Companies seeking more reliable plans and forecasts should push more planning responsibility to those closest to vendors and customers

Talk to nearly any executive about their organization’s planning process, and you will likely hear plenty of comments about what is not working and how the process does not support the needs of the business.  Criticisms of planning processes range from the length of time required to complete the budget, to the focus on often inconsequential measures, to the lack of flexibility and responsiveness of forecasts in the face of changing business circumstances.

Planning department managers have no doubt heard these complaints before, but often feel powerless to address them.  In an era of downsizing and outsourcing of staff roles, combined with an ever-increasing workload, most Finance departments today do not have the resources to effectively address these challenges, let alone to transform their processes into models of world-class performance.  While some organizations have made improvements to their planning efforts by automating their previous web of spreadsheets and offline models, and deploying techniques such as driver models and rolling forecasts, the number of resource hours and the quality of the output has remained relatively unchanged.  This is because these organizations are often still missing a critical element of successful planning—the active engagement of operating managers in the process.

A common belief in many organizations is that the planning process is best executed from a central department.  This approach often stems from the desire to standardize plan template formats, planning horizons, and development timelines.  Yet it fails to acknowledge that the people most knowledgeable about the business are in customer- and vendor-facing roles, not usually those sitting in the corporate center.  Engaging these decentralized resources in the process as early as possible can result in a much better understanding of which operating levers need to be pulled for the highest impact to the organization.

Managers responsible for Product Development, Purchasing, Logistics, Sales, and Customer Service have the best visibility into the core business activities.  Therefore, it is only fitting that they be responsible for planning the use of the resources in these areas.  This includes not only determining the linkages between sales and activity drivers and the plan measures under their control, but also the sensitivities of these measures to changing business conditions, as well as the planning horizons most appropriate for each area.  When planning tools such as driver models, rolling forecasts, and scenario planning models are placed in the hands of these resources, and they are trained on their proper use, senior management can get a much more reliable picture of planned performance along the company’s value chain.

So what does this additional set of responsibilities for operating managers mean for the central Planning department?

Of course, Planning should develop the budget for its own department, while also providing guidance and training to operational managers in the use of the planning tools mentioned above.  In addition, employees in the Planning group will largely play a facilitative role in the development of the company plan by offering the following services to those in the rest of the organization:

• 1. Establish company-wide planning assumptions
• 2. Manage planning calendar and milestones
• 3. Assist in developing plans for support units such as Tax, HR, and Legal
• 4. Roll up departmental and business-unit plans into a consolidated management view
• 5. Challenge and validate cross-departmental or cross-unit assumptions to ensure alignment of goals and action plans

Using this approach, central Planning resources still play a primary role in plan development, but accountability for operating assumptions and drivers is placed with those most knowledgeable of the key business activities.

While having a centralized planning organization can ensure that the process and tools are managed consistently across the organization, companies should entrust the majority of the plan’s operating assumptions to those resources who have their hands “on the wheel”, and are thus best able to provide the necessary inputs.  Only when this happens, can the organization expect to realize the full benefit of its planning efforts.

Experiencing challenges in your planning process?  We can help.  Contact us at .(JavaScript must be enabled to view this email address).