An Annual Operating Plan (AOP) is a practical, detailed document that highlights your company’s operational goals. It offers a roadmap to achieving the company’s overall mission, plotting everyday operational tasks to meet long-term goals.
Developing an AOP gives you detailed insight into your company’s financial health and allows you to focus your resources to fuel the company’s mission.
Components of the operating plan
Here are the key components of an annual operating plan:
Financial targets
The first step to creating an AOP is to set financial targets. Analyse your income statement, balance sheet and cash flow statement to determine your company’s current financial health, the funds needed to continue operating and the cost/revenue ratio.
Operational objectives
Set your organisation’s operational objectives for the coming year. Ensure these are applicable and realistic by following the “SMART” guideline. SMART goals are Specific, Measurable, Achievable, Relevant and Time-bound.
KPIs
Identify the KPIs needed to measure progress. Prioritise “leading KPIs” that tell you what to expect from the future. Use these KPIs to monitor your company’s progress throughout the year and adjust the AOP accordingly.
Resource allocation
Track the financial, human, physical and educational resources needed to achieve your operational goals. Allocate them according to your financial targets. These include capital, technology, workforce, office space, production equipment and other necessary facilities.
Budgets
The AOP gives practical insight into how your budget works in the organisation. Consider your available resources and map out a financial plan for each project and department to support their operations in reaching the company’s goals.
Difference between the AOP and strategic plan
A strategic plan outlines a company’s overall mission, vision and high-level goals for an extended period (usually five years), offering a broad approach. Changes to the document are infrequent, and it is typically reviewed on an annual or biennial basis.
An annual operating plan is a detailed document that highlights precise operational objectives along with the strategies and action plans for achieving them in a given year. It focuses on the day-to-day operations of an organisation. It is reviewed more frequently, often monthly or quarterly, and can be modified to accommodate changing circumstances.
An AOP is typically based on the strategic plan, providing a means to operationalise the goals outlined in the latter.
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