How to develop an effective annual plan
Although many businesses are familiar with long-term strategy, they may be lacking in one, critical area: operations planning. But what is an annual operating plan? Find out everything you need to know about how to make an annual operating plan with our guide.
What is an annual operating plan?
Put simply, an annual plan – also referred to as an annual operating plan or an operational plan – is a practical document that defines the financial, physical, and human resources that need to be allocated to achieve your business’s short-term goals. It provides a framework for day-to-day operations, outlining the activities and targets that need to be carried out to achieve your aims and objectives.
Covering a one-year period, annual plans can help provide you with answers to key questions, such as who needs to be working on what, how should resources be allocated for tasks, what risks is the business currently facing, and how can these risks be mitigated. In essence, it’s a roadmap for operating your organisation.
It’s also important to note that your annual plan should be closely linked to your strategic plan. A strategic plan is a document outlining the strategy your business is pursuing to achieve its overall growth goals. The strategic plan accounts for stakeholder demands, market restrictions, resources, and so on.
What’s the difference between an annual operating plan and budget?
It’s important for your annual plan and your annual budget to be in lockstep with one another. Otherwise, you could end up producing an overly ambitious annual operating plan that you don’t have the resources to deliver on. So, what’s the difference between an annual operating plan and a budget? It’s relatively straightforward. While your annual plan provides a practical outline of your company’s key targets and activities, the annual budget ensures that you actually have the resources to carry out these activities.
What is included in an annual operating plan?
So, what is included in an annual operating plan? Generally speaking, your annual plan should include numerous different elements, including:
Process for monitoring progress
Annual operating plan formats vary from template to template, meaning that there isn’t a universally agreed upon format to use. Search online for annual plan templates that you can use for your business.
How to make an annual operating plan
Need to learn how to make an annual operating plan? We’ve put together a simple guide to help you get started:
Ensure a strategic plan is in place – First off, you should make sure that a strong strategic plan has already been developed. As annual plans are essentially tools that are used to carry out the strategic plan, it’s important to have this guiding document created already.
Identify important goals – Next, you need to establish which goals your business is going to pursue. Generally, a short list of simple goals is best. After you’ve outlined several goals, think about the initiatives your business can pursue to achieve them. Quality control measures, faster delivery times, improved fraud protection, and increased employee training are all examples of potential initiatives.
Select KPIs – Then, you need to identify the KPIs that your business is going to use to measure progress. It’s best to focus on ‘leading’ KPIs (predictive measures that indicate what to expect from the future) rather than ‘lagging’ KPIs (measures that confirm a pattern after it’s already in progress). As these KPIs will be central to your business for the next year, you should discuss them with your team before implementing them.
Develop tracking systems – After your KPIs are set, there are lots of different ways that you can track your annual plan’s progress. Some of the most commonly used tracking methods include calendars, dashboards, and weekly/bi-weekly meetings.
Communicate with your team – Set aside some time to discuss your KPIs, and the annual plan itself, in more detail at the beginning of the year. Regardless of where they stand in your organisation, it’s important for everyone to understand why these metrics were chosen and why they matter. Hold weekly meetings to discuss organisational progress and ensure that your employees are able to track their progress on a regular basis.
An effective annual plan can provide you with everything your business needs to hit its goals and drive the strategic vision of the company. Be sure to give yourself enough time to create the annual plan, as it isn’t a small task. Generally, you should expect to spend several weeks crafting the plan and determining the KPIs.
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