Businesses today face ever-increasing frequency and magnitude of change in the global marketplace. Companies that still do annual planning and budgeting the traditional way are wasting time and money and will be left behind.
It’s important to be able to forecast anticipated finances and manage the supply chain, but a plan made 9 to 12 months prior doesn’t reflect the tremendous changes happening every day. And when plans are made in departmental silos, the overall picture gets lost leading to competition for budget allocations.
What Is a ‘Significant Non-Event’?
Implemented correctly, Integrated Business Planning turns the annual planning process into a significant non-event. Significant means that the plan information is necessary to create expectations, goals, and objectives. Non-event because “bottom-up” information has been reviewed every month for many months, and strategic goals have been visible for an even longer time.
Why Integrated Business Planning?
Because Integrated Business Planning (IBP) is a rolling, replanning process, a continuously updated operating plan overcomes the fundamental flaws of traditional annual planning. The benefits:
- Demand forecasting and planning are ongoing, as opposed to an infrequent event
- Time is removed from the process
- The annual plan becomes integrated as a single set of numbers at a defined point in time.
- There are regular reviews of strategic initiatives and new product development.
There are many advantages to IBP:
- It can prevent self-inflicted crisis management to achieve results, usually through actions taken in haste.
- The process challenges the traditional performance management system that rewards eleventh-hour heroics. Instead the focus is on compliance to plan.
- It fosters regular, disciplined achievement of results based on a continuously updated operating plan.
- Leaders get out of the weeds. Too much detail is a waste of time.
Another fundamental difference between Integrated Business Planning and traditional annual planning is how goals and targets are managed and integrated with day-to-day operations. IBP separates goals or targets from the current operating plan. (Both are vital but should be managed separately.)
Mind the Gap
In companies using IBP, the current operating plan includes the latest assumptions for operational and financial numbers, called the “current best view.” When goals are separated from the current plan, leadership and management can detect gaps between the plan and the goals, with enough time to act to close the gap.
In my previous life, I followed Oliver Wight principles and practices because they work. IBP had a significantly measurable value-add impact on my company. Without the methodology used to find these gaps and close them, we would not have achieved Class A results.