Continuous planning, a different approach to planning
There is no doubt that everything is changing at an increasingly fast pace. And a company's planning process must meet the needs of this fast-paced environment. The trend is to move from a static, once-a-year planning model to a more dynamic and continuous one where the demands of an ever-changing context can be met. How to adjust a company's planning processes so that it is no longer necessary to make all the decisions at a specific time of the year, and therefore prevent them from quickly becoming obsolete?
As every year, an important real estate development company begins its annual planning process in November. The company sets the strategic goals and plans the different initiatives that will be implemented throughout the following year.
After two months of having numerous meetings and presentations by leaders from different areas, of discussing, drawing up the budget and going through several approval stages, the initiatives that will be set in motion are finally approved. It is decided that the priority will be placed on residential housing, after analyzing market data pointing to a great opportunity in this market. The first project will be launched the following June. It is a long time away.
But the future finally arrives, although it might fall short of expectations. In June, after a strong devaluation of the local currency, mortgage interest rates increase sharply, restricting people's access to them. What happens with the plan? Is it implemented without any changes, or a new planning process starts in order to adjust it, which will take around two or three months?
Organizations following the traditional model concentrate their planning efforts on a specific time of the year, which can last about two or three months. The company's senior management tends to devote considerable time and resources to this process. Even more, there is an extra effort placed on setting the goals from the top down and in delimiting the course of the company for the following year.
However, companies are part of a reality and they need to find the way to quickly adapt to it. These are some of the situations that pose a challenge to the traditional planning model:
- The demands of the context, such as technological innovations, new business models or drastic changes on consumption levels and patterns, are rarely synchronized with the company's planning calendar.
- An ever-increasing impossibility to predict changes, plus the speed with which they take place in the organizational context, makes it difficult to make plans that foresee next year needs and effectively respond to them.
- The risk of obsolescence -the different plans or initiatives can become obsolete only within a few months of being established, since variables can differ drastically from the projections.
What happens if only a few months after the plan was established those initiatives or goals become obsolete? Was it worth the effort? How can we adapt to these changes? Should we stick to the established plan?
In order to respond effectively to these challenges, different companies have over the last years migrated towards a different planning model, called Continuous Planning.
What is it about?
What would have happened if the real estate development company mentioned above would have revised and adjusted their plans at different stages, throughout the year, incorporating the new information regarding mortgages and the exchange rate?
The Continuous Planning model replaces the annual planning concentrated in two or three months with a series of revisions throughout the year. These periodical revisions are established according to the events that could impact on the plan, as would be the case of a new product being launched by the competition or, in our example, the volatility of the exchange rate. By taking these variables into account, the company will be able to incorporate new information, and therefore adjust the plan or modify its priorities and goals accordingly, as well the means to achieve them.
Accuracy. Continuously reviewing the plan throughout the year would help incorporate new information. By being more-data based instead of mainly based on estimates, the resulting plan would gain in accuracy.
Simplicity. Having a continuous planning cycle throughout the year, analyses become simpler since the continuous input of information renders it unnecessary to make complex estimates.
Adaptability. When the plan is continuously updated with new information, the adaptive capacity increases while the risk of obsolescence decreases.
Focus. The priorities set by a company may change over the course of the year In the example at the beginning, the company's prime concern was to increase their presence in the residential housing industry. However, as months passed by this priority changed. This model proposes short and continuous planning cycles, during which the two or three most important initiatives are carried through. These initiatives are then implemented from beginning to end, so that the next planning cycle can begin right after it.
Contact with the environment. The leadership team must be constantly involved in the planning process, generating continuous contact with any possible changes in the environment that could affect any of the business areas. This comprehensive perspective helps understand the impact those changes may have on the business, while incorporating new information throughout the process also contributes to making informed decisions.
The impact and weight a strategic planning has on a company is beyond questioning. However, the context forces us to reconsider the best way to carry this process through to arrive at the desired results. ■
Sebastián Fernández Parrau
Consultant at Tandem, Soluciones de Decisión.