In many companies, the “annual planning process” is a source of dread. It conjures visions of massive compilation of detailed data and binders full of supporting paperwork. Rather than being a process for business decision-making and strategic planning, it becomes a massive paperwork exercise. One reason is that the planning process inevitably leads into the budget – and since the budget naturally is very detailed, the entire process leading up to it becomes essentially a massive budget exercise.
It doesn’t need to be this way. Many companies have embraced a leaner approach – using the annual planning process in a true ‘exploration’ mode – testing alternatives, considering business challenges and options, and so forth. To do that well – they employ some type of higher-level business model, that is quick and flexible and ‘approximately correct’. This enables them to focus on decisions and trade-offs and set an overall plan. The detail budget flows naturally and easily afterwards.
These ‘flexible planning models’ enable executive teams to see implications for growth, cash flow, debt coverage, and full pro forma financial statements by exercising various investment and financing strategies in light of uncertain prices and execution outcomes. These “what-if” cases and scenarios are analyzed in real time with immediate results and enable executives to do true strategic planning with better forward visibility.
The key to making this happen is having a flexible real-time business model that does not require data gathering by staff every time an executive poses a ‘what-if’ scenario. Instead, the model and initial data are designed around business drivers and known relationships. Having alignment around how those business drivers operate generates value even before it is reflected in a model. Once in the model, executives can spend their time generating options and debating tradeoffs – rather than asking their staffs for more detailed data
If your annual planning process is a source of dread – considering reinventing it so it can serve it’s intended purpose and be something that people actually look forward to.