10

THE PLANNING AND MONITORING PROCESS

So far, we have specified the content of the different framework models to plan and monitor performance. However, it is the management processes that hold them together. In this chapter, we will look at how to define and configure those processes so they act as a single continuous event.

DEFINING PROCESSES

Components of a Process

As mentioned in the Introduction, we live in a complex world. The everyday products we use, even the seemingly simple ones, are complex to the extent that no one person would be able to make them. Take the case of making a watch; this was only possible through the co-ordinated effort of multiple people with different skills all working together to agreed standards and to achieve a common aim.

The only way to manage complexity, be it creating a physical object such as a watch or organising a management challenge such as winning an Olympic medal, is to break the subject down into manageable pieces. Being manageable means that the individual tasks can be carried out in a repeatable and accurate way, and typically by people who only need to be skilled in the part they are required to perform.

The mechanism by which these tasks are organised and conducted is known as a process. For a process to fulfil its function, it needs to have the following:

• A clearly defined end purpose. Processes exist for reasons that are often simple to define, although they may be difficult to achieve. The purpose of watch-building is to produce an object that will reliably keep time and allow its users to fulfil their purposes. This may range from being able to schedule business appointments or, in the case of the early watches, navigate around the globe with accuracy. Having an end purpose is vital to defining the individual tasks within the process, some of which may change over time. For example, new production techniques may lead to different ways of fabricating materials and, hence, a change to the task within a process. Despite this, the end purpose rarely changes.

• Clearly identified actions. Processes typically rely on a chain of activities that directly relate to the end purpose. There can be no misunderstandings for those involved in carrying out a particular task as to what they are required to do. They must also recognise that their role is to serve something that is greater than their own individual actions. It is only when users work together, performing their designated functions, that the end purpose can be achieved. Allowing people excessive freedom to decide on what actions they are going to do will inevitably lead to chaos and failure of the entire process.

• Linked inputs and outputs. Because of the last point, individual tasks in a process will typically take an input that is then transformed or built on to create an output that becomes an input to the next task. Production processes that take raw materials and turn them into finished goods are a great example of the connected nature of tasks within a process. The quality of the end result is dependent on knowing exactly what each task is to receive and exactly what that task needs to deliver. It cannot be up to the individual task manager to decide, as he or she may not necessarily know what is required further down the line. Just imagine the car you would get from a production line if someone during the manufacturing process decided to fit just three wheels with brakes or chose to use different compounds on the braking pads.

• Co-ordinated timing. This last point recognises that tasks within a process are often dependent on the completion of other tasks, and that timing is often critical for the overall result. A car has to be built in a specific sequence. Medical operations not only need a correct sequence of activities, but they must also be completed within certain time constraints. You cannot expect a patient having a hip replacement to have the old joint removed one week and the new one inserted the following week.

It is interesting to note that most organisations have clearly defined processes when it comes to the manufacture of a product or the delivery of a service. They know exactly what the purpose is and what has to happen, when, and by whom. It is written down in manuals and constantly reinforced with training, and with validation appraisal on the quality of the end result. It would be unthinkable to depart from the end purpose, to vaguely describe how each task is carried out, not to mandate input and outputs, or to do away with the sequence or timing of activities. Doing so is a recipe for confusion and will guarantee the failure of the organisation.

Yet that is often what happens when it comes to planning. The process required to plan strategy, allocate resources, monitor results, and make subsequent adjustments is rarely written down in documentation or understood by those taking part. Take the budget process, for example. In most organisations, it resembles more of an annual ‘guess the numbers’ game, as quite often its purpose has not been communicated. All that the budget holders know is that senior managers have a set of numbers they want the rest of the organisation to guess. To help with the guess, spread sheets are distributed to those involved in the game for them to submit their best estimates. These are then consolidated with other managers’ guesses and compared with senior management’s original set of expected figures.

Not surprisingly, the two do not match, and so everyone is asked to guess again. This is typically called pass two. The problem is that this time, managers are focused on trying to guess the numbers that senior managers are holding. Anything related to strategy has gone, and it is now a competition to see who can discern what the few already know. After a couple of rounds, senior managers inform every one of the values of the numbers they hold and what their guesses should have been. This is known as a top-down budget, which provides managers with a great excuse to miss the numbers. After all, they are not their numbers, so any buy-in is missing.

Those who understand the game know how to play it well. However, the end result will not serve the purpose of the budget, assuming that the organisation had one to begin with. In most organisations, this game lasts around four months and consumes vast quantities of management time that would be better spent elsewhere. No wonder Jack Welch, ex-chief executive of General Electrics, called the annual budgeting process the most ineffectual practice in management.

