Ask yourself some questions:
- How deep should you plan?
- How far out should you plan?
- Should you use rolling forecasts?
- How often should you re-evaluate your strategy?
- How many people need to be involved?
- How quickly can you respond to opportunities or threats?
- Is your planning locked into spreadsheets that fail?
- How wrong can you afford to be?
These are some of the big questions you need to answer to reveal how and what you need to map out the direction of your company.
How Deep Should You Plan?
Do you really need to forecast how much stationery a profit centre will spend? Or do you trust the manager to forecast at a higher level with say ten categories that really matter (such as Salaries, On Costs, Premises etc.). Does your organisation also need to plan at the Profit Centre, or is a higher node of your business more relevant?
How Far Out Should You Plan?
What’s the relevant horizon you should use for planning? Is it 3 months, 15 months or 3 years? How quickly can you get stock? How fast can you gear up your staff? What are your cash requirements? Does your whole business need to use the same horizon? Do you have to comply with a parent company’s requirements? These are all questions that will all determine the relevancy of time in your planning.
Should You Use Rolling Forecasts?
Do you need to forecast for fixed financial years or you would be better to use rolling forecasts? Is it really relevant to your business that you forecast to the end of the financial year? Or should you be thinking about your business cycles and planning around those and then using a reporting environment to aggregation for the financial year?
How often should you re-evaluate your strategy?
Is your business dynamic? Is the market fast changing? Or is it mature and extremely stable, with constant demand, low staff turnover and virtually guaranteed cashflow? The speed that you need to be able to react will determine how often you need to adjust your strategy. It may be weekly or monthly, quarterly or even yearly.
How many people need to be involved?
Who does your planning now? Who should? Is it one department or many? Are they all located in a single office or spread? Should your business managers “own” their plans? Best practice would tend towards high involvement and a top down approach, but how do you integrate the two?
How quickly can you respond to opportunities or threats?
Other than regular evaluation of your strategy, how quickly can your business respond when threatened or when there’s a major opportunity? Will you have the cash when you need it? Or the people, raw materials, bandwidth, culture or skill to react appropriately.
Is your planning locked into spreadsheets that fail?
Have you ever:
- used the “Save As” button in a spreadsheet – and thereby created yet another version of the truth?
- seen a formula like “=A1+A2+50000”, with the $50k added because someone wanted a specific answer that then destroyed the credibility of the spreadsheet.
- Changed the name of a folder and broken all the links to another spreadsheet?
If you've used spreadsheets for complex business planning, the answer is probably yes.
How wrong can you afford to be?
Sounds a dumb question, doesn’t it? It’s actually probably the most important. If you’re planning out 15 months and your business cycle is 3 months, then getting the 15th month wrong probably doesn’t matter. However, getting the 3rd month significantly wrong and basing your decisions on the “absolutes” calculated in your forecast could be very painful. No plan is ever perfect. Most companies don’t even approach 90% accuracy even one month out when forecasting.
