Category Archives: Keeping It Live

Business Planning Process. Keep it Live

The business planning process in a nutshell

Adopt good business planning process. The first lean business plan is just the first step. For the rest of your business’ life, you review the plan once a month. Compare actual results to what you had planned, determine what steps to take to optimize, and revise the plan.

You’ll find that this kind of business planning helps the business in many ways:

  • Maintain focus
  • Align the team with priorities
  • Address changes in the marketplace as they happen
  • Tune strategy and tactics to what’s working and what’s not working

“The plan is useless. But planning is essential.” — Dwight Eisenhower

The Lean Plan is Just the First Step

As in previous sections here, the lean business plan is just the first step. It includes simple bullet point lists for setting strategy and tactics. Plus essential business numbers and concrete specifics for execution.

That, however, is just the first step. From there you have to track results carefully and use a regular review schedule to review actual results, compare them to the plan, look at assumptions, and revise as needed.

For more on the business planning process, click here for Planning as Management.

Monthly Business Plan Review Session

Schedule the monthly review session in advance, and stick to it. Even if its just you alone, remind yourself to set aside the time. And in the normal setting, with a team, you can schedule those meetings in advance and stick to that schedule.

For each meeting, you first review plan vs. actual results. The look at assumptions, milestones, and metrics. For more about this meeting, click here for tips and suggestions.

Business Plan Monthly Review Session

Scheduling the monthly review was the first of the execution specifics of your plan. I suggested a set schedule such as the third Thursday of every month, so you can set the meeting into your calendar ahead of time. Make sure you get that meeting onto the schedules of every person on the team who should attend. Make sure it’s a relatively short but also extremely useful meeting.

“It is a bad plan that admits of no modification.” – Publilius Syrus

Expect resistance when you introduce good planning process into an existing organization. I have several decades of first-hand experience with this. It takes leadership. Some people mistrust planning process because they fear you will use accountability – tracking performance metrics and results – against them. Others mistrust it because of the myth that having a plan means you have to follow it, no matter what.

Take the business plan monthly review session schedule very seriously. You’re the leader. You set priorities. Make this important. Use the review schedule to set meetings months in advance, so team members can plan around it and be present. And make sure you’re present too. If you don’t show up, or if you allow others to miss it, then it’s not that important.

The need for leadership is especially important in the beginning. After you have years of history with monthly review sessions, then maybe you can miss an occasional session and trust your team to do it well. But the early meetings are essential.

Standard Monthly Review Agenda

Review sessions become second nature in time, but as you start with your planning process, the more detail in the agenda, the better. Here are some things to include.

Review Assumptions

Start every business plan monthly review session with your list of assumptions. That’s why you list them in the plan. Assumptions change often. You don’t build a plan on a set of assumptions and then forget about them, because they are probably changing. So once a month you review assumptions.

Assumptions lead to a key decision. You always deal with the question of when to revise the plan and when to stick to it. If assumptions have changed, then the plan should change. If not, then you look further. Maybe you need to stay the course and maybe not.

Review Milestones

You can set some of the main agenda points of the review sessions in advance. Your plan includes milestones, that is, dates and deadlines. Use them to set review session agendas. For example, if your plan includes a milestone for product launch in September, then even in January (several months ahead), you can add that item to the August, September, and October review sessions. In August you check the last details, in September you go over the launch as it’s happening, and in October you review the results and execution.

Review Performance Against Planned Metrics

Reap the benefits of good planning and accountability. Use the review session to share performance metrics, track results, and identify problems, opportunities, and threats. Let there be some peer pressure as key managers share their results.

The most obvious and standard review is the plan vs. actual analysis of financial results. In accounting and finance, the difference between the plan and actual results is called variance, and the exploring it is called variance analysis. This is a very important monthly process. Look at key financial metrics including sales, sales by product or line, direct costs, expenses, profits, balance sheet including assets and liabilities, and of course the cash balance and cash flow.

Remember that performance metrics, accountability, and peer pressure require leadership. You want this to be about good decisions, productivity, and collaboration, not threats or fear. Make sure your managers feel safe bringing up expectations and revising metrics. Encourage them to evaluate metrics often and to bring up problems with metrics ahead of time, not after the fact.

