Studies have shown that the market consistently punishes companies that lack accurate financial performance forecasting, even if their performance is objectively good. In contrast, those companies that do deliver on forecasted results are well rewarded. Better, more accurate enterprise planning, which includes strategies, budgeting and forecasting, ongoing analyses and execution - has thus become critical.
Planning, a key element in performance management (PM), can not only provide companies with a competitive edge but will also directly impact the shareholder value of listed entities. Yet many companies continue to manage their businesses with inadequate planning systems and processes. The result: failure to execute the game plan, which can have a dire impact on company performance in the short- and long-term.
What then is the right solution for companies that require a higher level of execution? Are budgeting and forecasting, performance measurements, financial reporting or even management scorecards the answer to planning woes? Well no. Taken separately these initiative only offer partial solutions - true enterprise planning emerges when business planning, business intelligence (BI) and business analytics intersect.
Enterprise planning turns strategy into plans and budgets for every relevant employee and external partner. It communicates those plans and the actions required to the relevant role players. It provides real-time feedback and, importantly, realigns plans as needs and situations evolve. Furthermore, enterprise planning ensures that performance plans and forecasts are coordinated across all silos - functional and geographic - providing a consistent and enterprise-wide understanding of how the game plan should be executed.
Time, cost, quality and focus
In essence, enterprise planning enables companies to: execute the game plan; gain commitment to performance goals; integrate disparate processes; and realign and refocus as conditions change. It offers organisations four key benefits that encompass time, cost, quality and focus.
* Most companies would agree that the value of even the best strategic business plans diminish if not executed timeously. It is not unheard of for organisations to take as long as a year to build an annual plan. In today's environment these slow processes won't cut it.
* Planning and performance management have become unduly costly. Some estimate that companies devote billions in sales to planning and budgeting.
* Investors are placing greater emphasis on forecast accuracy and display a zero-tolerance approach to earnings surprises. Thus, enterprise planning initiatives must offer precision in forecasts and stated performance goals.
* Lastly, by facilitating individual responsibility and accountability, enterprise planning can focus attention on the issues, metrics and value-creating activities that matter.
Considering these benefits, how can companies establish an effective enterprise planning strategy? There are seven steps that will do just that:
Seven steps to effective enterprise planning
Set the scene - ask some key questions
Start at the top; assess and define what best-in-class performance will mean to your organisation. What defines success in your market and how can you realise your organisation's full potential? How can you minimise constraints and what external factors can impact your game plan?
To get the full range of options, determine your key assumptions - eg, desired growth rates, market share and productivity metrics. Once you've determined these, you can create a model that will link your drives to your outcomes.
Indeed, consistent and interconnected models will enable you to accurately assess how you can improve the service quality of your organisation.
Align the game plan
Once you have identified a strategic direction you will need to get everyone on the same page. This means cascading targets from top to bottom across the organisation and exploring/validating those goals. When you align the enterprise, you solidify a corporate plan.
Communication, coordinate and commit
It is now time to make the plan operational by breaking it down into the activities, decisions and initiatives needed to achieve goals. In this phase, you will also distribute individual plans and reach into your organisation to get bottom-up input from people on the front lines.
Importantly, you need to gain their commitment and ensure their plans are aligned with enterprise objectives.
With enterprise planning software, you can create thousands of personalised plans - pre-loaded with actuals, if appropriate - for each business entity.
Avoid surprises - monitor
Now that your game plan has been put into action, you need to track the progress as well as monitor day-to-day operational performances. Therefore, as part of the enterprise planning you need to create a set of interconnected performance indicators that will make your goal-driven metrics available to all employees.
Again, next-generation performance monitoring technology is available and will form a crucial part of your enterprise planning endeavours.
Understanding the breaking news - analyse
Detailed, cascading plans must become "living documents", updated according to analyses of your current operating performance. Forecasts should then be refreshed accordingly, becoming rolling forecasts that offer a dynamic, recurring 12-18 month window into future activity.
Manage the gaps
Quite obviously, there will be gaps between corporate goals and individual opinions. Are the targets wrong or do the contributors need to modify their submissions?
Through reporting, analysis and planning iterations, you create detailed performance plans that support and align with the strategic goals of the organisation. Furthermore, this can be achieved in a cross-functional way - not in silos.
Re-forecast
Both the last and first steps; analysis and reports will allow your organisation to align with the changes in your business environment.
For example, by supplementing your annual budgeting with rolling forecasts you can reinforce planning as a competency within your organisation. This will result in increased accuracy and visibility into future operating performance; enabling you to correct and align it to corporate objectives.
Conclusion
In this new business era where governance is the eyepiece through which companies are scrutinised, few organisations can afford to continue to rely on outdated, clumsy and time-consuming planning and budgeting practices - understanding, managing and directing organisational performance is critical. For many this may seem a complex undertaking of which planning is but one component. However, planning is the foundation on which agile response to change is built - a response that can be driven quickly throughout the organisation to ensure consistent results (including financial) are delivered.
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