BUSINESS PLANNING - NICE CHAIN, BUT IT’S MISSING A FEW LINKS!
As the saying goes “a chain is only as strong as its weakest link.” So in formulating business plans and annual budgets why do many companies fail to understand the simple realities of this?
Good companies typically undertake an annual exercise of creating a budget for the coming fiscal year. The annual budget is a refinement of the longer term, three to five year, plan. For companies operating on a calendar year, the budget process usually begins in July with alignment of the strategic plan to next year’s business goals, followed in August with formulation of the expectations for revenue volume and mix, and concluding before year-end (at the absolute latest) with a complete, approved pro-forma P&L, balance sheet and cash flow budget.
For so many companies this is where the budget process ends, and the deployment and execution failures begin. The planning chain has not been constructed so that it can be reached in an actionable way by each and every member of the team. Where are the links to align, measure, motivate, and act in ways that clearly support achievement of the budget goals? There is no weaker link than the one that is missing.
The plan must be sewn as a glove for a hand. And the glove must accommodate development, sales, operations, procurement, logistics, finance, administration, and each support function (both internal and external). And like a glove, it must be constructed in a way that fits each finger (function) so that they are working effectively together as the hand that they help form.
Key performance indicators and other measurement targets should be fully integrated into the plan. As with all elements of the plan these measurements should make sense, directly supporting achievement and representing realistic, achievable objectives based on currently achieved realities. The metric targets are critical to include as they provide a means to connect the greater business plan to the functional activities and actions that drive it. Metric targets should offer an answer to every stakeholder’s question “What is my and my team’s specific goal(s) and focus, and how does this support the plan?”
Finally, the plan must empower, motivate and incent each stakeholder to achieve. (The quickest way to fail in this effort is to set pie-in-the-sky, unachievable goals.) Where incentive compensation exists it should be formed on measureable targets that fully align with achievement of the plan. Where direct incentives are not available individual or team goals and targets should be incorporated into performance reviews. Such performance review targets should be established not only for each employee, but for each critical vendor as well.
The link of the vision’s strategic plan to (budget) goals, aligned accountabilities, and execution deliverables is critical to sustained achievement and success. Is your plan formed with a chain that is strong, or is its weak link actually a missing link?
With a comment.
S. Leslie Rowell http://www.linkedin.com/in/leslierowell