Good planning encourages collaboration. Managers should know that it’s better to bring problems up ahead of time than hide them until after the fact. If the various factors that influence total sales show problems over the summer, you want to know about it, and deal with it promptly. You don’t want to wait until results are bad in October, and then react in November. Instead, in good planning process, managers bring up problems before they happen. Problems are discussed, solutions put in place where possible, and expectations revised. You want to know ahead of time if sales are going to slip, so you can adjust expenses accordingly.

That happens in an atmosphere of collaboration, not criticism. That collaboration should extend to other metrics, beyond just the financials. For example, suppose a plan includes leads generated through an online webinar program. It’s set to generate 500 new leads in October.

However, the marketing team learns in July that some unforeseen development – not something the team could control – will really hurt the attendance of the October webinar, and decrease the expected leads. With good planning process, the problem comes up in the July or August plan review session. The team adjusts both performance metrics and related marketing activities ahead of time. What you don’t want, of course, is the problem being hidden or avoided with no actions taken, and then performance metrics are disappointing for October.

Leadership sets the tone. Problems are supposed to come up. Good management wants to get bad news fast. And collaboration is the rule.

Gathering the Team

Make sure your review sessions include the right people.

Even if it’s just you, a one-person company, you should still do your monthly review sessions. Plan ahead and take the time to actually step away from the daily routine and review your plan, assumptions, and results. And revise your plan as needed.

In a business, the business plan monthly review session should include everybody in the company who has responsibility for executing the plan. Use your judgment. In a startup with just a few people, review sessions might include the whole team. By the time you have 20 people, review sessions probably include five or six. Being at the review session should be both an obligation and a privilege. Don’t include so many people that your meeting is unmanageable. Match your organization structure and your culture.

Plan vs. Actual Analysis

This chapter continues in the next section, about plan vs. actual analysis.

Business Plan vs. Actual Means Management

Look at a simple example of how business plan vs. actual analysis works. Where do these numbers come from, and what do they mean? And, further on, how do you use them to manage better?

Here’s some simple vocabulary: In accounting and financial analysis, the difference between plan and actual is called variance. It’s a good word to know. Furthermore, you can have positive (good) or negative (bad) variance.

Positive Variance:

  • It comes out as a positive number.
  • If you sell more than planned, that’s good. If profits are higher than planned, that’s good too. So for sales and profits, variance is actual results less planned results (subtract plan from actual).
  • For costs and expenses, spending less than planned is good, so positive variance means the actual amount is less than the planned amount. To calculate, subtract actual costs (or expenses) from planned costs.

Negative Variance:

  • The opposite. When sales or profits are less than planned, that’s bad. You calculate variance on sales and profits by subtracting plan from actual.
  • When costs or expenses are more than planned, that’s also bad. Once again, you subtract actual results from the planned results.

Sales Variance Example

I’d like to show you this with a simple example. Let’s start with a beginning sales plan, then look at variance, and explore what it means. In the illustration here you see sales, actual, and variance for bicycle unit sales for the month of March. You can see in this illustration that the plan was for 36, actual sales were 31, so the variance was -5. The plan for April was 40 units, actual sales were 42, so that’s a positive variance of 2.

Units

Regarding units, in March the store sold five fewer bicycles than planned; and in April, it sold two more than planned. That’s a negative variance for March and positive for April. But wait – there’s more.

Prices

I use prices in this example to point out that plan vs. actual analysis offers a lot of good information. Look at the prices of bicycles for March, April, and May. You can see there was a price promotion going on in April, right? The price of bicycles went down. It was supposed to be $500 on average, but it ended up as $79 less than that. And the increased units over plan were not enough to compensate for the lower average price per unit. The value of April sales of bicycles ended up $2,318 less than planned. The store’s total sales for the month suffered, and ended up $3,633 less than planned.

Management

This simple example shows why regular review and managing business plan vs. actual results is steering the company, and management. The variance analysis in this case leads to insight about price promotions. It might generate discussions about what went wrong. It might change some future decisions about price promotions. And of course it needs to generate some spending adjustments to compensate for the less-than-expected sales. The team has to work together, not looking to assign blame, but rather to gain insight and to adjust the business.