To turn planning into any kind of valuable exercise, it needs a set of linked planning models that covers all aspects of what can be managed, and it needs a process. That is, it needs a set of tasks that serves an overall purpose, where user interaction is directed to serve that purpose, inputs and outputs of each task are clearly defined, and the tasks provide a logical sequence with timings to enable the organisation to function efficiently as well as respond to unforeseen challenges.

Without a process, planning becomes an academic exercise. However, when embedded within the right process, planning will help managers set realistic targets, make wise choices when allocating resources, accurately assess what actually happened, and steer organisations in the right direction in making changes.

Performance Management Processes and Tasks

Planning should be done within the context of managing organisational performance. The information technology analyst firm Gartner uses the term corporate performance management (CPM), which they define as ‘the methodologies, metrics, processes and systems used to monitor and manage an enterprise’s business performance’. There are other terms in use such as, ‘enterprise performance management’ and ‘business performance management’, but for our purpose these are synonymous with CPM. To go with Gartner’s definition, they describe the six different processes of strategic planning, tactical planning, financial planning, management reporting, forecasting, and risk management. As mentioned in chapter 4, ‘Business Planning Framework’, these are often seen as being distinctive processes, when in reality they each consist of a series of linked and integrated planning and monitoring tasks that follow on from each other, none of which can be left out. For example, to collect a budget requires tasks that

• set departmental targets.

• send out budget submission forms with targets, current year actual results, and an area to enter next year’s budget.

• collect departmental submissions and send for approval.

• approve or reject budget. If rejected, then the next task is to send the budget back to the originator and ask for resubmission.

• collate departmental budgets to produce a consolidated version.

• analyse results and either approve or reset departmental targets.

To create an effective management process as described by the planning framework requires us to fully define the planning tasks, their sequence, and how they relate to the different planning models. This involves collecting the following information on every task:

• Department and person involved. This identifies those responsible for carrying out the task. This could be multiple people in multiple departments. For example, there may be a product manager for each product category, so to review past performance would require each product manager to review their own areas. This could happen in parallel, but each would need to be completed before the start of the next task.

• Planning model and data view. This describes for each task the planning model that needs to be accessed and the ‘slice’ of data to be presented. Because models tend to contain data for multiple departments that span multiple processes, it is important that only the right people can access the right information at the right time. Modern planning solutions are able to do this quite simply, but we still need to focus the user’s attention to the data that he or she needs to review in order for the user to create the appropriate output for the next task.

In some instances, users may need access to multiple models. For example, when reviewing performance, they may need access to the detailed history models in a way that enables them to carry out detailed analyses and to compare those analyses with data in the detailed forecast models before they come to any conclusions.

• Processing required. Once access has been granted to data, users need to be directed as to what they can do with it. As mentioned in the last point, we may want to grant access so the users can perform their own analyses. Similarly, we may want them to load their current forecast from an external file. Knowing the kind of processing required by any task helps when choosing a planning solution.

• Action or output required. Tasks require an output. This could be a submission of data for approval, as in the case of entering a budget; making a comment, such as following the review of actual results; or approving a submission, as in the case of creating a forecast. In most cases, output will be compulsory and so the expected format needs to be clearly explained. For data submissions, this should include the planning model and data slice that needs to be completed.

• Completion notification This final piece of information indicates when the task has been completed and is no longer available This could include the following:

○ When a particular action has been performed, such as the approval of a budget.

○ A date or time. For example, forecasts can be entered up until the last day of the month, after which data entry will be blocked.

○ A set condition. For example, budget submissions can be altered up until all submissions have been received.

○ Any combination of this list.

To show how these tasks can be defined in a way that will be familiar to most readers, we are going to use the management processes named by Gartner, as they apply to our case study. It should be noted that the process names and tasks we will be describing are in no way prescriptive, as management teams must agree amongst themselves what those items should be. However, those tasks must be clearly defined, as previously explained.

To avoid boring the reader, we will keep the example at a summary level, but there should be sufficient detail in the description to enable this to be accomplished in full in any organisation.

STRATEGIC PLANNING

Purpose

For XYZ, Inc., strategic planning is defined as a series of senior management tasks whose purpose is to set long-term objectives, and the ways in which they can be accomplished. These tasks involve assessing past performance and the market opportunity from which annual targets are agreed for the next three years.

These targets are set at a company level and include overall objectives, related business process goals, and a high-level of profit and loss (P&L).

