Virtro's Guide to Annual Planning

Strategic Management

Introduction

When it comes to strategic planning, leading practices advocate for having a multi-year strategic plan (typically for a 3 - 5-year time frame), which is reviewed, refreshed and executed on, on an annual basis.

Whether your business has such a multi-year strategic plan in place or not, it is critical to at least have a plan for the year ahead so that the goals and expectations for the coming year are clear and well understood by everyone in the business. With three quarters of the year completed and as we commence the last quarter of the year, it is a great time to talk about annual planning (this assumes that your business’ fiscal year and the calendar year are in alignment).

An annual plan identifies the business’ goals for the new year and a roadmap of initiatives aimed at achieving these goals. The annual plan also serves as a basis for managing business performance during the course of the year.

This guide will elaborate on Virtro’s 5-step annual planning process by discussing the following topics:

• Internal and External Review

• Definition of Objectives and Initiatives

• Budget Definition

• Definition of an Implementation Plan

• Approval, Updates and Communication

This guide is not prescriptive, but is designed as a resource for business executives accountable or responsible for setting the direction of a business in the new year, or anyone who is simply interested in the annual planning process.

Internal and External Review

The first step of the annual planning process is an internal and external review.

The internal review considers the current state of the business with a view to objectively identifying areas where the business performed well during the course of the year as well as areas where the business fell short of expectations. Areas to look at include:

• Objectives: how did the business perform against set goals? These goals could be financial in nature, customer-related, product-related, etc. Why did the business perform the way it did? Even if the business outperformed set goals, it should be clear why the business performed well.

• Customers: which customers did the business sell to? Which customers were acquired? Which customer segments are the most profitable? etc.

• Projects/ Initiatives: were projects and initiatives executed? Did projects and initiatives achieve the objectives for which they were conceived? What worked? What didn’t?

• Capability Areas: how did functional or capability areas perform during the course of the year? Are there key functional areas that are missing? Are processes mature enough? Are interfaces broken? Does the business have the people and skills required to execute tactically and operationally? Is there adequate technology support?

Every business operates within some context, and every opportunity or challenge draws from the context within which the business operates. The goal of an external review is to review these various contexts to identify how they may have impacted the business or will impact the business into the future. Areas to look at include:

• Relevant trends: these could be global or local. What are the changes happening around the world that may impact your business? What are the changes happening within your country, state/ province or city that may impact your business? These could be resource-related, global restrictions or shortages, demographic changes, skill-related trends, etc.

• Operating environment: what are the changes in the economy? What social, legal/ regulatory factors are important to consider? How may changes in the political landscape impact business? What are the key technological shifts worth paying attention to?

• Competitors: how is your business performing compared to competitors? This could be in the area of products, channels, customer acquisition, etc.

• Market: has the size of the market changed, positively or negatively? What are the market needs? What share of the market does the business have? Can the business address more of the market, etc.

The most important part of the internal and external review step is not the data gleaned during the review process, but the information obtained. Simply put, one must be able to put the facts gathered into context, thereby obtaining insights useful for planning for the new year. These information or insights would serve as input to the next step in the annual planning process: definition of objectives and initiatives.

Definition of Objectives and Initiatives

The second step of the annual planning process is focused on defining objectives for the year and initiatives required to achieve these objectives. Information and insights generated during Internal and External Review serve as inputs to this step of the process. To be specific, the outcomes of the Internal and External Review step comprise of 3 categories of information:

• WHAT? These are findings or observations made during the review process. It is literally listing out what you noticed during the internal and external review.

• SO WHAT? What inferences can be drawn from the findings made? What are the implications of the observations made? What are the insights? It is not uncommon to have a many-to-one relationship between Findings/ Observations and Implications/ Insights.

• NOW WHAT? What do the insights generated mean for the business? What are the implications for the business? Given the implications or insights documented, what must we do as a business? This is essentially answering the question: ‘how must we react?’ This becomes the basis for initiatives for the new year.

Based on the implications for the business that are identified, strategic priorities will begin to emerge. These would be the basis for the strategic objectives for the year. It is important to note that if the business is mature enough to have a multi-year strategy defined, the strategic objectives for the year are likely to end up being a subset of the strategic objectives defined when the multi-year strategy was articulated.

Strategic objectives should be measurable. Consequently, the next task is to define measures and metrics for each strategic objective. Measures are generic, while metrics are specific. An example measure is: increase sales; the corresponding metric is: increase sales by 50%. This is also a good time to define business projections for the year.

