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How to Approach the Annual Planning Process

There is a lot of conversation around the annual planning process each and every year and I spoke about building a corporate and marketing plan in a prior blog post.  As opposed to jumping into the deep end of the annual planning pool it may be wise to think about how you want to go about this process in your company, despite history.

What is the Best Way to Approach the Annual Planning Process?  

In the extreme cases, there are way too many people involved or there is an exorbitant amount of time spent and the resulting number of PowerPoints, Excel spreadsheets and Word documents that are generated are incomprehensible.  Another approach might be where the functional teams submit plans up the chain that are sent back for “refinement” until the functional groups simply ask what numbers they are suppose to submit.  Neither of these approaches is really a service to the organization so what’s a better way?  One approach is to provide some top down guidance that would allow the functional groups to develop organic plans that actually dove tail together.  The critical success factor for this to occur is to have a planning document (a one pager) that summarizes key information that would provide guidance but allow for creativity and subject matter expertise at the functional level.  To level set, let’s start the discussion from the top.

Annual Planning Process – What is an Annual Corporate Plan?

The annual corporate plan should:

  • Provide direction for the organization (all functional areas) for the next year.
  • Define the scope of the organization’s activities in terms of what it will and will not do.
  • Match the activities of the organization to the environment in which it operates so that it maximizes opportunities and minimizes threats.
  • Synchronizes the organization’s activities to its resource capacity.

An Image Depicting How to Approach the Annual Planning Process

Annual Planning Process – Strengths

Strengths are typically internal factors that are favorable to achieving the desired outcome. Strengths may include product patents, trade secrets, exclusive access to resources and company reputation.  The company’s strengths should be summarized and those of key competitors and alternatives.  Strengths are the core competencies of the business, or the personnel that give it an advantage, relative to competitors or competitive alternatives.  In other words, why should potential customers prefer your solution as compared to a competitor’s?  Strengths should be leveraged to exploit opportunities.

Annual Planning Process – Weaknesses (or Limitations)

Weaknesses are characteristics that place the organization at a disadvantage relative to competitors.  Weaknesses are usually internal factors that interfere with achieving the desired result, including geographical location, financials, technology, systems, processes and/or skills, to name a few.  Weaknesses should be minimized to diffuse threats.

Annual Planning Process – Opportunities & Threats

Opportunities are external factors that may help the organization to reach the desired outcome, including new technologies increased customer demand and loosened regulations.  Threats are external factors that may hinder the achievement of the desired goal; these include changes in customer preferences, intense competition in a particular market and tighter governmental regulations.  Opportunities and threats that present themselves may be financial, technological, intellectual property, personnel, market changes or other factors that could significantly impact the organization in a positive or negative manner.

Annual Planning Process – Key Issues

These are real issues that are core to the business and they need to be identified and pinned down.  This should not be an eclectic compilation of unrelated thoughts but a summary of key issues that are relevant and correlated to the success of the business for the next 12 months.  There may be key issues at a corporate level and then there may be some that are specific to a function area or to several functional areas.  Depending upon the maturity of the organization and whether it is in growth, decline or turnaround status, the number of key issues may not be evenly distributed across the functional areas.

Annual Planning Process – Assumptions

In any planning process there have to be assumptions as the future is unknown.  It is important to note that all assumptions will technically be wrong.  The goal of an assumption is minimize the discrepancy between assumptions used in the plan and what actually occurs. As a result, assumptions, or educated guesses, about some factors that will impact the business will have to be made, e.g., market growth, product releases, the number of salespeople, the average selling price, competition, financials, etc.  These assumptions need to be documented and visible for all to see and modify as new information becomes available and it is a good idea to make all assumptions variables in any model so updates can be made in real-time.  Remember, if a plan can be implemented irrespective of an assumption, then the assumption is unnecessary and should not be listed.

Annual Planning Process – Budgets

The strategies to achieve objectives need to have financial costs associated with them whether they are actual bids or estimates.  It’s important to understand that the budgets are created within the context of what the organization wants to achieve as opposed to what a functional area may want to deliver.  One approach to budgeting is a zero based budget.  Here, a hierarchy (based on ranking and prioritizing) of objectives is built up so that every item of budgeted expenditure can be related directly back to the corporate financial objectives.  Budgeting in this manner ensures that every item of expenditure is fully accounted for as part of a rational, objective and task approach.  This method is also beneficial when decreasing expenses by allowing an intelligent approach to budget cuts so that the least impact to the company reaching its objectives can be made.

Annual Planning Process – Objectives 

Setting objectives is a mandatory step in the planning process.  An objective will ensure that an organization knows what its strategies are expected to accomplish and when a particular strategy has accomplished its purpose. Objectives should encapsulate what the organization is trying to accomplish for the next year.  It is necessary to set objectives in order to articulate what the organization is committing to for the year.  This will force the organization to think about the corresponding resources required and the potential implications.  Objectives should be quantifiable and measurable for performance monitoring.  A clear understanding of opportunities and assumptions should facilitate objective setting. An objective should contain three elements; 1) the particular attribute being measured,; 2) the unit of measure or yardstick, and; 3) the particular value on the scale which the organization desires to reach.

Annual Planning Process – Strategies

Strategies document how objectives will be achieved.  How the organization intends to go about achieving its objectives is its strategy.  Strategy is the overall route to the achievement of specific objectives and should describe the means by which objectives are to be reached, the time program and allocation of resources.  It does not delineate the individual course s the resulting activity will follow.  There is a clear delineation between strategy and tactics.  Strategy reflects the organization’s best opinions as to how it can most profitably apply its skills and resources to the marketplace.

Annual Planning Process – Financial Impact

The purpose of the financials is to summarize the financial implications of the plan.  Ideally, there are simple diagrams, tables and commentary that speak to revenue, expenses, profitability, customer satisfaction and productivity.  Depending upon the organization, the level of granularity may increase to provide more specific areas of measurement.  The bottom line is that all of the planning and analysis is to build a healthy company that is financial stable.  Therefore, the financial impact summarized will be the focal point for the management team and board, so these numbers will have to meet or exceed expectations.

For additional B2B go to market resources, please visit fourquadrant.com.

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5 Responses to “How to Approach the Annual Planning Process”

  1. Great post. In my opinion before the planning process it’s imperative for the company or a division inside of the company to be clear about their Goals and Objectives. Then the planning process becomes a mechanism of how to fulfill the Goals of the company or division. Not having clear Goals and SMART Objectives under the Goals leads to issues down the line. Check out this blog post http://objectiveli.com/blog/why-goals-are-key-for-project-management/ – love to hear you thoughts on the same.

    • Absolutely. It’s key to have cascading objectives so each function is aligned with the Corporation’s goals and objectives. Continuing the cascading effect allows each employee to understand their contribution, their group, function and company.

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