Business Plans: The Annual Operating Plan


The next step in drilling down to the actual tasks that people perform is developing the Annual Operating Plan or AOP.  If you have done a good job on the Long Range Plan and the remainder of your Business Plan, you should have several solid objectives ready to be divided into more detailed short term team and individual objectives that can be completed in less than one year.  Now your planning process will shift to subdividing those LRP objectives.

Think of the AOP as scaling down the LRP into what can be accomplished in the next year.  The LRP was an opportunity to evaluate the big picture and focus on risks with some attention given to what might serve as measures.  Conversely, the AOP is an opportunity to detail near term elements of the LRP and focus on detailed measures of performance and results with some attention given to monitoring risks.

In the process of developing your AOP, you will also be developing key components of your annual capital and operating budgets.  It is important to let your long range and operational goals drive your budget and not let the budget drive your goals.  Remember, money is a resource and a measure of success.  Profit is your reward for achieving your annual and long range objectives; it is not the purpose for your organization’s existence.

The detailed objectives in your AOP may consist of sales goals, marketing plans, production goals, new buildings and equipment, revenue and expense targets, employee counts, new and changed processes, or particular activities in your start up process if yours is a new venture.  They may include implementation of new processes or specific annual projects that produce results and align with your business philosophy including community relations and environmental stewardship.  All of them should relate to a specific LRP objective, and to the business plan components we defined earlier.  Again, these objectives must be SMART; Specific, Measurable, Achievable, Realistic and Time-bound, like the LRP objectives discussed in the last post, but even more specific and short term; less than one year.

All of your AOP objectives should include clearly defined measures both of process and results, as well as methods for reporting.  The measures associated with these goals may be lagging measures reporting the results of your operations.  However, as these AOP objectives are further clarified by enterprise, department, branch, team, and individual goals; remember that goals at this level are very process oriented and must include leading measures or indicators.  Without integrating leading measures within processes you will not have advance warning of processes drifting off target that could end in failure to achieve the desired results.

When you have worked through all of the objectives in the LRP and committed them to your AOP, you still have to address the ongoing activities that keep your business running.  There are always things your organization does every year that must be done to keep the doors open and the customers served.  Those activities may not have been directly addressed this year by long range objectives; that doesn’t mean you stop doing them!  To steal a quote from John F. Kennedy, “we choose to go to the moon in this decade, and do the other things…”  We didn’t put the rest of government on hold while we went to the moon.

Landing a man on the moon in this decade (1960’s) was one whopper of a long range plan; parts of going to the moon were inserted into the AOP each year, along with “the other things”, and we landed two men on the moon on July 20, 1969.  When Kennedy established that goal it had only been four years since the Russians orbited Sputnik; by 1961 all we had in orbit were a few communications satellites.  But we had a robust government going (some would argue a little too robust) that still needed attention!  The “management team” took on all those details.

The point; plan and budget for all the day to day activities of your organization, but highlight in the AOP those that relate to the LRP and make sure they get special handling to avoid losing them in the shuffle of your daily work.  When your annual operating plan is complete you will have a roadmap of your entire route from January 1 to December 31.  You’ll know the mile posts you need to pass, and you’ll have that dashboard telling you everything you need to know to gauge progress and results through the year.

Now your management team will need to put that plan into action.  Every Division, Department, Branch, and Work Team will need to figure out all of the tasks and activities needed to achieve the AOP goals.  They’ll need to sit down with their teams and figure out the deliverables, timing and budget objectives and the incentives and consequences needed to keep everyone on track.  While they’re doing all that work they’ll need to keep in sight the key components driving all of their activities, the objectives of the LRP and AOP.

I’ve tried not to get too detailed but to give you just enough about this particular business basic, this piece of common business sense: plan your work and work your plan.  Larry Linville’s character, Major Frank Burns (M*A*S*H, CBS, 1972-1983) put it better than anyone else while digging foxholes all over the camp in preparation for the potential air raid when he said, “prior planning prevents poor performance!” 

Of course, even the best laid plans can be co-opted or sabotaged when people are not all on the same page; as Frank found out the instant he dove into his foxhole outside the “Swamp”; the one Captain B.J. Hunnicutt had conveniently filled with water just before hollering “AIR RAID!”  And that sets up the subject of my next post, get your people aligned!

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