Tasks: Inputs, Outputs, and Sequence

The tasks conducted during the strategic planning process have the following sequence, inputs, and outputs:

• Review current performance. This is not just a single task, as management needs to assess what products or services are best contributing to objectives and whether the business processes involved are providing good value compared with competitors. They also need to determine the product life cycle and whether these are ‘fit-for-purpose’ in the forthcoming years. This task requires past actual and forecast data by business process. Output is a projection of likely future performance for the current business model.

• Analyse market potential. This set of tasks involves reviewing market forecasts and assessing where the company’s own projection of future performance fits. It also involves analysing competitor performance. Some of this has been gathered as part of the sales process (for example, how many times competitors have won against them and what their prices are), and some has been captured from external sources (for example, their profile on social media sites). From this, management can make a judgement on where XYZ could be in three years’ time should they make changes to the current business model.

• Assess risks. This task involves creating a number of P&L scenarios that assess the value of ‘business as usual’ for best and worst case assumptions made about the unmanageable aspects of the future. For example, what would the impact be if prices had to drop by 10 percent due to competitor pressure? What could be done to reduce costs or promote an increase in sales? To go with the P&L output is a description of the scenarios being assessed and suggestions for how the organisation would cope in each one.

• Set baseline financial plan This task takes the scenario from the last task that management believes is the most likely This is used to create a P&L summary that is split into the following:

○ Business as usual. This contains values that would be attained through current organic growth (that is, if the organisation were to continue as it is today with the same business processes and workload).

○ Strategy impact. This contains the increase in resources and outcomes that management believes the organisation should strive to achieve by making changes to the current business processes and workload.

Together, these values form a target P&L for the next three years.

• Set objectives and strategies. The final task in this process involves pushing down the high-level P&L to the organisation’s departments along with pushing down details concerning the business process areas that need to improve and ways in which that improvement can be accomplished. For example, sales performance will be improved with the development of an online application that allows users to simply create their own personalised stationery. Costs will be reduced with the set-up of a new production facility that is both ‘greener’ and less expensive to operate.

People and Planning Models

In running each of the preceding tasks, a number of interactions will be required by different people to different areas of the planning models (see a sample model of these interactions in figure 10-1):

• Analyse current performance. This requires access to the detailed history models to review past performance and the detailed forecast model to view the current outlook. Users will need the ability to fully analyse data and have an area in the target setting model (TSM) where they can enter a business as usual projection for the next three years. The task ends when the user indicates that the business as usual projection has been completed.

• Analyse market forecast. This requires access to the detailed performance measures model that has been suitably updated with external market data and internal data from the operational activity model (OAM). They will then need to be able to enter a strategy impact projection for the next three years into the TSM. The task ends when the user indicates that the strategy impact projection has been completed.

• Assess risks. This requires the consolidation of the business as usual and strategy impact data within the TSM. Users are given the ability to create scenarios within this model and to copy the submitted projections. They can then modify data via designated drivers to simulate a particular risk happening.

Figure 10-1: Sample Strategic Planning Tasks and Their Relationship to Existing Planning Models

The task ends when the user indicates that sufficient scenarios have been generated for comparison reports that are available for senior management review.

• Set baseline plan. This is performed within the TSM and involves choosing the most likely scenario as the target for the next three years.

• Set objectives and strategies. This creates individual targets by department in the TSM, which are then transferred to the target version of the OAM. The two parts to the target, business as usual and strategy impact, are retained. Strategies are communicated using the balanced scorecard methodology that requires the strategic themes chosen to be set up as dimension members within the OAM and strategy improvement model.

The cash funding model is now populated to produce a cash flow forecast for management to assess where any cash shortfalls are to be resourced. This may require them to make adjustments to the TSM and repeat some of the preceding tasks. This task and the strategy planning process ends when management approves the targets within the OAM.

TACTICAL PLANNING

Purpose

The purpose of the tactical planning process is to develop a range of strategy initiatives that will help the company achieve the strategy impact targets within the OAM. These targets were set during the strategic planning process and include business process goals and a P&L summary that each department contributes to.

The output required of the tactical planning process is a series of approved strategy initiatives that show how the first year of the long-range strategy targets will be met.

Tasks: Inputs, Outputs, and Sequence

The tactical planning process for XYZ, Inc. includes the following tasks:

• Develop initiatives. This task is an on-going task whereby managers can propose new initiatives. These are linked to particular business objectives as outlined in the strategic plan and include a range of data including proposed workload lev els, outcomes, and the resources to be consumed. To do this, departmental managers are able to view the strategy impact targets in the OAM and can enter data into the strategy improvement model (SIM). These are sent to a divisional manager who reviews entries for completeness and ensures that they fit within the culture of the organisation.

