The annual planning process is essential for a company to be able to meet its goals. There is pressure from key stakeholders to deliver short-term wins, but the Harvard Law School Forum on Corporate Governance warns that this shouldn’t be at the expense of working towards the bigger picture.
In an article by Martin Lipton of law firm Wachtell, Lipton, Rosen & Katz, he remarks that directors are uniquely placed to extract the benefits of annual planning. He says:
“Boards are empowered to help shape the longer-term direction of the business and should guide management to see around corners, balance competing interests, anticipate risks and competitive threats and explore new opportunities.”
This article provides insight into what the annual plan should include, who should collate it and how to optimise the process to create an effective and deliverable blueprint for the business’s future.
What is annual planning?
Annual planning is the process by which the company sets its priorities, goals and budgets for the upcoming year, aligning with the long-term vision of the organisation. It differs from the strategic plan, but also interacts with it, putting in place a route map and highlighting operational and strategic goals for the year. This helps the organisation work towards its overall mission, vision and high-level objectives, as identified in strategic planning.
During the planning process, you should review your past performance, assess current conditions in the market and consider the challenges and opportunities the company is likely to face in the coming twelve months. This will help inform your annual plan as you plot initiatives to navigate the landscape and drive growth and innovation.
Who is responsible for annual planning?
The senior leadership team usually takes the lead on annual planning. The process works within the framework of the strategic plan, helping the business move closer to its long-term objectives, and concentrates on budgeting, too, both of which are within the remit of the board of directors.
The main board of directors will ask for input from bodies such as the risk committee when developing the plan. It will also work with departments and teams to create achievable and impactful actions for the next business year.
Components of the annual plan
| Component | Explanation |
| Strategic plan | Although the annual plan is different from the strategic plan, it should be created with the company’s strategy in mind. The goals you set within the annual plan should all help the business move towards achieving its mission. |
| Financial plan | Setting the budgets for the forthcoming year is one of the key elements of the annual plan. It should include analysing the return on investment (ROI) of each department’s spending over the last twelve months and allocating resources for the next year. You should also feature your forecasting for the year, providing further context for your financial decisions. |
| Operational plan | The operation planning section features a guide to the day-to-day activities that will take place to move the business forwards. Consider which areas of the organisation are important for reaching your aims and set goals for the year, striving for measurable outcomes and assigning responsibility to achieve them. |
| Marketing plan | Consider how you will spread the word about what the organisation is doing in an efficient and effective manner. Plan who you want to speak to and how you will engage them in the coming year. |
| HR plan | When you consider how your operations will change over the next twelve months, this can have an impact on how you recruit employees. Do you need to find specialists to help you deliver on your goals, for example? You might also need to upskill your current workforce. This should all be detailed in the plan. |
| Sales plan | Your sales plan will set targets for the year and include detail of how your team will engage with new and current customers to meet those targets and increase revenue during the period in question. |
| IT plan | Security is key, with cyberattacks a continual threat for businesses. This is why there should be an IT plan to ensure the security of your systems, as well as details of how you will invest in technology and digital advancements to support your teams across the company. |
How to optimise your annual planning process
- Start early to allow for a thorough analysis of the current situation within your company, your industry and the market in general. This means that when you hold your meetings to begin developing the plan, all stakeholders are as well informed as they can be and you can be realistic about the prospects for the year.
- Conduct a strategic review of the previous year’s plan to understand how successful you have been in meeting your goals. It will also tell you where you need to improve your forecasting and help you understand some of the potential issues that you should take into account for next year’s plan. Check how well the plan was communicated, whether the timelines were realistic and other such details to help you plan more effectively with the new document.
- Identify strengths, weaknesses, opportunities and threats (SWOT) that are likely to be relevant in the coming year. This helps you to be realistic about your planning and to understand where you need to improve to help the business grow. Your plan must exist within the context of these factors; there is no point in planning to dramatically improve revenue when there is a looming recession, for example. This requires in-depth research of the financial and regulatory landscape to identify how the year might pan out.
- Establish risk management and mitigation strategies that will help you understand how to tailor your approach to the coming year. Every business has its own risk appetite and needs to be able to manage some risk in order to grow, but you should also have in place mitigation strategies for those risks that go beyond what you believe to be reasonable. Based on your SWOT analysis, consider how you will deal with the potential threats during the year.
- Use data-driven insights for informed decision-making. With the help of financial information, operational benchmarks and market analysis, you can identify the key areas for growth in a proactive and resilient manner. This reduces the need for guesswork and grounds your choices in something concrete and substantial.
- Implement effective project management tools and software to keep your stakeholders informed and help them collaborate more effectively between and during meetings. The process of creating the annual plan requires a wide range of input and running your meeting process with a board portal like iBabs allows you to create a space in the cloud where all individuals involved can make suggestions, ask questions and find the relevant documentation ahead of the next meeting. This allows them to enter the meeting room fully informed and better prepared.
- Set milestones and monitor progress regularly. You don’t have to wait until the end of the year to understand how successful your plan has been. By creating smaller, short-term goals, you can easily monitor whether you are making progress at the necessary rate and make adjustments accordingly. This increases the chances of meeting your goals.
- Adjust plans and strategies based on feedback from the relevant stakeholders. It might be that some initiatives do not work as expected and this requires open communication as the year goes on so that you can make amendments in real time.
FAQ
How does the annual planning process differ from quarterly or monthly planning?
Annual planning sets long-term goals and involves the allocation of resources for the entire year. Quarterly and monthly planning is more short-term, concentrating on smaller adjustments and tracking progress to ensure you remain on target for your annual goals.
What's the difference between an annual plan and a strategic plan?
The strategic plan is more about the company’s strategic direction for long-term success, often spanning multiple years. The annual plan puts in place goals and milestones to move the company ever closer to that strategic vision.
What are the common mistakes in annual planning and how to avoid them?
Failing to engage all stakeholders is a key mistake with annual planning, meaning that you struggle to get buy-in for your initiatives and miss out on important input when developing goals. Being unrealistic with your goals is another error, as is a lack of flexibility during the year to make necessary adjustments, not providing sufficient resources and failing to communicate effectively.
How can you communicate the annual plan effectively?
Use internal channels to ensure that all stakeholders receive the relevant information, broken down into clear, concise goals. A meeting portal can hold all documentation in a central location, allowing for better-informed meetings relating to your plan.
Conclusion
The annual planning process is important for driving the business towards its strategic aims, but it requires a joined-up approach to research, development, delivery and monitoring. You should include achievable goals, written in a clear and concise manner with actions and KPIs for all stakeholders to help them understand exactly the steps they need to take.
Using iBabs to run your annual planning meetings is an ideal way to keep everyone informed about the research you have conducted and the suggestions you want to make. They can have their say on matters in the cloud, allowing you to collaborate outside of the meeting room. All members have access to the documentation they need and you can assign and track action points to ensure there is follow-up on your decisions too. Request a demo of iBabs today to find out how to create more effective meetings.
