Planning Cycle

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Planning and Budgeting Cycle

PlanningAndBudgetingCycle.jpg

Strategic Planning

The P&B cycle starts after the strategic plan. The strategic plan translates the mission and vision to the organizations overall business objectives. This establishes the goals, framework,assumptions, risks, and environmental factors from which all other planning will be done. The extent of the strategic plan depends upon the size and complexity of the organization. Although necessarily high-level and multi-year, it must explore broad tactics and goals sufficient to provide adequate guidelines to personnel in lower levels of management who will develop grass roots plans, projects, and proposals. It describes what to do and what not to do at a high level.

Characteristics:

  • Strategic plan drives operational budgets, targets, milestones and timings
  • Provides broad economic, fiscal and/or market trends
  • Includes business-linked key performance indicators
  • Action orientated with goals and targets

Who:

  • Senior Management

Outputs:

  • Strategy
  • Tactics
  • Goals, performance metrics, KPI's
  • Guidelines for subplans

Development

After the strategic plan, development, or formulation (as it is known in the Public Sector), is the first phase of the core P&B process. Development focuses on the shorter, near-term horizion (next business cycle or annual) of the strategic plan. Plans are developed in sufficient detail for the organizations that will execute the strategic plan. In this phase, the steps include items such as: 1) gather guidelines and drivers, 2) price the statement of work and reconcile to affordability, 3) develop cost and rates. These steps build the bottoms-up proposals and views that become the basis for decision making on final resources available to the organization. Often, these proposals and views are reality checks (Refinement Loop #1) on elements of the strategic plan. Modeling and other anlytical tools may be used to expedite development.

Characteristics:

  • Reflects business needs, eg, results, performance, investment ROI, etc.
  • Detailed and completed in the most timely fashion for recipients
  • An extension of long term business planning
  • Relates performance to resource decisions

Who:

  • Individuals primarily responsible for Planning and Budgeting
  • Individuals participating in the Planning and Budgeting process

Outputs:

  • Detailed bottoms-up view of strategy implementation
  • Proposed targets for business units
  • Propsed resource requirments and associated costs
  • Foundation for rolling forecasts

Approval

The approval phase is the finalization of the output from the development phase. Often, this phase is iterative until agreement is achieved. These iterations depend largely on the complexity of the organization and the quality of the strategic plan. The Approval phase constitues the same reality check (Refinement Loop #2) to the Development phase as Development was to the Strategic Plan (Refinement Loop #1). Approval consitutes authorization and release of resources to execute the business plan.

Characteristics:

  • Budget review is focused on the strategic objectives and KPI's
  • Budgets are consolidated at level appropriate to business needs -- process, function, etc
  • People skill set enables global budget changes to be administered efficiently
  • Budget (although changeable) communicated to budget holders quickly, before start of year

Who:

  • Senior Management
  • Operating Unit Management

Outputs:

  • Approved business plan
  • Resources to execute business plan
  • Final conditions and policies

Deployment

Incorporation of final adjustments into detailed execution plans. Cascades to all operating units and levels for either/both internal distribution or external distribution.

Characteristics:

  • Financial Plans and Rolling Forecasts linked to the planning and budgeting cycle
  • Operational and process functions are responsible for forecasts
  • Forecasting process facilitates action based planning and budget operations

Who:

  • Senior Management
  • Operating Unit Management

Outputs:

  • Financial Guidelines
  • Final cost and rates

Execution

All levels acting in accordance with the plan and adapting it as time unfolds. Comparisons between actual results and plans are valuable to test the quality of assumptions and the plans. However, strict adherence when circumstances have radically changed is counter productive.

Characteristics:

  • Actual variances reported against budgets and forecasts
  • Actual performance reported using budget KPI's
  • All key variances substantiated with justifiable reasons
  • Corrective measures in place to bring operational units in line with targets
  • Performance monitored on a regular basis and risks highlighted

Who:

  • Operating Unit Management

Outputs:

  • Actual Performance

Refinement Loops

Ideally, refinement feedbacks should be minimal, being reserved for significant new discoveries and environmental developments. However, in practice, these can be many and are the source for most complaints about the planning and budgeting process. The better the initial guidance is, the better detailed plans can be developed. Conversely, as the quality of initial guidance declines, the more rework, redo, and confusion in detailed plans.