Operational Planning

What is Operational Planning?

There are a number of different types of business planning that are needed within an organisation, including:

• Strategic Planning
• Tactical Planning
• Operational Planning

These need to work together with an organisation's long term direction set through strategic planning, flowing to tactical planning, budgeting, forecasting, rolling forecasts etc. and then cascading down to the detailed action plans - operational planning.

Characteristics of Operational Planning

Operational Planning is used to answer the "how", "when" and "what" activities that your organisation is involved with now, or will in the short to medium term to satisfy your overall business strategy.  They could be day to day, month to month or over many months or years.  Typically though, they will have immediate impact.  These could include:

• Demand planning – so you can plan what stock you will have in which warehouse so you can deliver the right product to the right customer at the right time.
• Sales plans – what tactics will be employed, how will your sales team deliver, what products will be focussed on, what customers are targeted and what sales cycles are employed.
• Human Resource planning – which staff do we need in what place.  This could be retail assistants in stores or how many specialists on a production line or assigning resources to consulting projects.
• Product delivery and Marketing plans – what is the marketing mix, what are you doing, who is engaged, how will you deliver.
• Project planning – the physical, human and financial resources, the timelines and dependencies, responsibilities and milestones.
• Contingency planing – what are you going to do if a certain event happens.

Usually Operational Planning is characterised by where we are now, what are our objectives and how do we want to get there and how do we know where we are in getting there.  It can also be referred to as Sales and Operational Planning (S&OP) as it typifies the overall integration of planning for all parts of the organisation to ensure the right products or services are sold or delivered to the right customers by the right team at the right time.

Operational Plan Inclusions

Operational Plans need to detail not only what, when and how it is to be executed, they also needs to have clear objectives that can then be used to judge success and the financial impact of these plans needs to be understood and measureable. 

Obviously some operational plans are easier to define success and to understand the financial outcomes.  For example a marketing plan might be somewhat easier to detail the financial implications than a multi year project with many people involved.  All however can be linked to an organisation’s longer-term financial plan or budget, either formally or informally.

Linking Financial Planning and Operational Planning

One of the primary areas where operational and financial planning can easily be linked is demand planning to revenue planning.  Usually an organisation will not budget or forecast at the SKU or Article level, especially by warehouse. A demand plan, on the other hand, must plan at this level or otherwise you won’t know what product to put where.  However the demand plan will usually only be for a few months out – long enough to manage your supply chain and manufacturing processes.  We still need to ensure that our financial and operational plans are heading in the same direction – they never will reconcile – but they should also not diverge materially.

We work extensively with Cognos TM1 to create planning environments for our clients.  Usually, when we build budgeting or forecasting tools, we will develop a revenue plan that is at the level that matters for purpose at hand.  This results in one set of numbers.

We will then build an alternative picture of the revenue plan using demand plans and average selling prices to roll this up to level of the financial plan.  Then we can compare the two and ensure that they do not diverge materially.

Triangulation of Plans

We also often propose that our clients “triangulate” their plans.  The above gives two of the three elements for triangulation. The third element could be as easy as understating the metrics of the market that the client participates in, the market size, their market share etc. and from that we can calculate what their revenue should be – the third element.  All three of these results should then roughly align and if they don’t the variance needs to be understood and acted upon.