THE NATURE AND IMPORTANCE OF PLANNING

5.2 THE NATURE AND IMPORTANCE OF PLANNING

The purpose of a profit-seeking organisation – such as BHP Billiton, Woolworths, Telkom, and Pam Golding Properties – is to realise an above-average return for its shareholders and to satisfy the claims of its other stakeholders. These stakeholders include employees, customers, suppliers, the community, and the government. The object of every plan made by managers in these organisations is therefore to facilitate the attainment of this purpose.

Eskom secures R271.8bn of R300bn needed for expansion programme

Picture: THINKSTOCK POWER utility Eskom has secured R271.8bn of the R300bn needed for its current capacity

expansion programme and is optimistic that it can raise the remainder, executives said on Friday.

Es kom’s strained financial position, the result of a huge capital investment in new power stations which are running late and over budget, is raising concerns about its credit rating and the potential effect on future energy tariffs.

After the utility was granted an 8% a year tariff increase by the regulator over five years against the 16% it asked for, it warned of a R225bn revenue shortfall over the five years to 2018 and has called on the government, its only shareholder, for a R50bn equity injection.

Eskom senior GM of treasury Caroline Henry said the utility had issued a request for proposals for international finance for the remaining R30bn it needed and would time its capital raising according to market conditions. A decision on issuing preference shares to the public had to come from the government, but this was a sensitive issue as it might lead to perceptions that Eskom was being sold.

Interim CE Collin Matjila said Eskom’s R300bn fund-raising programme covered no more major construction after the completion of Kusile. The government was finalising the

updated Integrated Resource Plan, its long-term energy strategy, and would then make decisions on future energy projects.

For several years energy experts have argued the government must make a decision on the next build programme urgently because of the long time needed to bring on stream a substantial new coal or nuclear power station.

In the year to March Eskom grew revenue 8.3% to R139.5bn compared with last year, in line with the tariff increase granted by the regulator, although demand rose only 0.6%, finance director Tsholofelo Molefe said.

Flat demand largely reflected strikes and weak commodity prices in the gold and platinum sectors, while Eskom’s other customers were not using more electricity as they were

switching to energy efficient technology. Bottom-line profit rose 36.5% to R7.1bn. The bottom line was boosted by a R2.1bn profit on

the embedded derivative, against last year’s R5.9bn loss. The embedded derivative reflects the estimated gain or loss on the long-term supply agreement between Eskom and BHP

Billiton which is linked to the aluminum price and exchange rates. In the past year the movement in the rand/dollar exchange rate and interest rates has moved the value of the contract in Es kom’s favour.

The utility sold 217,903 gigawatt-hours (GWh) of electricity last year, slightly above the 216,561 GWh sold in 2012/3, earning average revenue of 62.82c/kilowatt hour (kWh). However, operating costs rose 10% year on year to 59,67c/kWh, well above the target of 52.67c/kWh.

Mr Matjila reiterated that the first unit of the Medupi power station was still expected to be synchronised in the second half of this year, but key challenges remained, including finding solutions for the control and instrumentation systems.

Kusile’s first unit was scheduled for synchronisation by the end of next year, where the key challenge was to find a solution for control systems to avoid repeating the delays experienced at Medupi. Work at the Ingula pumped storage scheme was delayed by a year

to the second half of next year after the recent accident that cost the lives of six contractors, Mr Matjila said.

Source: Charlotte Mathews:http://www.bdlive.co.za/business/energy/2014/07/11/eskom- secures-r271.8bn-of-r300bn-needed-for-expansion-programme

Questions:

1. Analyse the implications of a delay at the Ingula pump storage area. 2.Analyse the financial managerial implications of funding for Eskom.

3. Etc

CHANGES IN THE ENVIRONMENT

Structuring the organisation

Determining what kind of people

we need Necessar y for

Plans (goals)

Determining how we should lead

them

By furnishing standards of control

Figure 5.1: Planning as the primary management function Source: Smit, et al. (2013:132)

Plans have a specific value to an organisation, though it is a time-consuming activity to formulate them. Time is money; therefore planning should not be done at an unnecessarily high cost to the organisation. Managers have to make sure that the plans they formulate are effective. The concept of effectiveness in planning implies much more than the ratio of input to output in terms of rands, labour hours, or units, or units of production. The effectiveness of a plan also includes such value as individual and group satisfaction, customer satisfaction,

productive use of the organisation’s scarce resources and concern for the environment. In South Africa, with its severe shortage of suitably skilled managers, planning plays a crucial

role in organisation towards success.

Companies in the mining industry in South Africa have to plan carefully for the future to ensure that they have suitably skilled managers and workers in the mines. Their plans need Companies in the mining industry in South Africa have to plan carefully for the future to ensure that they have suitably skilled managers and workers in the mines. Their plans need

The importance of planning is illustrated by the following: The King Report on Corporate Governance deals with corporate governance in South Africa. This report states that the board of directors is responsible, inter alia, for establishing a vision, mission, and value for the organisation as well as approving goals, strategy and policy. These issues all relate to planning.

Planning to ensure a suitably skilled workforce to meet the demand for specific skills is essential for growth in the economy, as well as for business growth.

Statistics affecting skills shortages in South Africa.  Every 5 years South Africa lose 30% of the executive workforce to Australia.  The University of Cape Town hoped to produce 12 actuaries at the end of 2008; 7 will

leave South Africa when graduating.  Of every 100 students that enroll for first year Bcom Finance at university, only 25 will pass.  South Africa has one engineer for every 3200 people, China and India has 1:150 and

Europe 1:250-300 Source: http://www.moneyweb.co.za

 Planning forces an organisation to be proactive – and not reactive. It forces management to consider possible changes that may occur and then prepare timeously for these changes.

 Labour legislation forces South African business organisations to plan their workforce according to the relevant laws, such as the Employment Equity Act and the Labour Relations Act.

 Planning ensures that managers and workers focus their efforts on the attainment of the same goals.

 Sound plans are essential when monitoring the progress of an organisation. Actual results can be measured against clearly stated goals and deviations from the goals can

be identified and rectified.  The increasing complexity of organisations makes planning essential. Modern organisation often

comprises a network of subcontractors who work for organisation but not at the organisation. These

subcontractors need to understand the plans and goals

In your understanding, do

of the organisation to ensure that they align their

you think organisations give serious attention to the

activities with them.

importance of planning? Provide reasons for your

thought process!