Have you begun to think about your business plan for 2005? The third quarter is the time to do it, says one expert.
And don’t just go through the motions, he advises. Use the plan as a tool to improve the performance of your business.
“Planning shouldn’t be an annual exercise that sits on the shelf and collects dust the remainder of the year,” says H. Richard Howie, director of CFO Services and the Technology Industry Group at accounting firm KFMR Katz Ferraro McMurtry. “Sometimes we make planning an esoteric exercise and we lose sight of its real value.”
Howie suggests a few fundamental concepts that can make business planning valuable to your organization.
* Focus on the areas that create value for your organization. Measures of performance may be expressed in terms of an income statement and balance sheet. They can also be expressed in nonfinancial terms, such as number of sales calls, machine cycles or customer service calls.
Measures of performance can be lagging indicators, such as whether you made money last month, or leading indicators, such as a backlog of orders. By choosing a manageable number of performance indicators as well as the proper balance between leading and lagging indicators, managers can identify where they want to spend their time and money.
It might be time to consider adding a salesperson or purchasing that new piece of equipment.
* Involve the collective wisdom. “Business plans should not be the realm of a few people in the executive suite,” says Howie.
Involving employees at all levels not only allows you to access information regarding what is happening now, it also creates buy-in for employees. In any size organization, employees who are meeting with customers or processing transactions have first-hand knowledge of what it takes to do the work. Allowing their input allows the company to maximize value.
“Not everyone in the company has to be involved, but managers should strike a balance between accessing these people and completing the plan in an efficient, effective manner. Perhaps division heads or managers become directly involved in the process. A collective work product generally has more value than the sum of its parts,” Howie says.
* Learn by measuring results. This is where having the ability to report actual performance in comparison to the plan is critical. Whether it is a financial or nonfinancial, lagging or leading, being able to measure and ask, “Why is it different” is an enlightening business exercise.
“This is where the part about not being a dust collector comes into play,” Howie says.
The sooner you are aware of the outcome, the sooner you can make adjustments, if necessary. Depending on the issue, measurement may be a daily, weekly or monthly exercise, but knowing how your results compare with what you anticipate gives you a leg up on making timely improvements to your business.
* React to changes. Business conditions are constantly changing. The profitable sales territory or product line last quarter may no longer have the same economics this quarter. By identifying value drivers, engaging the organization and reporting results on a timely basis, you have the opportunity to react faster than your competitors.
* Pay for performance. One of the most significant motivators of employee performance is compensation. Says Howie: “Pay for performance isn’t appropriate in all areas of the business, but for those areas where managers have had input into designing the business plan and been instrumental in corporate performance, compensation can be a strong motivator.”
How to reach: H. Richard Howie, hrhowie@kfmr or www.kfmr.com
