In my 38 years of working with companies I have often heard this complaint: “Our planning process is a complete waste of time.” In fact, this opinion is so common I can only conclude that for many companies planning value has somehow gone off the rails and lost its whole purpose.
So how do you put it back on track? Create a planning process that makes “value” the point of the exercise.
When done right, the planning process drives real value.
Planning Value Creation
Successful companies create value by investing in new opportunities. However, most companies do not have the luxury of investing in every opportunity that they identify. Only a finite number of initiatives can be managed effectively. For that reason companies need to identify the right opportunities.
Resources, people and money are limited. Initiatives must compete. So the best vehicle for evaluating opportunities is during the planning process. A well-designed planning process enables a company to develop, evaluate, approve, and report on investments.
In other words, it is fundamental to core value creation.
Planning Value Stewardship
From my point of view, the planning process is typically too long and highly resource-consuming. For many companies, regardless of size, the planning process takes four months or longer.
Why so long? Poor target setting and too many details.
Often senior executives set targets, but these so-called targets are set at the top then sent out via email or distributed as part of a handout at a management meeting. Without context, explanation, or discussion.
In contrast, good target setting includes formal meetings for communication, negotiation, acceptance and feedback. Each meeting has a well-defined purpose and agenda to keep the effort on track. The result is a group of targets that have real strategic meaning and purposeful buy-in.
What is the right level of detail for an annual plan? It’s a commonly held belief that detail correlates with accuracy and since accuracy is good, the more detail the better. The serious problem with this obsession for detail happens in the process itself: getting all this detail “right” requires multiple passes for input, consolidation, reviews, and revisions. As a result, the secret to cutting out the detail is to ask: “How much do we need to know to make a good decision?”
Planning Value Management
Too many companies put a tremendous effort into the planning process only to have much of that work wasted by not having the right information. Why invest time in developing plans, but fail to implement an effective performance management process?
- Identify measures that result in “action”. Don’t provide measures that are for information only as it is usually backward looking and results in little or no action.
- Include actual and projected sales for your top customers and top products. Missed revenue targets should include key insights.
- Provide predictive information. Including the cost of raw materials, the impact of weather and changing demographics in key markets.
By using analytics to provide actionable insight planners gain a deeper understanding of the true drivers of the business. Then planners become more effective and accurate at forecasting. Plus leaders can quickly act to address unfavorable predictions!
Planning process changes won’t occur overnight. Planning for specific growth initiatives, simplifying and shortening the process, and developing a strategic performance management approach can pay large dividends and help to maximize the value of the enterprise.
Learn how Amedisys improved their planning process by creating value – download their case study.
Post by, Scott Wallace, Senior Director of Transformation at eCapital Advisors