Common Mistakes in Business Planning
Business planning provides both a strategic and operational framework for running a business regardless of its size. The most important rule to understand about business planning is that parts of the plan will always be wrong. Developing a plan around a framework that allows a business to be agile in the face of events that "don't go according to plan" will allow a business to adjust without hurting overall performance
The following are a list of things to keep in mind when establishing a planning process
- Finance owns it - A financial model must be accompanied by specific operational actions that will allow the desire financial performance to be achieved. A plan developed by the finance/accounting organization that simply identifies what "numbers need to be" does not give actionable guidance to stakeholders across the business.
- The plan is understood by the few and not the masses - Every person in a business needs to support the underlying assumption in a business plan and understand how their performance can contribute to the achievement of the desired result
- Performance needs to be measurable - The key assumptions of any business plan need to be supported by underlying operational metrics that can be measured. Only then can you understand how you are performing versus plan real time. This is a critical component to choosing the underlying reporting system supporting the finance/accounting organization.
- Using the wrong time horizon - There is no universal law of business planning that says a business plan needs to cover a fiscal year. Depending on the size of the business and length of the planning cycle, a business could redo the plan every six month or even quarterly. In larger organizations a common practice is to plan around a fiscal year, but tweak or reforecast the plan monthly or quarterly.
- Identify the Risks and Opportunities - Identify and quantify the major risks and opportunities that may impact the desired plan result. This allows the company to be more agile in the face of adversity and more calculating in the face of opportunity.
- Revisit, Revisit, Revisit - Challenge key assumptions based on what is actually happening - refining core assumptions may show a dramatically differently result than planned giving an agile business time to respond.