How to Create an Operating Plan

Operational planning is critical for the success of your integration business, so what is the best way to create an operating plan?

In Part 1 of this discussion, Operational Planning Turns Strategy into Execution, I made the assertion that the primary failure of most operating plans is a disconnect between the qualitative description of what we want to accomplish, and the quantitative results.

Here is a quick example I often come across in our industry.

An integration company will set revenue growth as an objective.  I ask the simple question, “How will you achieve that growth?”

Nine times out of ten, the answer is, “We’ll hire more salespeople.”

I then ask, “What is the typical revenue (not new orders booked) generated by your average first year hire?”

I am then presented with all the reasons why these planned hires will be different, but the reality is adding more sales staff will rarely move the needle in revenue growth in their first year, regardless of the “book of business” they claim to bring with them.

This is one of the reasons why –

“You should look at your operating plan within the context of your multi-year strategic plan.” Joel Harris

It may be necessary to build out your sales staff to accomplish revenue growth. Just know it will benefit you in subsequent years, not the current year.

What I recommend is that you be brutally honest with yourself in asking,

“What will be the realistic quantitative result of this initiative?”

If you cannot quantitatively measure the desired result, your initiative is doomed to failure.

Step 1

What is the quantitative result your initiative will achieve in the planned timeline?

Each executive or department leader should be able to quantify the impact of the identified initiative, both in cost and reward.

Step 2

Take all your initiatives along with their budget impact – whether revenue increase/decrease, gross margin increase/decrease, and/or SG&A increase/decrease – and link them to prior year results.

Then determine if each initiative achieves the planned year end budget results.

A simple tool I like to use is a waterfall chart to show the impact of the increases and decreases to the bottom line.

Once you iterate through Step 2 multiple times and have your initiatives lined up to budget –

Step 3

Determine if your operating plan will allow you to accomplish the strategic objectives that you need to achieve to fulfill your multiyear strategic plan.

Often you will find this causes a whole new set of iterations.

You may find you need to spend more effort, energy and resources to achieve your strategic objectives, which will impact your improvement and budget initiatives.

Now for the really hard work –

Step 4

Cascade the plan down at least one layer below the executive team and double check your work.

Often the CEO and CFO concoct a plan, get the head nods from the executive team, and everyone gives the plan lip service until we get back together at the end of the year to explain (excuse) our lack of progress on all our initiatives.

Once you have completed these four steps, you will be ready to execute your operating plan for a successful year.

By Joel Harris, President at Solutions360