There are 3 levels of strategy - corporate, business and departmental. Once measures and metrics have been defined for strategic objectives, the next task is to cascade these objectives to departments i.e. a top-down meets bottom-up approach is adopted to ensure that the departments are not only aware of the planned direction of the business for the year, but they also contribute to defining initiatives required to realize the annual plan. The key question departments ask when cascading strategic objectives is “what does this mean for my department?” Using the example in the paragraph above, a Marketing team could ask “what do we need to do if the business must increase sales by 50%?”

Budget Definition

The third step of the annual planning process is the definition of an annual budget. An annual budget articulates an organization’s income and expenses for the year, ensuring that there is a balance between sources of income and expenses.

Outcomes of the second step of the annual planning process ‘Define Objectives and Initiatives’ serve as input to the budgeting process. These include:

• Strategic Objectives: indicates what is critical to the business strategy

• Imperatives: high level goals essential to achieving strategic objectives. A strategic objective may result in one or more imperatives

• Activities: specific initiatives required to deliver on imperatives. An imperative may result in one or more activities

• Targets: performance metrics

As with the Definition of Objectives and Initiatives step, the creation of the annual budget is very much top-down meets bottom-up i.e. high-level numbers are defined by business leadership, but the various departments and teams work out how these numbers will be achieved, both for income and expenses. Activities or initiatives defined are a source of expenses. Expenses may be categorized as capital or operating. These may also be fixed or variable.

The purpose of the annual budget is to provide a financial plan which ensures the goals of the business for the year are met. This involves a delicate balancing act to ensure that income exceeds expenses, etc. (note: depending on stage of growth, a VC-funded company may plan to have a deficit budget for the year). The annual budget also helps with managing the performance of the business during the course of the year.

In addition to income and expenses, the annual budget will also include a balance sheet and a cash flow statement.

Definition of an Implementation Plan

The fourth step of the annual planning process is the definition of an implementation plan. With clarity on the objectives for the year, initiatives to be delivered and a supporting financial plan or budget, the implementation plan lays out the activities, initiatives, projects, etc. that will be performed in order to achieve the strategic objectives and imperatives for the year.

An implementation plan can be documented in three sub-steps. These are discussed below:

• Document list of initiatives: the activities, initiatives or projects to be delivered during the year are listed out and categorized within the functional or capability areas to which they belong i.e. there would be a list of initiatives for Technology, Finance, Marketing, etc.

• Lay out initiatives in an implementation roadmap: the initiatives to be delivered are laid out in a Gantt chart format, indicating when the business expects to implement each initiative. The roadmap takes relative duration, priority and dependencies into consideration.

• Document detailed notes on each initiative: the strategy team or whoever has been tasked with the responsibility of creating the annual plan has to provide enough information on each initiative so that those that come in contact with the document understand exactly what the initiative is all about. The following information may be provided about each initiative:

  • Purpose: describes the objective of the initiative

  • Description: provides a high-level work breakdown

  • Related Initiatives: identifies initiatives that relate to the initiative in question either as precedent or dependent initiatives

  • Owner: identifies the individual accountable for delivering on the initiative

  • Duration: provides the estimated duration

  • Budget: provides a rough order of magnitude estimate of what the initiative would cost

With the implementation plan in place, the strategy team or individual responsible for putting the annual plan together is now ready to obtain approval.

Approval, Updates and Communication

The fifth and final step of the annual planning process focuses on obtaining approval, making updates to the annual plan and communicating the same to the organization.

With the internal/ external review or analysis completed, the outcomes of the review exercise used to define objectives and initiatives, a budget in place and an implementation plan defined; we have a near final draft of the annual plan. Before the annual plan can be deemed as final however, it has to be approved by management (and sometimes by the Board, depending on the size and/ or structure of the organization).

The approval meeting is usually a two-way conversation, with the Strategy Lead or individual accountable for the planning process presenting the annual plan and the management team questioning, clarifying, modifying, rejecting, etc. Once the approval meeting is done, updates are made to the annual plan based on the outcomes of the meeting and the annual plan signed off.

The final action is the communication of the annual plan to the organization. The communication of the annual plan is best done by the chief executive and should happen early enough in the year. Communicating the organization’s strategic objectives, targets and all that needs to be done to have a successful year sets the tone for the year and gets everyone on the same page. Leaders within the organization also take time to communicate the annual plan to their teams, with focus on what the plan means for the team.

Get Started

As we commence the last quarter of the year, it is critical to have a plan for the year ahead so that the goals and expectations for the coming year are clear and well understood by everyone in the business.

The annual plan will identify your business’ goals for the new year and a roadmap of initiatives aimed at achieving these goals. The annual plan also serves as a basis for managing business performance during the course of the year.

Do you need assistance planning for the new year? Virtro can help by facilitating your business’ annual planning process. Contact us to discuss or schedule a free consultation.

Would you like to document or update your technology strategy or plan in alignment with your annual plan? Contact us to discuss or schedule a free consultation.

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