Best practice for best planning

Spanish-American philosopher Jorge Agustin Nicolas de Santanyan once stated: "He who does not know the past is doomed to repeat it." Many businesses have incorporated this axiom into their business methodologies, analysing historical results to uncover (un)successful strategies. This is, however, not adequate for modern businesses that face increasing competition, volatile markets and new developments that create price pressures. It is impossible to change poor performance after it has happened.

Large corporate customers that adopt some or all of the best practice approaches to enterprise planning have found that - through experience - this approach ensures the execution of `the plan` is aligned to the strategy of the organisation.

Planning is usually initiated in the `office of finance`, yet creating a broader view and perspective allows businesses to draw on insights from other departments and divisions. It is a misconception that the plan is the budget. More often than not, other segments of the business feel it is not their role to partake in the budgeting process, and instead just provide information as and when it is required.

This has led to long budget cycles where numbers descend from the core planning group and forecasts are padded - and sometimes fudged - by line or department managers. Due to the complexity and rigidity of the budget process, it is difficult to change or modify once completed. In order to put an effective plan in place, it is necessary to include future influences that might impact a plan. For example, a marketing department might plan to initiate a new project which will drive revenue and sales. If the service or manufacturing department is unable to anticipate this surge, a conflict in supply and demand will result. Aligning departments that span the enterprise is key to a more effective planning process.

High levels of participation are essential in a real-time planning and budgeting environment, often requiring the involvement of hundreds or thousands of employees. It engages a wider constituency, extending the participation of the organisation in the planning phase. In contrast, older, rigid and more hierarchical organisations are becoming outdated as enterprise planning in this setting supports a `flatline` structure.

Enterprise-wide participation results in an additional spin-off benefit, namely accountability. In obtaining the input and involvement of a larger number of players in the organisation, there is greater buy-in. Criticism previously levelled at upper management (who traditionally drove budgeting and planning) gives way to a more democratic approach when wider participation is secured, resulting in a more granular, rolling business plan with greater accuracy and speed.

Due to the dynamic nature of business and the extent of external influences, it is a given that regular course-corrections are needed. Information Tools highlight the required changes and provide insight into underlying causes. A simple measure or input to the plan becomes a new driver. Once rules and calculations are applied to this driver, it may ultimately become a predictor. Driver-based business plans require information be presented in a context specific to contributors, reflecting their core responsibilities and business functions rather than abstract financial data. This information is, however, easily converted into financial numbers with a planning solution. These drivers allow companies to drill down into the underlying causes of success or failure to understand root causes, allowing them to agilely respond and modify the plan.

Improving the plan results in faster performance cycles, allowing companies to shift focus from administration-centric issues to examining business execution. This enables the magnification of business processes rather than departmental performance. Activities that contribute to profitability include customer acquisition and retention and product innovation. Companies do not want to be blinkered by a view of sales, marketing and manufacturing silos. Analytics and `what if` scenarios deliver better value rather than trying to work with planning cycles slowed by a top down approach. By examining and analysing key business drivers, businesses can monitor performance and `tweak` plans rather than do crisis management when problems are established too far down the line.

Plans can often go awry due to unforeseen circumstances, such as a strike or a physical disaster. A long-term plan may, in this instance, be more stable but short-term plans must have the flexibility to change and be reshaped. In addition, it is difficult to resolve an issue if you don`t know it exists. While straight-line planning provides a basis for looking at historical performance and extending this line into the future, it is presumptuous to assume the path into the future will steer the same course as it did in the past. Real-time alignment through the incorporation of current and expected results into the plan assists to deliver better forecasting.

Plans and targets often become blurred, sometimes merging to become one and the same. Plans are strategic and tactical, while targets are financial goals. These often intertwine but cannot necessarily replace one other. Best-in-class targets are a means to achieving this separation. Often, a fixed number is declared as a target with the forecast re-engineered to meet that this target. This is a fatal flaw as the targets then start driving the strategy rather than the two being synergistically linked.

A performance management cycle must be aligned with the correct plan elements, performance contributors and business cycles. For example, it is important to take into consideration that the first cycle (or quarter) of a sales forecast might be based on what is in the `pipeline`. The second quarter must include consideration for sales plans such as promotions, road shows, new product launches and the like and, thereafter, the forecast should rely on market growth-rate assumptions. It is pertinent to base a forecast on apt indicators.