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University of Calgary
Management Studies
MGST 391
Ahmad Ali Sohrabi

Chapter # 3 : Planning and Control Planning Planning: “ Planning involves making choices between alternatives and is primarily a decision making activity” 2 approaches to planning: Top-down approach means strategic management starts from top management and flows down the structure. Bottom-up approach means information is accumulated at lower level and presented to top management along with summary and options available. Planning cycle 1. Identify objectives 2. Identify available strategies 3. Evaluate each strategy 4. Choose strategy (course of action) 5. Implement long-term plan in the form of annual budgets Risk factors in planning: Types of risks:  Physical  Economical  Political  Financial  Business  Product lifecycle Accounting for Risk: Required rate of return, adjusted by  Return %age  Payback period  Finance (strict rules of financing i.e. out of profits) Quantification risk:  Rule of Thumb (best estimate of value within worst to best possible range)  Probability Theory (likelihood of occurrence of a forecast result)  Standard Deviation (calculate Standard Deviation of Expected Value, the higher it is the higher risk is) Budgetary Control Control: “Control is comparing actual results with planned performance and taking appropriate actions” Control Cycle 1. Actual results are recorded and analyzed for each responsibility center. 2. Feedback is reported to management. 3. Management compares actual results with plans or targets. 4. Do one of three things i. Decide to do nothing ii. Take control actions iii. Alter the plan or target Feedback: “ The process of reporting back control information to management and the control information itself”  It may be Single Loop or Double Loop.  It may be Positive or Negative. Feed forward Control:  Control actions taken in advance.  Actual results are compared with Budgeted (i.e. adjusted by past results) Well organized system of control should have:  Hierarchy of budget center.  Clearly defined responsibilities.  Responsibilities for Cost, Revenue, and Capital Employed. Budget Center: “Each section of the organization for which budget is prepared” Objectives of budgeted planning and control: 1. Motivat
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