If you don’t know where you’re going, any road willtake you there. A good plan starts with a vision that isarticulated into a good story. This vision is going to defineyour purpose and where you’re going. So, it’s importantthat you know where you want to go before you startdefining how to get there.
After you’ve defined the strategic vision, the next step istranslating what that means into financial language. It’s at thisstage where you start peeling back the layers and determiningwhether the strategy is aspirational enough, achievable, and/or believable. Many companies start this process with a longrangeplan, which can be a misnomer since some plans onlyspan 3 to 5 years. Oftentimes, these plans kick off the processof developing the following year’s budget. In other instances,this process coincides with the annual budgeting process, sothat the first year of your long-range plan starts with nextyear’s annual budget.
So, you’ve defined your strategy, translated that into afinancial long-range plan, and published your next fiscalyear budget. You get into the new year, and your actuals don’tmatch your plan because either your performance staggers ordoesn’t drive the results you expected. There are a handful ofrecommendations I would give you for planning in times ofuncertainty:
1.Stick to your timelines and processesWhen things go awry, we sometimes have a knee-jerk reactionto completely change how we do things. My advice is tostick to your process. If you review your current quarter'soutlook weekly, continue to do so. If you do a quarterlyupdate to your plan, continue updating your plan quarterly.You may be tempted to forego the process to focus on “moreimportant things” or because you’re “too busy." In these timesof uncertainty, you should stick to your process of gatheringinformation and assessing your trajectory.
“You need a mechanism for giving the best estimate and telling the story of what is happening, so your executive committee can make the best decisions possible”
It’s also at these times that you and others may be hamperedby indecision. There is always at least one group that justneeds one more day, week, month, or quarter to gather moreinformation and give you the “right” answer. The thought ofgiving a number that will be wrong and to which they’ll beheld completely shuts them down. At the end of the day, wehave to make the best decision with the information we have,put our pencils down, and move on. A boss of mine used tosay, “I don’t know what the right number is, but I know it’s notthat one.” Mike Tyson also said it eloquently, “Everyone has aplan until they get punched in the mouth.” No plan will beperfect, so that brings me to my next suggestion.
2. Update your plan when you have newinformationWhen you have new information, you should update yourplan. If you get into the new year and your actual performancediffers drastically from your plan, you need to do an update(I know, "duh," right?). Many companies reforecast theirplans at least quarterly. (If that’s the case at your company,see suggestion #1.) The most important thing here is thatyour company must have a culture of transparency wheredepartments can be truthful about results. I worked for acompany where we completed quarterly forecasts for the fullyear. We stopped doing a Q1 forecast because no one everchanged their full-year guidance. We could be missing salesby a mile, but somehow, we were going to claw our way out of that hole by the end of the year (normally, sales just got peanutbutter spread over the remaining periods of the year). Theexpectation from our executive committee was that the businesswould cover any sales or SG&A miss in the plan, so there wasn’tthat trust or transparency to give a factual, updated forecast.You need a mechanism for giving the best estimate and tellingthe story of what is happening so your executive committee canmake the best decisions possible. How you get to those updatescan take many different forms.
3. Technology is an enabler but it won’tsolve your problemsa.I see a lot of comments and questions about how technologycan change the way we plan. Don’t get me wrong, I’m a bigadvocate for having systems to help do the work. The distinctionI would make here is that technology should be viewed as anenabler and not as a replacement for finance professionals doinggreat work. Having complex planning systems also may not bean option because of expense and infrastructure. I’m a fan ofkeeping it simple. There isn’t a company I know of that doesn’tutilize Excel in some form or fashion to do their planning.Implementing structured, repeatable processes, and having aculture of trust and transparency are way more important thanthe systems you use. Technology will absolutely make yourwork more efficient and can enable you to make richer, deeperanalyses; however, I have yet to see a system that can spit outa perfect plan with the press of a button. You will still needfinance partners embedded in your business actually talking totheir business partners to glean insights to help craft the storyon what the future may hold.
4. Every good planner has a contingencya. My last recommendation is that every good planner needsto have a contingency. Despite your business partners’ and/orfinance teams’ best efforts, you will get a final plan that doesn’tquite hit the target. They possibly turned in a sales plan with 15percent growth in a mature market with established competitorsthat are only growing 2 percent. Or, you may find the plan callsfor a 65 percent increase in hiring for very specialized positionsin a tight labor market. The end product you get might nothave enough stretch or be a bit too rosy. Depending on thedisconnect and the timing, it may not make sense to go backto each group and parse out a target for them to build backinto their budgets. The size and scale of your company willalso determine the materiality of your contingency. This maybe a $500k plug in Miscellaneous Expenses or a $100 millioncontingency in Capital Expenditures. In either situation, youneed a contingency that gets you back to your expected targetand can mitigate uncertainty.In summary, planning in times of uncertainty can bestressful. To navigate your way through it, you should stick toyour process, update your plan when new information arises,utilize technology as an enabler and not a substitute for humaninteraction, and always keep a contingency
