of an organization affect how a business reacts • Flexibility of the workforce – Highly skilled workers can adapt to a different options a bus. might need to take • External constraints – business may not be able to consider all options because of gov’t rules, competitors and the state of the economy.

Comment: • Managers need to decide which business tool will work best for them.

Homework!!!!!!!!! • Write out a business plan for your business. • Use page 97-98 for a blue print. • Anything you don’t know, just make an educated guess. No need to do outside research. • Must be typed in correct format

Unit 1.6 Key Terms • Business plan • Decision-making • Decision-making framework • Decision trees (HL) • Fishbone diagram (HL) • Intuitive decision-making (HL) • Planning tools • Scientific decision-making • Strategy • SWOT Analysis

BUSINESS & MANAGEMENT