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Running an Effective Planning Cycle

We are about to embark on our yearly planning cycle, and I'd love to get thoughts on how to effectively structure and lead this process from folks who have done so. While we are an ~10m revenue business, we are more complex than most as we have a couple of different product lines, etc. In that past we have struggled at compartmentalizing the outside-in (strategic direction and gaps, etc.) part of the process from the inside-out (financials, budget, YoY changes, etc.) to get to an effective 1-3 year vision with subsequent operating plans. The types of questions we are asking are whether we begin with the outside-in or begin with YTD performance and more of an inside-out discussion, what goals/guidelines should be established upfront from the CEO before management begins the process, among others. Any general thoughts folks have would be greatly appreciated. Thanks in advance.


Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

You have to decide what approach you want to take (top down, bottom up or hybrid). Second, budgeting from YTD performance (from existing markets) is the most reasonable thing to do. However, if you have plans on capturing other markets, then your goals will be significantly different (if not higher). Third, if you have cost containment goals, you should also include it in your budget planning and goals. In a general sense.....don't let revenue figures/goals dictate your costs. This way, you have top line and bottom line goals.

But the most important advise is.......question ALL assumptions! It should be DATA based if and when applicable. Example...if your sales people say they can get a 20% increase in sales, ask them why they think they can and can they support it with data.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

Not sure if I fully understand your question of methodology, but for any plan to be formulated you need to have a end-game goal so that all tasks and milestones can be gauged against that goal.

Those corporate goals are set by the [Owner/Board/CEO/President]. From that point I agree with Emerson's "most important advice" and sometimes it pays to bring in an outside facilitator who isn't imbued with corporate culture and can ask the right questions; politically correct or not.

If that is not possible create cross functional teams who are not part of the sub-culture of the department while doing the GAP Analysis, thus you'll get the best possible data on which to build your strategic plan.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

During our strategic planning sessions we decided we had to have an outside facilitator because our CEO is such a visionary that he tends to take things to the extreme. If you are not in a position to do this or think it fits in your model, I agree with the other comments here. You need the end game in mind; where would you like to see yourselves get to? Once you establish that everything else can be budgeted around that fairly easily.

We create our budget based on YOY + whatever reasonable increase we expect to see. Definitely agree with Emerson - Challenge all assumptions. How will we reach this target and what will we do differently than we did previously.

We adjust the budget if we take on a new product or new store during that year.

Roger Whitham
Title: Managing Director
Company: Bassett Bridge Associates
(Managing Director, Bassett Bridge Associates) |

Experience has taught me that when leadership is honestly only interested in the short term the effort of building a creditable three year strategic plan isn't worth the effort. Therefore the first thing is to understand is what is the true intention of the leadership.

If the real focus is on the short term (i.e., the coming year) then obtaining top down goals and the expected operating model (i.e., revenue growth, gross and operating margins, operating expense levels, new product/market entry) from leadership would be the first place to start. With this the department leads can build a bottom up budget based on the coming year goals and objectives. As for the out years it's no more difficult than an extrapolation supported by a set of assumptions.

If on the other hand leadership is focused on where the business is going and what it can become then focusing on a three year strategic plan from the "Outside In" would the better approach. This sets the path for business and allows for establishing goals, objectives and initiatives that will guide the budget preparation process. It's the more difficult path to undertake but if done right and committed to by the leadership will serve the business best. And as Wayne mentioned, bringing in an outsider without a vested interest to facilitate the conversation can be beneficial to the process.

So first get an honest answer from leadership about their expectations and then decide if it's just a budget that's wanted or a real strategic plan.

Mark Matheny
Title: VP - FInancial Planning and Analysis
Company: Novolex (formerly Hilex Poly)
(VP - FInancial Planning and Analysis, Novolex (formerly Hilex Poly)) |

Know the end game first. I have been involved in the gamut of planning processes. They have taken anywhere from four months (very detailed sales and operations planning) to one day (high level key drivers of financials.) You need to understand what your audience wants including shareholders and lenders as well as management and work backwards.

