Look for ways of defusing high risk areas. Decision trees Decision trees can be used to map out the various patterns of events that can occur. Expected values can be used to evaluate the possibilities, or if probabilities are too difficult to estimate, the possibilities can be examined under conditions of uncertainty. Note, however, that although expected essays values are often calculated, this approach to strategic planning is almost always inappropriate. Expected value calculations reduce detail into a single figure, that is usually not expected to occur, and this is the reverse of what is required to encourage responsiveness, robustness and resilience. All of these require attention to detail. For example, quandary co could spend 8m and then either have earnings of 20m with a probability.6 or could make a loss of 5m with a probability.4. Let us assume that the project lasts 10 years and that all financial flows are in present value terms. The expected value of this project is: -8.6 x.4 x (-5) 2m However, this positive result conceals the 40 chance that the company will have an adverse cash flow of 13m (8m cost and then a 5m loss).
Now manufacturers try to build flexibility into their supply chains stand-by and william disaster recovery plans for it systems a mix of permanent and sub-contracting staff pilot operations to gain experience in new ventures. If successful the operations can be extended and can make use of experience gained joint ventures to spread risk and finance, and to make use of a wide range of expertise. Scenario planning Scenario planning attempts to take into account the many things that could happen and from those to build a number of believable, alternative futures. Not all the events that could happen are likely to happen together, so those permutations can be eliminated. For example, if an election is likely and we believe that a change in government would lead to a cut in public spending and a drop in interest rates, then there is no point considering a scenario of the new government reducing public expenditure and. This greatly helps to reduce the number of universes we have to consider and allows the organisation to concentrate on the few most likely ones and plan its response to each of the plausible scenarios. Sensitivity analysis Investigate the effect of assumptions about the future changing. Investigate sensitive assumptions more to get greater assurance.
Consider human resources management when there is a severe and unexpected turndown in business. Hr management would need to be: responsive it might be necessary to block all hiring, to ban overtime, to freeze pay and to make redundancies robust care is needed when choosing who should go so as not to jeopardise functionality; care is also needed. Then, when the economy recovers, the company is ready to bounce back immediately without a delay for recruitment. Flexibility, responsiveness, robustness and resilience are really an expansion of the concept of flexibility. It is essential to try to build flexibility into any strategic plan even in relatively stable conditions. One of the standard criticisms of the rational planning approach is that it lacks or inhibits flexibility (though that is more a criticism of how the plan is used rather than a criticism of planning itself). Examples of building in flexibility include: leaving headroom in any financing plan. For example, arranging lines of credit having break-clauses or extension options in lease agreements building in the ability to upgrade or extend operations use of currency options buying from a range of suppliers. For example, some companies that relied on just-in-time inventory had problems after the japanese earthquake because their supplies were quickly exhausted.
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It is also important that organisations move forward steadily and adapt to changing opportunities. At the same time, organisations should be aware of, or should attempt to predict, more radical longer-term changes. Although those changes might not be in place for 1020 years, work to prepare for them might have to begin now. In relatively stable times, a company might divide its projects and efforts over the three categories in the ratio 50/30/20. Note that even under conditions of stability, substantial effort should be given to long-term projects. In turbulent times, companies that are panicked will have projects in category 1 only. They become obsessed about clinging to the safe and familiar, and important longer-term projects might be abandoned.
However, a better approach would be to keep projects in all three categories, but perhaps reduce the number in each. Reducing the number in each provides some safety because less investment spent on projects provides something of a buffer in turbulent conditions. However, this approach allows attention still to be paid to the long-term future of the organisation by insisting that longer-term projects are always important. Responsive, robust and resilient, kotler and Caslione (2) address the problem of chaotic or turbulent environments. They suggest that organisations need to plan to be: responsive the ability to react quickly to change robust the ability to withstand stresses and to cope well with change without losing functionality resilient the ability to rebound to a position of success.
Here, strategic development is the adaptation of past strategies based on experience. In this view, strategy is greatly influenced by taken for granted assumptions, one of which is that the world will advance in a gradual, linear and relatively predictable way. Here, strategy development is a process of logical and rational thought. Developments that arise are evaluated, resources allocated and specific strategies are followed. Strategies are needed to cope with uncertain, unpredictable and changing environments. There are analogies here with a suggestion made by Professor Vijay govindarajan namely that organisations should place their planning projects into three boxes: Short term projects here are about managing the present and would include process improvement, product and market development.
