26 May 2017
In my last blog I shared the first of my tips how to make the most of your IBP process. I revealed how to successfully scale the annual planning mountain, by using rolling horizons and future big events to keep the leadership focused on long-term plans.
In this blog, I discuss three further elements which are key in generating an effective IBP plan; assumptions, planned activities and making $’s the outcome of your plan.
Tip #3: Make assumptions the foundation of your plan
Numbers and assumptions are irrevocably linked; the numbers that drive the direction of your organisation are – or should be – derived from your assumptions. Often, organisations make the mistake of utilising numbers in their plans without understanding where they’ve come from. Alone, these numbers are ineffective. At Oliver Wight, we always advise; “You don’t change a number in your plan without changing an assumption”. Why would you change a number if the thinking behind it has not changed?
If assumptions are properly documented, they act as a point of reference to return to if outcomes don’t materialise as expected. With the ability to identify which assumptions don’t come true, businesses create a learning cycle to inform and shape future plans in their monthly IBP processes. Understanding which assumptions were incorrect or pinpointing an assumption that was missed is the starting point for improving the plan going forward. The assumptions themselves act as the basis to interrogate the forecast, helping to identify vulnerabilities and opportunities.
Making assumptions which support functional plans visible across all factions of the business, serves as a trust-building platform in disjointed organisations. If different departments, such as sales and supply chain for example, only exchange numbers rather than numbers and assumptions, they tend to second-guess each other, especially if there is a history of plans not being met. However, if all functions share the thinking behind their plans – assumptions – then they can ensure that their plans are truly aligned.
Tip #4: Think of $’s as the outcome of the plan
Frequently, businesses make the mistake of presenting the financials (the dollars), as the plan itself, rather than viewing the financial numbers as the plan’s outcome. Organisations need to re-educate themselves to understand that financials are the consequence of planned activities, and that these planned activities drive the assumptions (our thinking about the future). The assumptions in turn drive the numbers in the plan; sales units, production volumes, purchased items and volumes. With the addition of further assumptions such as price and cost these numbers are then translated into the financials.
The most mature businesses focus IBP discussions around planned activities and how they will impact their assumptions supporting the future planned outcomes.
When all three elements are aligned – planned activities, assumptions and the numerical outcome – the organisation is able to focus attention on the critical activities required to deliver the financial outcomes that it has committed to, the annual plans and strategic objectives.
For more tips on how to get the most out of your IBP process, you can listen to a free full-length webinar by clicking here.
Partner, Oliver Wight International
Stuart is based in Sydney, Australia but has spent 20 years working in key change agent roles in major manufacturing organisations around the world. Whilst gaining deep knowledge in a number of industries including metals and FMCG he has developed extensive experience in improving and linking processes across organisations and supply chains to enable the successful deployment of strategy.