Organizations that want to be in top form need integrated business planning. In my last post , I gave five key best practices to creating a company-wide integrated method for business planning. This second part continues on the top 10 practices, starting with number six. Let me know what you think and how you’ve gone about integrated business planning.
6) Plan initiatives/projects as separate “flexible cost centers” from the regular plan.
The aspects of managing a business include: running the business; transforming the business; growing the business. Too often companies focus all planning efforts on running the business and maintaining the status quo rather than transforming and growing the business. To focus on transformation and growth requires initiatives and projects to be separated from the baseline plan. Initiatives and projects need to be able to float in and out of plans to help understand the financial implications of those projects on the overall plan. Companies should maintain a modeled portfolio of potential projects (including both resource requirements and benefits) so they can implement the projects as market conditions change.
7) Create driver based plans that allow for plan adjustment from the top down, bottom up or middle out perspective.
To achieve an agile organization where the financial implications of decisions are known before decisions are made, it is important to be able to change the plan at any level and have those changes ripple down through the organization and aggregate to a consolidated summary. To create this flexibility, it is important that the plan is built on drivers rather than direct input of the results from “back of envelope” calculations. This is a key evolution as organizations evolve from static budgets to an integrated business plan.
8) Model your business at both a strategic and tactical level.
Modeling a business and supporting top down and middle out planning methods requires two levels of modeling:
a) High level rule based modeling (calculations like adjust sales units in everywhere but the northwest region up by 10% based on capturing 2% increase in market share).
b) Discrete formula based modeling (think about detailed cost calculations based on a raw material cost driver assuming a 3% reduction in residual scrap).
The reason for the levels of modeling is many calculations that can be cumbersome to construct in a modeling language can be expressed easily in a spreadsheet model. Ideally you are using a system that has imbedded the spreadsheet logic in its product.
9) Identify key metrics that drive your business and use them as macro level drivers to your plan.
Identification of metrics that drive your business is a key first step in becoming a metric driven, performance driven culture only when these metrics truly drive your business. Initially, integrating key metrics as drivers to your plan is the only way to test their validity. Once the metrics are validated, they become critical to the flexibility in your planning process.
10) Align your business planning processes with your strategic plan.
If your strategic plan is not aligned with your planning processes you strategic plan will fail. I’ve seen many good strategic plans have their key initiatives go unfunded and killed in the budget cycle. If you are having problems with aligning the two plans I suggest using the Balanced Scorecard Methodology for strategic management and measurement. For me, it added structure around strategic planning. In past lives I’ve seen the strategic planning process very unorganized and disconnected.
As we dig deeper into Integrated Business Planning, it is important to focus on some key best practices common to organizations that have created a company-wide integrated method for business planning. This two-part post will cover the top 10 practices that will help evolve an organization’s planning process independent of how holistic or siloed its process, which will translate to corporate agility
1) Annual budgets are not enough, companies need to plan and replan often.
The competitive business battlefield is no different than a real battlefield when it comes to planning; the plan goes out the window when the first soldier steps off the helicopter. Similarly for organizations, on the first day into a new plan it becomes obsolete because assumptions the plan is built on have already changed. To handle this reality, organizations, just like military intelligence must continuously replan.
2) Plan for contingencies through alternate scenarios.
Extending the battlefield metaphor, when the military plan an engagement, they create alternate contingency plans for anything the enemy might throw at them. During a battle, they don’t have the time to create alternative scenarios and evaluate the choices; they need to understand the impact of their decisions in real time. In a business environment, organizations need to create contingency plans so they can understand the impact on potential decisions they will need to make before they need to make them. This is managed in business through alternative scenarios.
3) Systemize the planning process (using Excel doesn’t count).
Companies typically have a very good understanding of their business model the challenge is a lack of systems that can create and manage the models and lack of system and model integration across the enterprise.
4) Create rolling forecasts.
It is important for organizations to have clear and consistent visibility into the future (and alternate futures as identified in best practice 2). Organizations need to create a constant time horizon of 12 to 18 months and add future quarters as time rolls forward.
5) Focus on the big picture when planning; don’t get bogged down in too much detail.
It is easy for plans to get bloated with too much detail in “non-at-risk” areas. To help focus on the right amount of detail, keep the 80/20 rule in plain sight. That is 80% of the “at risk” areas are in 20% of the items being planned. To help implement the 80/20 rule, focus on reviewing the overall economics of the plan and not the line items.
I hope that you’ve found these tips for implementing an integrated business plan useful. Be sure to come check back in a few days for five more best practices.