Don't Just Spend the Budget: Design an Effective Annual Planning Process

By Patrick Thean

Annual Planning Process

dateTue, Oct 16, 2018 @ 11:00 AM

Many companies begin their annual planning process by first creating their annual budget. Then they Annual Planning Processbring the budget to their annual planning session. This process has some inherent limitations:

  • Some departments will feel compelled to spend their budget when they have been allocated more than they need.
  • Conversely, some departments might not have enough funds to accomplish the goals the company needs.
  • A common mistake is to allocate funds based on what got spent the previous year, not based on what each department actually needs.
  • Teams may be thinking more about how to spend their budget instead of being focused on figuring out the most important things to accomplish.
  • This all promotes silo thinking. While it might be unintentional, planning the budget first tends to promote thinking what I can do with my budget, instead of thinking what's the greater good for the company.

Instead, there is a better way.

First, begin with thinking about what you want to accomplish next year. We call this our time machine exercise. Step into your imaginary time machine and travel to the end of next year. You just had an awesome year. Step out of your time machine and see what that awesome year looks like. Now write down what you see and why it was an awesome year. Use this technique to inspire yourself and your team to come up with a plan for a phenomenal year. What’s the overall focus for the year and what are your top 3 to 5 initiatives?

Are we done yet?

Most people think they are done once they are able to come up with the year’s main focus and top 3 to 5 things to do. But you are not done yet! A really good execution plan for the year should have clarity on the following items:

  1. How do we execute on the top 3 to 5 things that we came up with as a team? Knowing what the top 3 initiatives are does not mean that you have a good execution plan. A good execution plan should have clear goals and milestones demonstrating how we as a team will achieve the annual plan.
  2. How will departments work together to achieve horizontal alignment? Every department should discuss and come to an agreement on how they will work together to achieve this plan.
  3. How will we align our resources to achieve the plan? I often hear executives complain that they do not have enough resources to get it done, but their CEO expects them to “get it done anyway.” CEOs need to listen up. If your executives do not believe that they can get it done, piling on the pressure will not help get it done. The secret to success is having a visibility in your execution plan.  This visibility comes from having goals with very clear outcomes described, and milestones with the right people owning these milestones to get it done. 
  4. Do you have the right people in place to accomplish this plan? Do you need to hire and train new resources? Does your existing team need help and training to achieve their parts of the plan?
  5. How will we align our budget to achieve the plan? After figuring out the resources you need, now you should confirm the budget and investment to getting this plan done.

The final test for your execution plan

You are pretty much done! To confirm that you have a good and execution-ready plan, ask your team these questions to validate your plan for the year:

  1. Does this plan achieve our financial goals for the year?
  2. Do we really have a single main focus? Does everyone know what it is?
  3. Do we have enough people working to make the main thing successful?
  4. Do we have strong accountability? Does every goal have an owner? And does every goal have clear outcomes defined?

If you get positive answers for the four questions above, then you are done! If not, then I am sorry, but you are not done yet. If you are clear on the plan, but your team is not, take the time to review and help everyone gain clarity. Taking the extra time to achieve clarity up front is critical to a successful year. Lack of clarity will reduce focus and end up with mistakes, rework, and waste.

Looking for more Annual Planning information to help get you started? Check out our additional resources:

Annual Planning: 9 Tips to Focus & Align Your Team with a Great Plan

Annual Planning Playbook: 5 Steps to Create a Winning Annual Plan

How CEOs Can Avoid High-Cost Mistakes in Annual Planning

Best Practices for Annual Planning

How to Conduct an Annual Planning Meeting

Rhythm Systems Annual Planning Resource Center

Photo Credit: iStock by Getty Images

Patrick Thean


Photo Credit: iStock by Getty Images