• Assess initiative combinations. This next task assesses combinations of approved initiatives. The aim is to meet the strategy impact targets with minimum cost. To do this the user is able to see the targets in the OAM and can create multiple scenarios within the SIM. They can copy different combinations of initiativ es into each scenario and compare their cumulative impact against the set target. The more promising scenarios are then presented to senior management to make a decision on which combinations are to go live.

• Agree on the plan. The chosen combination of initiatives from the last task now have their status changed to ‘live’ within the SIM. This causes the data associated with them to be copied from the SIM into the OAM. During this copy process, the cause and effect structure in the strategy dimension of the OAM is modified so that strategy maps can be produced, and that initiative resources and outcomes are accumulated with business as usual.

People and Planning Models

Tasks from the tactical planning process interact with the following planning models in figure 10-2:

Figure 10-2: Sample Tactical Planning Tasks and Their Relationship to Existing Planning Models

• Develop initiatives. Managers only have access to their individual targets in the OAM, and they can only see initiatives that they have created. They have the option to create new initiatives in the SIM and the ability to amend existing initiatives, provided they are not ‘live’ or have been approved for ‘live’ use. This task has no end date, so initiatives can be submitted for approval at any time.

• Assess initiative combinations. This takes place within the SIM and is completed by those responsible for assessing initiatives. They can view all approved initiatives and can create as many scenarios as they wish that represent different combinations of approved initiatives. The impact of these combinations can be viewed within the OAM.

• Agree on the plan. The task requires access to the SIM and OAM. When transferring data to the OAM, the individual initiatives are set up as members within the strategy dimension of the OAM. Results can be viewed in both the OAM and the performance measures model.

FINANCIAL PLANNING

Purpose

The purpose of the financial planning process is to allocate resources to departments in order for the business processes to deliver the targets set for business as usual. These are added to the strategy initiatives chosen to give the total resources required by the company. Funding plans are then developed for any shortfall in predicted cash requirements.

The output of the financial planning process is a budget that is linked to the delivery of defined activities and the outcomes they should generate. This is accompanied by a report that shows the sources of funds.

Tasks: Inputs, Outputs, and Sequence

For the remainder of the processes, we will not be describing the link between people and planning models, as this should now be fairly obvious in the task descriptions.

The financial planning process has the following tasks (figure 10-3):

• Develop baseline budget. This task operates on the resource measures within the OAM. It first takes the current years’ actual results and places them into the budget version, transposed by one year (that is, actual results for January of this year are copied to become the budget for January of next year). Because budgeting takes place three months before the year end, the forecast results for the remainder of the year are copied into the corresponding months of next year, but into the budget version. This gives users the starting point for entering the budget.

Next, data entry sheets are provided to departmental users that cover the next year. These sheets show the levels of activity and outcomes required by month as set by the strategic planning process. They are also given a summary level cost or revenue target as set by the same process that is contrasted with the values now stored as the budget. Departmental managers can now adjust the budget figures with the aims of

○ keeping budget costs below the summary target level.

○ ensuring that the workload identified can be sustained by the costs.

Figure 10-3: Sample Financial Planning Tasks and Their Relationship to Existing Planning Models

○ confirming that the level of outcomes can be generated by the planned workload.

○ ensuring revenue targets are met or exceeded for the given target costs.

• Develop initiative budget. Strategy initiatives were selected as part of the tactical planning process and are now stored within the OAM. This task allows users to confirm that the original budget that was agreed upon when the initiative was approved still stands.

• Develop funding plan. This task takes cash supply and demand as defined by the budget held within the OAM for both baseline and strategy initiativ es. The cash impact is transferred into the cash funding model, where it can highlight any additional funding that may be required.

FORECASTING

Purpose

The purpose of the forecasting process is to predict the most likely outcome if things continue as envisaged within the anticipated business environment, and to provide management with choices as to how performance can be optimised.

The output of this process is a report that shows budget versus forecast and selected optimised scenarios.

Tasks: Inputs, Outputs, and Sequence

The financial planning process has the following tasks (figure 10-4):

Figure 10-4: Sample Financial Planning Tasks and Their Relationship to Existing Planning Models

• Forecast sales. This is an on-going task that never stops. The sales staff enters sales prospects into the detailed forecast model (DFM). They can only see previous details that they have entered and their own targets. As situations are updated, sales values are summarised and transferred into the forecast version of the OAM.

