• headquarters
• business unit

• systematic
• annual strateic planning process with perscribed procedures and timetables

• unsystematic
• strategies are reexamined in response to opportunities and threats

an overall slice of the strategic plan but usually is only one year.

strategic planning usually takes about 2 - 5 years (book says 3, Fararr says 2, economic uncertainty after 5 years)

• framework for developing annual budget
• management development tool
• mechanism to force managers to think long-term
• means of aligning managers with long-term strategies for the company

• operating budget calls for resource commitments over the coming year; esssential that management makes commitments with clear idea of where organization is headinig over the next several years
• strategic plan provides broader framework
• important benefit of preparing a strategic plan is that if facilitates the formulation of an effective operating budget
• company without strategic planning process considers too many strategic issues in the budgeting stage, potentially leading to information overload
• important benefit of strategic planning is to facilitate optimal resource allocation decisions in support of key strategic options.

• formal strategic planning is an excellent management education and training tool that provides managers with a process for thinking about strategies and their implementation
• not overstatement to say that in formal strategic planning, the process iteself is a lot more important than the output of the process, which is the plan document.

• managers tend to worry more about tactical issues and managing the present, day to day affairs of the business than about creating the future
• formal strategic planning forces managers to make time for thinking through important long-term issues

• debates, discussions, and negotiations that take place during the planning process clarify corporate strategies, unify and align managers with such strategies and reveal implications of corporate strategies
• program decisions are made one at a time and strategic plan brings them all together
• preparing the strategic plan may reveval that individual decisions don't add up as a whole

• planning can end up beccoming a "form filling" bureaucratic exercise, devoid of strategic thinking
• organizations may create large strategic planning department and delegate prepartion to staff department (should be a line function - production sales people)
• time consuming and expensive (senior management)

• top management is convinced that strategic planning is important
• organization is large and complex
• considerable uncertainty about future exists, but organization has flexibilty to adjust to changed circumstances

• process involves senior management and managers of business units
• primary pupose is to improve communication between corporate and business units executives by providing sequence of scheduled aactivities through which they can arrive at a mutually agreeable set of objectives and plans
• in some organizations, the controller organization prepares the strategic plan; in others a separate planning staff
• requires analytical skills and a broad outlook that may not exist in the controller organization

• strategic planning is a management process and the way in which it is conducted in a given company is heavily dependent of the style of CEO
• Some CEO's prefer to make decisions without benefit for a formal planning apparatus
• in some companies, CEO wants overall plan but doesn't want to do paperwork
• Have to match strategic plan to management style because if you don't plan, it won't be implemented effectively (if manager doesn't like paperwork, shouldn't be a novel on paper)

• net present value (NPV) of project (excess of present value of estimated cash inflows over amount of investment required)
• Internal rate of return (IRR) implicit in the relationship between inflows and outflows.

• proposal may be so obviously attractive that a calculation of NPV is unnecessary. Ex. new machine that reduces costs and pays for itself in a year
• estimates involved in proposal are so uncertain that making present value calculations is believed to be not worth the effort - can't draw a reliable conclusion from unreliable data
• rationale for propsal is something other than increased profitability (more family friendly = more time with family)
• no feasible alternative to adoption Ex. environmental laws require investment in new program

• companies usually publish rules and procedures for approval of capital expenditure proposals of various magnitude
• rules also contain guidelines for preparing proposals and general criteria for approving proposals.

• sponsors who know that their project has a negative NPV is not likely to be approved but they may nevertheless have a "gut feeling" that the project should be undertaken
• in some cases, they may make a proposal attractive by adjusting original estimates so project meets numerical criteria

• specialized techniques, such as risk analysis, sensitivity analysis, simulation, scenario planning, game theory, option pricing models, contingent claims analysis, and decision tree analysis to add to basic capital budgeting model

• teams may evaluate extremely large and important proposals, and those processes may require a year or more
• no set timetable for analyzing investment proposals
• planners collect approved projects during the year for inclusion in the capital budget
• deadline in the sense that the capital budget for the next year has a deadline
• if proposal doesn't make the deadline, its formal approval may wait till following year, unless there are unusual circumstances

• linked set of value creating activities which is making ultimate end-use product and delivering it to customers

• linkage with suppliers
• linkage with customers
• process linkage within value chain of firm

• linkage should be managed so that both the firm and its suppliers can benefit
• taking advantage of opportunities can dramatically lower costs, increase value, or both.

• individual value activities within a firm are interdependent
• company might want to analyze process linkages within value chain to improve efficiency
• overall objective of analysis is to move materials from vendors through production and to customers at lowest cost in shortest time with acceptable quality
• efficiency of inward portion might be improved by reducing number ofvendors; having computer system to place orders automaticall; limiting deliveries to "JIT" amounts; and holding vendors responsible for quality which reduces or eliminates cost.

• efficiency of production portion might be improved by increased automation; using robots; holding vendors responsible for quality which reduces or eliminates costs
• efficiency of outwards portion might be improved by having customers place orders electronically; changing locations of warehouses; changing channels of distribution and placing more or less ephasis on distributors and wholesalers; improving efficiency of warehouse operations and changing mix between company operated trucks and transportation furnished by outside agents.

• activity is often used instead of cost center, and cost driver usually instead of basis of allocation and cost system is called activity based cost system
• allocation reflects cause of cost incurrence, element that explains why the amount of cost incurred in the cost center or activity varies.

• information magnitude of differences may lead to changes in policies relating to full-line versus focused product line, product pricing, make or buy decisions, product mix decisions, adding or deleting products, elimination of non-value added activities and emphasis on better fctory layouts and simplicity in product design
• use ABC to improve Activitiy Based Management (AB), look at all their detail records of cost drivers to evaluate performance

• reviewing and updating strategic plan from last year
• deciding on assumptions and guidelines
• first iteration of new strategic plan
• analysis
• second iteration of new strategic plan
• final review and approval

• decisions are made during the year that change strategic plan; management makes decisions when they need to not in response to timetable
• implications of each decision for next five years should be incorporated as soon as decision is made
• otherwise formal plan doesn't represent path company plans to follow
• first step is to review and update strategic plan
• actual experience for first few months of current year is reflected and extrapolated for best estimate of year as a whole

• updated strategic plan incorporates broad assumptions like growth in GDP, cyclical movements, labor rates, price of materials, etc.
• updated strategic plan contains implications on revenues, expenses and cash flows of the existing operating facilities and changes in these facilities from opening new plants, expanding existing plants, closing and relocating
• resulting update is not done in great detail; approximation is adequate for decisions about objectives that are to be attained in following years

• companies hold annual meetings of corporate and business unit managers to discuss proposed objectives and guidelines
• meetings last several days and are held away from company facilities to minimize distractions

• using assumptions, objectives and guidelines, business units prepare "first cut" of strategic plan which may include different operating plans than those included in current plan
• business unit staffs do the analytical work, but managers make final judgments
• completed strategic plans consist of income statements, A/R, and other balance sheet items, etc
• numbers are considerable in detail for next year and following year with summaries for later years

• headquarters aggregates business unit plans into overall corporate strategic plan
• planning staff analyzes the plan in depth and plans for consistency also
• resolves questions by discussion and report others to corporate management.
• sum of business unit plans reveals planning gap

• find opportunities for improvement in the business unit plan
• make acquisitions
• review corporate objectives

• meeting of senior corporate officials discusses revised plan at length
• presented at meeting of BOD
• approval should come prior to beginning budget preparation process because strategic plan is important input to process