Expense Variance Example

The next illustration shows the expense variance for the same period, for the same bicycle store:

In this case, you can see that the actual marketing expenses were $326 less than planned, which is a positive variance, because an expense less than planned is a positive variance by definition. But is this good?

Analyzing the Marketing Expense Case

Here again, I want to show you the management implications of plan vs. actual. With the sales plan vs. actual we saw a sales promotion based on price. Apparently it failed, because the price attracted too few buyers to compensate the store for the discount.

But was the price the problem, or did somebody fail to execute on marketing? Is spending less than planned, during a promotion, a good thing? The prices came down but maybe the marketing department failed to tell people about it. Where is the management problem? What needs to be corrected? These are examples of good questions coming from plan vs. actual analysis.

Furthermore, let’s revisit the results with a look at what happened in May. In that month, the marketing expense was higher than planned, by $326. That’s a negative variance, an expense higher than planned. But another thing that happened in May – you can see it in the sales variance – was a price boost back to above plan, and sales revenue well above plan. So maybe that negative variance was actually good marketing, well executed.

So if you and I are running the bicycle store, we need more information. We need to look at results and talk about them with the team, to take advantage of what’s working, and correct what isn’t. And the variance analysis – plan vs. actual – provides the clues. Then it requires management to follow up and take action.

The Management in Business Plan Vs. Actual

What’s important is not the accounting, the calculations, but rather the resulting management. Garrett, the bike storeowner, watches the variance every month. He looks for indications of problems, or unexpected positives, so he can react. In this picture, the variance is negligible. The forecast was remarkably close to actual results. Still, Garrett should investigate why he’s selling fewer accessories and parts than planned, and whether the up and down of repair and service is worth reviewing. The point is the management. Lean business planning is about the management, not the hard numbers. What should be done, given the variance, to make the company better?

Business Planning as Management

The PRRR cycle in lean business planning

Adopt business planning as management, with lean business planning. Repeat this step monthly for the rest of your business life. A going business is always revising its plan. Change is constant. Follow your review schedule monthly. A real business plan is never done. If your plan is done, your business is done. 

The workable lean business plan is the first step in a planning process that will help you steer your business and optimize your management to get what you want your business to do for you. Follow up with the review schedule, review plan vs. actual results every month, and keep your plan alive and growing. Keep it lean, keep it live.

Experts know that planning manages change. Change is constant. Change does not void planning.

As your business evolves, so will your business plan. Add pieces to fit the needs.

You’ll need to add product and marketing information to coordinate development, deployment, messaging and timing. Add to your financials to account for loans and capital equipment, which become part of a balance sheet.

The normal lean planning process is what I call the PRRR cycle, for “plan, run, review, and revise.” This is my lean-planning version of the traditional lean business technique that started with lean manufacturing and also includes the lean startup.

Change the Business Plan or Not?

As you work with lean planning, when you get to reviewing and revising, these questions will come up:

Stick to the plan or not?

Do I change the business plan, or stick to it? If I change it, then is my plan vs. actual valid? Doesn’t it take consistent execution to make strategy work?

These are valid questions. And there are no easy answers. You won’t find some set of best practices to make this easy. You’ll end up deciding on a case-by-case basis.

The Arguments for Sticking to the Plan

In one of my earlier books on business planning, I wrote this about consistency and planning:

“It’s better to have a mediocre strategy consistently applied over three or more years than a series of brilliant strategies, each applied for six months or so.” — Tim Berry

This is frustrating, because people get bored with consistency, and almost always the people running a strategy are bored with it long before the market understands it. I was consulting with Apple Computer during the 1980s when the Macintosh platform became the foundation for what we now call “desktop publishing.” We take it for granted today, but back in 1985 when the first laser printers came out, it was like magic. Suddenly a single person in a home office could produce documents that looked professional.

What I saw in Apple at that time was smart young managers getting bored with desktop publishing long before the market even understood what it was. They started looking at multimedia instead. They were attracted to new technologies and innovation. As a result, they lost the concentration on desktop publishing, and lost a lot of market potential as Windows vendors moved in with competitive products.

That argues for sticking to the plan. Strategy takes time.

The Arguments for Revising the Plan

On the other hand,

“There is no virtue in sticking to the plan for its own stake.” — Tim Berry

Nobody wants the futility of trying to implement a flawed plan. You’ve probably dealt with the problem of people doing something “because that’s the plan” when in fact it just isn’t working. I certainly have.