• Forecast costs. This is an on-going task for collecting the latest information regarding costs. These are either entered into a DFM if one exists for the expense item being updated (for example, personnel costs), or directly into the OAM. Users can only see the costs they are responsible for.

• Forecast initiative status. This collects data for strategy initiatives that are live. Data is entered into the forecast version of the SIM, where it is summarised and transferred into the OAM. Users can only see the initiativ es where they have responsibility.

• Forecast strategy outcomes. This collects data regarding business process outcomes. Data is entered directly into the forecast version of the OAM. Users can only see the initiatives where they have responsibility.

• Assess options. Results from the prior four tasks are now used to produce a forecast report from the OAM. Depending on the results, management may wish to consider optimising some of the resources (for example, matching production with sales forecasts so that products are produced at an optimal cost and that av oids increasing stock lev els).

MANAGEMENT REPORTING

Purpose

The management reporting process brings together current results with budget, forecast, and original strategy targets in a suitable format for assessing results. The purpose for doing this is to allow management to rev iew past activities along with the outlook for the future so that adjustments can be made to initiatives or allocated resources in order to achieve or improve long-term goals.

Tasks: Inputs, Outputs, and Sequence

The management reporting process includes the tasks shown in figure 10-5.

Figure 10-5: Sample Management Reporting Tasks and Their Relationship to Existing Planning Models

These collect and load actual data, which are then contrasted with budgets, forecasts, and actual data. From this, decisions can be made on whether the performance is acceptable, whether the assumptions were correct about the uncontrollable env ironment, and what needs to change.

MOVING TOWARD CONTINUOUS PLANNING

Management processes are key to making plans realis tic and ensuring that everyone acts in a co-ordinated way to achieve common objectives. There is no other way that this can be accomplished. However, the traditional view of management processes is that they are run at particular times of the year. Strategic and tactical planning are typically annual events, as is budgeting that looks at setting expenditure levels over the next 12 months. Forecasting is either monthly or quarterly, and management reporting is typically monthly.

The key point here is that unknowable and unmanageable challenges rarely occur in line with the management calendar. Competitors can take action at any time, as can government legislation and other events that impact revenue and costs. There is also the ever-increasing presence of social networks and a whole range of other influences that all conspire to invalidate activities and the way in which resources have been planned.

Variances that have no real impact on the bottom line can often be ignored, but others may require an immediate change of direction if future losses are to be avoided. Given that most organisations spend nearly four months creating a budget, doing this on a monthly basis is impractical, but so is ignoring a plan that is not tied to current reality.

Because of the volatile nature of today’s business environment, organisations must find a way to continually plan. A mechanism is needed with which they can react to unexpected events and exceptions, as well as a date on the calendar. This is where the task definition covered in this chapter becomes extremely useful. With some of the newer planning solutions on the market, it is now possible to set up management processes as a network of tasks that are controlled by the solutions workflow capability. The popular term for periodic refreshing of the budget is rolling financial forecasts.

The way these forecasts work is that in addition to what has already defined, each task has information about how they are triggered (in other words, under what conditions each task is initiated). This can include the following:

• A date (for example, the last business day of the month)

• An event (for example, the completion of another task)

• An exception (for example, the expense forecast being 10 percent greater than budget by the end of the year)

• A manual intervention (for example, a competitor announcing a major change to its pricing, which management wants to assess by changing their own pricing)

• A combination of all of these points

The initiation logic is now used by the workflow engine to decide which tasks are to be run, at what times, and who should be involved. As they are triggered, ‘To-do’ lists are automatically distributed to the appropriate people with links to the right areas of the affected models. As the tasks are completed, new ones are automatically triggered or old ones re-invoked, depending on the logic embedded within the tasks. To avoid bottlenecks, tasks can have automatic escalation capabilities should a user not comply with or complete the task in a timely manner. Administrators are able to view the status of any process from a moving timeline that shows what tasks have been distributed, those that have been completed as required, and those that are behind schedule. From this process control panel, administrators can invoke new tasks and cancel or reset those that are on-going.

In short, these workflow-based systems are able to transform planning into a continuous, intelligent, and efficient activity. If things are working well, the system lets people continue as normal, but if the outlook seems to be moving away from set targets, they allow management to respond and re-plan the parts that are affected.

We have now completed the description of the business planning framework. In the last section of the book, we will look at the role of technology and some suggestions about how it can be implemented.