These projects are in response to linear (therefore non-turbulent) changes in an industry. Medium-term projects here concern selectively forgetting the past and they are driven by non-linear changes such as the Internet and the Arab Spring. Projects here are aimed at moving into areas neighbouring the organisations core activities. Long term entirely new business ventures. Very speculative, and based on many assumptions. It is important to realise that the three approaches in each model are not mutually exclusive and that all three will be carried on in parallel: It is important that the present is managed carefully and making use of experience and expected developments.
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They are sometimes termed black swan events (1) because before black swans were discovered in Australia, no one could imagine the existence of a swan that wasnt white. Black swan theory was developed by nassim Taleb to explain: the huge impact of unpredictable, rare events that are outside our normal experience and without historical precedent the non-computability of the effect of these rare events because there is no data on which to base. We tend to assume that things (such as property price increases) will homework continue in a predictable way. The phrase black swan event is therefore used as a metaphor for the frailty and limitation of any system of thought and planning: bounded rationality. This means that we cannot know all-important factors that will affect the future (and, anyhow, do not have time to evaluate them). We are, in practice, likely to suffer from bounded rationality even with the known knowns because of imperfect research or pressure of time. However, in a period of turbulence, more events will be in the last two categories and this makes planning more difficult. So how should organisations respond to the threat of unknowns while still trying to move forward in terms of gaining competitive advantage? Planning approaches, three approaches to strategy save are summarised in Johnson, Scholes and Whittingtons strategic lenses: Strategy as experience.
The known unknowns for example, an organisation essay might know that its competitors are going to launch an important new product but it is not sure exactly what the characteristics of that product will. (Think of the launch of the Apple ipad: everyone knew something was coming, but no one outside Apple knew any details.) Or, organisations might know that interest rates will rise but are not sure when or by how much. These types of unknown can be handled by making estimates and possibly by assigning probabilities to the various outcomes. Decision trees, expected values, and sensitivity analysis are all very useful techniques. The unknown unknowns do you know when there will be a powerful earthquake that flattens the city of London? (Of course, by definition, we dont know if there will ever be one.) In 2007, no one knew, or suspected, that Lehman Brothers would fail. Unknown unknowns cannot be planned for, but organisations should assume that they will happen and should therefore build into their plans robustness to protect themselves against negative events and an ability to exploit positive ones. These unknown unknowns are by far the most difficult to manage.
we can, and based on what we see and our forecasts we devise plans. However, there is a huge range in what we are capable of foreseeing and with what reliability. It is useful to divide future events into three classes, as did Donald Rumsfeld, the former us secretary of Defense. He was derided at the time but at least in this matter he made perfect logical sense, though somewhat clumsily expressed: There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns the ones we don't know we don't know. The known knowns for example, an organisation might know that its drug patents will expire in three years, or that it will be relocating in six months. These events are relatively easy for planners to handle and to build into budgets and objectives.
These events would often be identified, though not necessarily predicted, through a pestel or Porters 5 Forces analysis. A decade ago, economic growth, interest rates, the impact of the internet and so on were moving in fairly stable patterns. Of course, even during this period of relative stability, music companies were trying to work out how to respond to mp3 downloads, and a company like kodak was trying to tackle the impact of digital cameras. But the environment as a whole didnt spring too many nasty surprises and businesses felt confident to plan for the future. How different the last few years have been, as shown above in the examples of external events. Furthermore, once review turbulence is established it can be some time before things settle down again. So we are now, undoubtedly, in the middle of a turbulent period. Our current environment is not uniquely turbulent and there are many examples of turbulent periods from the last 100 years or so: World War i, the great depression of the 1930s, world War 2, social changes in the 1960s, the disintegration of the warsaw Pact. Turbulence seems to be inevitable, though few people recognise that, perhaps because its cause and effect cannot be predicted in any detail.
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Welcome to calculator edge, an online free engineering Calculators for Engineers and Students worldwide, our website features more than few hundred calculators for solving complex equations and formulas in field of Electrical, mechanical, Chemical, Electronics, civil, metallurgy, oil gas, Optical, Plastics, ceramics, Physics, maths and. Skip to main content, support our cause, please consider making a donation to protect tree and grow BusinessBalls. Help us continue to provide ethical and free content. Showing 80 most popular tags. This article considers the inevitability of turbulence, which should have major implications on how organisations can plan for their long-term survival. For an organisation, turbulence can be defined as unpredictable and swift changes in its external or internal environments that affect its performance. Internal events usually limit their effect to the organisation in which they occur. External events are much more wide-reaching, often affecting all organisations or all organisations within an industry sector.