That kind of thinking is one reason why some Web companies survived the first dotcom boom and others didn’t. It also explains why some business experts question the value of the business plan. That’s sloppy thinking, in my opinion: confusing the value of the planning with the mistake of implementing a plan without change or review, just because it’s the plan.

How to Decide: Stay the Course or Revise the Plan

Change the business plan or not. This consistency vs. revision dilemma is one of the best and most obvious reasons for having people — owners and managers — run the business planning, rather than algorithms or artificial intelligence. It takes people to deal with this critical judgment.

One good way to deal with it is by focusing on the assumptions. Identify the key assumptions and whether or not they’ve changed. When assumptions have changed, there is no virtue whatsoever in sticking to the plan you built on top of them. Use your common sense. Were you wrong about the whole thing, or just about timing? Has something else happened, like market problems or disruptive technology, or competition, to change your basic assumptions?

Do not revise your plan glibly. Remember that some of the best strategies take longer to implement. Remember also that you’re living with it every day; it is naturally going to seem old to you, and boring, long before the target audience gets it.

A Good Business Plan is Never Done

This is true for all business planning, not just the lean version:

“A good business plan is never done. If the plan is finished, the business is finished.”

It’s a lot like the legendary farmer’s axe, that has had its handle changed four times and its blade changed three times, but it’s still the same axe.

The farmer’s axe

As your company gets used to the planning process, the plan is always a work in progress. It gets a big refreshment every year, and a review and course correction every month.

Lean planning is especially good for dealing with this essential reality, because lean is faster and easier to do and therefore easier to review and revise. Streamline it. Make it just big enough to run the business.

Keep it Live

The idea is that you always have your lean plan up to date. You meet every month to review it. Every so often, as business plan events come up, you spin out of your business plan a formal output piece, whether it’s a pitch presentation, an elevator speech, or a full-fledged formal business plan document.

Do understand, always, that the document, summary, or pitch is not the plan; that’s just output from the plan. It’s the latest version. But the lean plan goes on, like steering, walking, dribbling, and navigation.

Don’t ever postpone things waiting to finish a plan. Get going. Start simple with just the bare necessities, and keep reviewing and revising as business goes on.

Case in point: the Palo Alto Software business plan was first started in the late 1980s. It is still going on today, in 2021, with regular reviews and revisions. It still isn’t done. The management team meets for a regular monthly review session, and revises as necessary.

Business Plans Are Always Wrong … But Vital

It is a simple statement: all business plans are wrong, but nonetheless vital.

It is paradoxical, perhaps, but still very true.

We’re human. We can’t help it. We’re predicting the future, and we’re going to guess wrong.

But they are also vital to running a business because they help us track changes in assumptions and unexpected results in the context of the long-term goals of the company, long-term strategy, accountability, and, well, just about everything lean planning represents.

First You Do Your Business Plan

All of which is why the best way to manage your business is with lean business planning. That’s a simple plan to start with, just bullet point lists and tables, setting down strategy, tactics, essential numbers, and execution specifics.

Then You Review and Revise Regularly

Planning process is like GPS plus real-time information

A good planning process is to business what a GPS plus real-time traffic and weather is to a driving trip. The plan is like the destination (strategy and tactics) and the route (tactics, execution specifics, and essential numbers). The business plan is wrong only temporarily. Like steering, you keep making corrections.

So the business plan itself is an important first step. To optimize for you business, though, you can’t stop there. You need to have regular monthly business plan review. Look over plan vs. actual results. Turn the planning into a dashboard.

Measure the value of a business plan by the execution it causes.

It’s about getting what you want from your business. Forget the big formal business plan document of decades ago. Forget the fact that the plan will be wrong. ItKeep it simple. Do only what you need. Write it down and keep track of it so you can look back in a few weeks to check what you thought would happen and compare that to what actually happened. Your business plan is wrong, but it’s vital to good business management.

Use the planning process like a GPS for your business — the plan as destination and route, and monthly plan review for constant course corrections.

Do a lean business plan — keep it lean and simple — then track results and review and revise regularly.

So Get Going. Start Planning. Start Managing

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