A critical first step when implementing an integrated business planning process is to catalog and understand the current planning processes within your organization. The results of this process include:
- A baseline of the tools and methods you have to work with to create an integrated process.
- A mental framework and understanding of how these different planning processes work together or duplicate efforts.
To help build a framework, this post identifies key components of business planning being performed in most organizations today. A hopeful result of this identification is to break down the “siloed” planning applications within your organization and leverage the cumulative intelligence of the existing applications and resources. The diagram below identifies a simplified framework of an integrated business plan.
Strategic Plan
The strategic plan looks out typically 3 to 5 years. Over the years, I’ve seen strategic plans take many different forms. My personal recommendation is to use the balanced scorecard methodology for strategic planning and strategic measurement. This method supports both “base case plus alternate scenarios” as well as an initiative based strategic plan (with strategic expenditures identified).
Financial Plans
These plans measure the financial impact of both the strategic and operational plans. It provides a picture of the financial position of a company in the future and typically includes the income statement, balance sheet and cash flow. It should be built around rolling forecasts with more granularities in the near term and more summarized plans in the farther out months and years. Financial plans are typically the most mature planning process within an organization because it has its roots in the annual budget process. However, it is important that companies move beyond the typical short term (1 yr), revenue and expense control based budgets to a more dynamic financial plan driven by the operational domains, capital expenditures and strategic plans.
Stratex, Capex and Projects
I believe this is the most important planning process within an organization. Projects no matter if they are Capex, Stratex (strategic expenditures from the strategic plan), or just small special projects are the life blood of innovation and market adaptation within an organization. They are the catalyst for change and when adequately planned provide for financial flexibility within an organization. It is not just a matter of putting together an initial project plan and linking it to the financial plan, it is also important to continually update the project plans for:
- Scope change in terms of time, resources, results (doing more or less than originally anticipated and the corresponding spending changes).
- Time change (extending or shortening the plan timeframes and deliverables).
- Overall project status (putting the project on hold, stopping all expenditures).
Project plans require input from the other three planning areas.
Operational Domains (S&OP, Sales,
I always find it interesting that the operational domains are where true value creation occurs within an organization yet typically this area has the most siloed and scattered planning processes. Part of the reason for this is it covers broad and diverse areas within the organization, other contributors include:
- The plans are operationally driven rather than finance driven and it is difficult to measure the financial impact of the operational plans.
- Time frames across plans vary. A manufacturing plant may require a detailed rolling 6 week plan to keep utilization and absorption in line and a summary level six month plan. A marketing plan may revolve around seasons rather than weeks or months.
This area will probably be the biggest challenge, the most critical and the most detailed. It will require both operational and financial knowledge to create an integrated framework from existing processes through to financial impact, but when successful it is where corporate agility is created.
Of the four areas identified:
- The financial plan is the most linear to complete and most defined.
- The challenge with the strategic planning process is not as much the plan itself, but its integration with the other plans. I’ve seen many strategic initiatives, decided on in the strategic plan and killed in the budget.
- The key to breaking out the project planning processes separately so it doesn’t become a “how much does it cost and what can we afford” decision. When we talk about flexibility and agility, this is one of the key knobs an organization has.
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The operational domains require driver based planning and rolling forecasts and are the key when linked to generate the
operations portion of the financial plan to create a dynamic planning environment.
Does anyone have examples of where they have automated operational domains? Do you feel like better planning and integration between operational domains can result in organization agility? Please let us know your thoughts.