Walsh Enterprises Business & Financial Advisors
Huntington Beach, California USA
http://www.awalsh.us
walshal1@aol.com
(714) 465-2749
Strategic & Operational
Business Planning
An Overview
Reprinted from a blog posted December 2008 at
www.walshal.wordpress.com

Questions have been raised regarding Business Planning, so I offer the
following comments:
Every business should have a plan. It’s the process that forces you to
think about what you’re going to do, how you’re going to do it, set
financial goals, and establish disciplines for conduct of the business.
Different people go about it in different ways (and some fool-hardy souls
don’t do it at all), but I have a standard formula that I encourage all
business owners to use, as follows:
Note: For this article, I will address business planning with the
assumption that your business is already up and running. I’ll provide
brief comments for the aspiring entrepreneur at the close.

Strategic Plan: This is the first step. It represents a top-down look at the
company from a broad perspective. It’s primary focus is on
Marketing, Business Development, and Capital.
In it you would:
• Redefine your general business model (the purpose and general
methodology of the business) going forward (It may not change, but
then again you may decide to abandon a dying business niche and
transition into a new one, or some other scenario).
• Set your Sales & Marketing goals
• Define New-Product Development
• Reassess your current Markets
• Explore new Markets
• Define Capital, Financing, and Capital Spending requirements
• and other related topics

In the Strategic Plan, you would define, to the best of your ability, the
Sales volume and Cost of Sales going forward. You would also define
the
Capital & Financing requirements, and your Capital Spending plan. I
recommend that the plan be done annually, and that in it you take 1-year
and 3-year snapshots. The three-year snapshot will be more general than
the one-year snapshot because the farther out you look, the vaguer
things become. However, the 3-year snapshot forces you to think about
where you want to be in 3 years and how you’re going to get there; and
what you need to be doing now to set up the desired scenario.
In large companies, this would be the time when the financial analysts
would do business-modeling to study what-if scenarios for alternative
business options.
At this point, some companies like to include a Budget. I think the
Budget should be a part of the Operating Plan, defined below.
Now that you’ve taken the top-down look at your Marketing
methodology, Sales goals, and Capital plan, it’s time look at Operations.

Operating Plan: The Operating Plan takes up where the Strategic Plan
leaves off, and considers how the company is going to operate to achieve
the strategic goals. It’s a bottom-up snapshot, and should be done
annually in
conjunction with the Strategic Plan.
• After Marketing comes up with their sales forecast, they need to
sanity-check it with Operations to ensure that they can provide the
products or services called for. If production can’t manufacture all
that the sales forecast calls for, obviously there’s a problem. If the
market is there, but production is limited, than Operations needs to be
in on the Capital Planning discussion.
• Once Marketing and Operations have resolved their differences, and
defined the resources that will be needed, it’s time to define how those
resources will be put to use. Sales and Production schedules need to
be determined, plant & facility changes need to be factored in, supply-
chain issues resolved, administrative & legal issues defined, and all
other factors that go into running the enterprise.
• Then the Cost of Operations needs to be forecast in the form of an
Operating Budget.
• Finally, a forecast Balance Sheet and Income Statement needs to be
built which reflects Revenues, Expenses, Capital changes, changes to
the composition of the Balance Sheet, -and most importantly- Net
Profit.

In doing the Strategic & Operational Plans, you will probably find yourself
bouncing back & forth between Strategic & Operational issues, because
each affects the other; such as the example above of Marketing &
Operations working out Sales vs Production issues.
Both plans should have a primary steward who guides the process,
provides information, collects input, sanity-checks forecasts, holds
peoples’ “feet to the fire” for accurate forecasts, and
educates/advises. This responsibility usually falls to the CFO; a role I’m
well-familiar with.

The process I like to follow is to first approach Marketing and get them to
flesh out their plan & forecast. We then sit down with the Operations
Manager to iron out any sales vs production conflicts. While we’re
together, I obtain information regarding Capital and Capital Equipment
requirements. Then I proceed to the Department Heads where I first give
them historical cost data to build their department forecasts from, then I
help them build their budgets and define their needs. I amass all this
information into plan documents, and provide pertinent sections back to
the managers to sanity-check; adjusting the plan document as we
go. Finally, I hold a meeting of all managers for one last chance to
resolve any disagreements and double-check their work as a whole
organization. The finished document is then presented to the CEO
for approval, and ultimately to the Board of Directors. The CEO may
choose to exercise the discretion of getting directly involved at any point;
but most like to receive a finished product (which the Managers have
bought-off on). If the CEO is communicating effectively with the
senior managers, they should already have his strategic vision in mind
when they sit down to start the planning process.

Whether your company is large or small, this is the process I recommend.
Obviously, the flow might be different in a smaller organization, but the
principles don’t change. All the elements need to be included for the plan
to be viable.
My favorite story of dysfunctional planning is an aerospace company I
was involved in years ago where we did a Turnaround. The old regime’s
idea of planning was to meet in the President’s office once a year for a
poker game where the Marketing & Production managers would fight over
a sales forecast. The Marketing manager would always over-forecast
sales (to impress the President), and the Production manager would
always under-forecast production (to cover his butt). The President
would let them fight for awhile and then make a pronouncement of what
the goal would be. There was no Operating plan, Budget, or Capital
Plan. The President would merely declare what the Net Profit would be,
and give a hard stare as if that settled the matter. Fortunately, there was
a regime-change and we started doing things very differently – saving
the company and growing it in the process.

Planning time is a great opportunity to take a fresh look at your
enterprise, set fresh goals, and establish disciplines for the conduct of
the business. If done properly, it gives all managers a feeling of
“ownership” and provides them a broader view of the company they
serve.
The 1-year snapshots should be sanity-checked and adjusted each
quarter for new realities. The 3-year snapshot can be adjusted annually.
Entrepreneurs: You budding entrepreneurs need to build a hybrid
Business Plan that is a marriage of the Strategic & Operational
Plans. Your focus will be strategic, but you need to include sufficient
forecasts of revenues, expenses, and capital-spending to show
the prospective Investors how their money will be used and how & when
they will be paid back and compensated.