It is again that time of the year, when folks like me get busy churning out fancy annual operating plans (AOP). I dare say that some times this exercise turns into a great farce, a tug of war where there are no winners and everybody ends up on the floor exhausted.
Now don’t get me wrong. An annual operating plan, which spells out the annual goals of the business enterprise, the revenue projections, the budgeting of costs, the complex analysis is an integral part of managing a business. The AOP is essential as it helps set the agenda, gives direction and helps allocate scarce resources in alignment with business goals.
However, while these objectives in themselves are laudable, the AOP often gets hijacked and becomes an exercise in conjuring up fancy numbers, which are no more than wishful thinking of the powers that be in an organisation. The AOP than becomes a football, which is kicked around and the spreadsheets keep spewing numbers till a set catches the fancy of the powers that be and voila, you have got an Annual Operating Plan.
Here are a check list of things that I would definitely do, while preparing an AOP.
Align the Leadership Team: An AOP should be a collaborative exercise involving the leadership team of the organisation setting the agenda and direction, while senior managers providing inputs and doing the numbers. The leadership team of the organisation must meet and choose its overriding goals and percolate these down, so that everyone is aligned towards a common organisational goal. Hospitals, often do not know whether they will focus on the topline or the bottomline in a particular year, or whether they will drive a particular speciality, which is lagging or strengthen another area, which is already doing well. The leadership team must discuss all these choices before work on AOP commences and it should keep on fine tuning these goals as the real picture emerges from intense number crunching.
Temper the AOP with a strong dose of Reality: Sometimes, while doing the AOP we tend to get carried away by what the numbers are indicating. This is a self defeating exercise. Sometimes numbers alone do not tell the entire story and often inputs from front line managers and sales people can bring about the much needed balance and realism in the AOP.
Never tailor the AOP to meet hypothetical goals: Business Managers, while planning the AOP sometimes tend to fit in numbers to make the AOP look rosy. This is nothing but an exercise in self deception. The assumptions that underpin an AOP must be realistc, based on past data and current market conditions. They should incorporate a reasonable stretch but putting up fancy numbers to make the big bosses happy is foolish and serves no purpose. Smart bosses will in any case spot the anomolies in a jiffy and those who don’t certainly do not deserve to be where they are.
Never make this an Endless Exercise: The permutations and combinations possible, while preparing an AOP are huge. Conceptually if one wants to churn numbers one can go on endlessly. I would recommend setting a tight deadline and than work hard towards ensuring that the AOP is closed well in time before the next FY. I have known and worked in organisations, where AOP discussions, would stretch till July or more and by then the AOP becomes meaningless.
Use Judgement and Common Sense: Sounds silly but often immersed in numbers one tends to look at things very differently. It is always best to use judgement and common sense, when numbers are telling a tale, which seems unlikely. I personally believe that judgement based on experience counts for a lot more than what the numbers alone might be saying.