Refining
Your Plan Between Revisions
Now that you have decided on a planning
interval and on the timing
of the planning process, what do you do in between the scheduled
planning windows? Obviously, you can use the plan to track
actual performance against projected performance.
A closely related activity is revisiting the data between
each revision. This is how you refine the plan over time to make
it a better tool for managing your business. When you created
your plan, operational results in the near term were spelled out
with a great deal of specificity. Weekly targets for sales or
income were established. But for the periods that were further
out, the projections become less precise, frequently appearing
in summary format.
With a little foresight, the longer-term projections can be
refined based on actual results so that the plan's precision
increases with time. With the results of the first quarter's
operations in hand, you can look at the second and third
quarters and try to gauge whether your projections were
relatively accurate. Moving into the second quarter, you can
"unbundle" the data and break it out into the level of
specificity previously reserved for the first quarter. Because
you can assess the deviation between actual performance and
projected performance, the data for the second quarter should be
more reliable than the data for the first quarter. Over time,
your ability to accurately project future results will continue
to increase.
By breaking out the second quarter data, you can continue
tracking performance at the same level of detail as you had done
in the first quarter. Now the second quarter is the near term
and you have data that is as good or better than what you had
for the first quarter. Through extrapolation, you refine the
plan to provide the level of detail that you need, when you need
it.
What does this get you that "mere" performance
tracking doesn't? It sets you up to respond to the tracked
information by revising the estimates you made when you started
out. Tracking your actual performance against the plan alerts
you when reality doesn't match your projections. If there are
flawed assumptions or projections in the plan, it's better to
correct the plan than to adjust operations in an effort to meet
targets that were improperly set in the first place. Refining
the plan is one way to correct that discrepancy by revising the
projections to make them more accurate. As your
projections become increasingly accurate over time, your
business plan becomes an even more valuable tool for running
your business.
Periodic reviews. Many large businesses routinely
schedule a mid-year or quarterly review of the plan to ensure
that there is an opportunity to make mid-course corrections when
things aren't going as planned.
For a small business, such a review is vital. The plan is
supposed to reflect your expectations regarding the success of
the business. How long can you stay off track and still succeed?
When can you be satisfied that you are close enough to the plan
to continue on and when should you worry and consider your
options? Periodic reviews will help answer those questions and
they provide an opportunity to revise and update the plan
document itself. Such reviews also permit you to spot trends,
irregularities, and other business characteristics that you can
exploit. These trends may not have much impact on the plan, but
they might point to operational issues that need to be addressed
currently.
- Most businesses are somewhat cyclical in nature. That is,
the amount of business is not uniform and constant over
time. Frequently, there is some pattern to the peaks and
dips that the business experiences. These patterns can be
based on a number of factors and periods. For example, some
restaurants are closed on Monday. Why? Because relatively
fewer people want to go out to dinner on Monday than on
other nights. The usual speculation as to the cause of this
is that the weekend just ended and people just aren't ready
to go out. Other cyclical business rhythms exist, based on
cycles of differing length. By looking at your plan and
seeing where actual results depart from your projections,
you can discover and exploit these cycles.
- You can spot irregularities that can provide solid
evidence for assessing the quality of your operations and,
perhaps, the honesty of your employees. For example,
consider a fast-food restaurant that has four cash register
stations, and one station generates a lot less income than
the other three. The owner notices and moves the employees
to different stations. Say that the same station generates
less income no matter who is working it. In addition to
checking out the operation of the register itself, the owner
might want to assess whether there is something in the
layout of the customer service area that keeps customers
away from that register. A far different conclusion might be
reached if the low income was tied to a particular employee.
Perhaps that employee doesn't do the job well, or is
pocketing some of the proceeds.
You don't want to complete a business plan and then file it
away for a year. Instead, you want to use it to push the
planning horizon further out in time. Are you on track to meet
your projections? If not, is corrective action warranted?
Keeping your business plan close at hand, and revising it
regularly, will turn it into an vitally useful management tool
for your business.
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