Joe Markley
Title: Customer Success
Company: Tidemark
(Customer Success, Tidemark) |

Typically leading companies will build a strategic plan (3-5+ years), and then the first year of that plan seeds the "top-down" plan/budget/forecast. Then your business (cost center managers, etc.) build a "bottom-up" plan to match (or explain variances if not an exact match) your top-down plan.

A more fundamental question may be: do you need an annual plan?

Leading companies are ditching the annual budgeting process altogether, and many are doing either a rolling quarterly forecast, monthly or even weekly forecast, and in some cases, event-based or continual planning. Your business probably doesn't run on a calendar, it runs on events and opportunities. An annual plan will miss all of those things.

You may build a strategic plan - a very important exercise - and then use the first year of that strategic plan to seed your plan/budget/forecast. But then you can plan more often, and have better answers faster. Fast and directionally correct is much better than 100% accurate and too late.

Edward Thill
Title: VP - Finance & Operations
Company: Performance Trust
(VP - Finance & Operations, Performance Trust) |

You mention previous struggles so I would start by reflecting on what has "blown up" your plan in the past. If yours is a dynamic organization for whom the plan is made irrelevant in 3 months, whether by internal or external forces, then reconsider the "end game" as others have mentioned. What is the purpose of your plan? Is it for setting targets for incentive compensation and hopefully making managers accountable? Is it a tool to evaluate expansion/investment opportunities? Is it a gauge for ownership to manage their own expectations? Each of these are valid "end games".

In my case, I work for a brokerage firm that can experience 50% revenue swings year-to-year based on market conditions. As a matter of survival, we have developed a nimble expense structure that is highly variable/discretionary. Annual budget processes rooted strictly in prior year costs was pointless for us. We instead break out our expenses into variable and fixed expenses and then run scenarios based on varying revenue inputs. Prior year information certainly is used as a basis for future expectations, particularly for fixed costs, but that is not enough. We keep a strong eye on our breakeven revenue scenario. That is our end game -- what do we need to cover our base costs? If we are not hitting that revenue bogey, what expense levers do we have available to quickly counteract any shortfalls? For us, the planning process is about running our business and putting ourselves in a position to be able to react quickly to both opportunities and threats. It is, and should always be, an iterative process based on lessons learned from prior years.

Topic Expert
Alan Hart
Title: Consultant
Company: Pacific Shine Group
(Consultant, Pacific Shine Group) |

Since a lot of good advice has already been offered by members of this forum I will only add that once you have defined the approach you are going to take make sure you have the right tools to accomplish all the tasks involved in running an effective planning cycle. It is always advised to automate these processes and in selecting the right software I would caution you not to use spreadsheets to do the work in for many reasons already discussed on this forum.

Additionally, make sure that whatever system your organization chooses, you are able to benefit from real-time analysis of actual results against the plan, plus the ability to make timely changes to the plan as needed. Management will need all this analysis data, and it must be current and sufficiently informative for them to confidently make proper decisions.

Elena Kogan
Title: Finance Manager
Company: Mister Safety Shoes Inc.
(Finance Manager, Mister Safety Shoes Inc.) |

A vision plan is not 1-3 years plan, it is rather 3-5 years plan. Get top management together and decide where you want the business to be in 3-5 years: increase revenue by how much; or increase profitability; or combination. You can dream big. Then think what should be done to get to the dream goal: new markets (geographical or product), open new line, increase productivity, control expenses, etc. Assess risks and opportunities (market conditions, competition, financing, etc.) Your dream-goal most likely will be adjusted as you go through the actual action-plan to get to the goal. Then break it down in the time-line, what will be done in year 1, 2,3... All these at very high level. When you break the process down to the first steps to get to the dream-goal, the budget process kicks in. The budget could be done in many different ways depends on your operation. The vision/strategic plan should be reviewed and possibly modified at least quarterly.

Patrick Slattery
Title: Managing Director
Company: Canopach
(Managing Director, Canopach) |

Knowing the specifics of the end-game, as many have mentioned above, is critical to success and an efficient process. The most valuable effort expended will be to turn strategic goals and objectives into measurable targets at a high level. Any bottoms-up work can be used to determine what is achievable in a "business as usual" mode, or capacity. The difference between targets and capacity can drive a capital planning exercise to add/shed capacity to successfully meet targets.

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