An operating plan is a document that outlines the day-to-day operations of a business or organisation, and it typically includes the following key elements:
- Mission and Objectives: This section outlines the overall mission and goals of the organisation, as well as specific objectives that will guide its operations.
- Organisational Structure: This section describes the organisation’s structure, including its departments, teams, and reporting lines.
- Human Resources: This section outlines the organisation’s human resource strategy, including hiring, training, and retention policies.
- Products and Services: This section describes the organisation’s products or services and any plans for new products or services.
- Marketing and Sales: This section outlines the organisation’s marketing and sales strategy, including target markets, pricing, and promotional activities.
- Financial Projections: This section includes financial projections for the organisation, including revenue and expense forecasts, cash flow projections, and budgets.
- Operations and Logistics: This section describes the organisation’s day-to-day operations, including production processes, supply chain management, and logistics.
- Risk Management: This section outlines the organisation’s risk management strategy, including any potential risks that may arise and how they will be addressed.
- Performance Metrics: This section outlines the performance metrics that will be used to measure the organisation’s success, such as customer satisfaction, employee retention, and financial performance.
Overall, an operating plan is essential for any organisation to ensure that it operates efficiently and effectively and is aligned with its overall mission and objectives.
How does an operating plan capture the tasks and interplay between people? How does an excellent active plan capture what people do during the day, and how do these activities achieve goals? How is this interplay modelled so it can form a part of business forecasts?
An operating plan captures the tasks and interplays between people by describing the specific roles and responsibilities of individuals or teams within the organisation. It outlines how people work together to achieve the goals set out in the plan.
An excellent operating plan captures what people do during the day and how these activities achieve goals by categorising them into specific tasks and activities and assigning them to the appropriate individuals or teams. The plan should also include timelines and deadlines for completing these tasks and any dependencies or interdependencies between tasks.
The operating plan should combine qualitative and quantitative data to model this interplay and make it part of business forecasts. For example, it might include data on employee productivity, customer satisfaction, financial performance, and feedback from employees and customers. This information can be used to create a model of how people work together to achieve the organisation’s goals, which can then be used to forecast future performance.
One way to model this interplay is through process mapping. Process mapping is a technique that uses flowcharts or diagrams to illustrate how tasks are completed and how they relate to each other. It can help identify bottlenecks, redundancies, and inefficiencies in the organisation’s processes and can be used to identify opportunities for improvement.
Overall, an excellent operating plan captures the tasks and interplay between people by clearly showing how the organisation functions and how individuals or teams work together to achieve its goals. By modelling this interplay and incorporating it into business forecasts, the organisation can improve its efficiency, effectiveness, and overall performance.
How do storytelling, pre-mortem and pre-success methodology help build a successful operating plan?
Storytelling, pre-mortem, and pre-success methodologies can all help build a successful operating plan in different ways. Here are some examples:
Storytelling: Storytelling is a powerful tool that can help bring an operating plan to life. Telling stories about how the organisation has succeeded or might grow in the future can help inspire and motivate employees and provide a clear sense of direction and purpose.
Pre-Mortem: The pre-mortem methodology involves imagining that a project has failed and then working backwards to identify the causes of that failure. This can help to identify potential risks and challenges that might not have been considered otherwise and can help to mitigate these risks before they become a problem.
In an operating plan, a pre-mortem can help identify potential obstacles preventing the organisation from achieving its goals. By imagining that the project has failed and then working backwards to identify the causes of that failure, the organisation can take steps to prevent these failures from happening in the first place.
Pre-Success: The pre-success methodology is the opposite of the pre-mortem. It involves imagining that a project has already been successful and then working backwards to identify the steps taken to achieve that success. This can help to identify best practices and critical success factors that can be replicated in future projects.
In the context of an operating plan, a pre-success analysis can help identify the key drivers of success for the organisation. It can be used to inform the development of the project. By identifying the steps that have led to victory in the past, the organisation can develop a roadmap for achieving success in the future.
Overall, storytelling, pre-mortem, and pre-success methodologies can help build a successful operating plan by providing new insights, inspiring motivation, and identifying potential obstacles and opportunities for success.
What are some factors that can cause operating plans to fail in execution?
Many factors can cause operating plans to fail in execution, including:
- Poor communication: Operating plans require clear and effective communication to ensure everyone understands their roles, responsibilities, and objectives. Communication can lead to better understanding, mistakes, and missed deadlines.
- Lack of accountability: Accountability is crucial for the successful execution of an operating plan. When individuals or teams are not held accountable for their actions or performance, it can lead to a lack of motivation, poor quality work, and missed targets.
- Need for more resources: Operating plans often require significant financial, human, and material resources. If the organisation needs more resources to execute the project effectively, it may lead to delays, poor quality work, or failure to achieve objectives.
- Resistance to change: Operating plans often require changes in processes, procedures, or behaviours, and resistance to these changes can impede execution. This resistance can come from individuals or teams who are comfortable with the status quo or need to see the value in the proposed changes.
- Lack of flexibility: Operating plans should be flexible enough to adapt to changing circumstances or unexpected events. A lack of flexibility can lead to missed opportunities or an inability to respond to changes in the external environment.
- Poor leadership: Effective leadership is critical for the successful execution of an operating plan. Poor leadership can lead to poor direction, poor decision-making, and low employee morale.
- Inadequate monitoring and evaluation: Operating plans require ongoing monitoring and assessment to ensure progress towards objectives and identify any issues that need to be addressed. It can be easier to identify problems and make necessary adjustments to the plan with adequate monitoring and evaluation.
Overall, the successful execution of an operating plan requires careful planning, effective communication, strong leadership, and a willingness to adapt and make changes as needed.
What are some techniques that can help evaluate the success probability of taking an operating plan into practice?
Here are some techniques that can help evaluate the success probability of taking an operating plan into practice:
- SWOT analysis: A SWOT analysis is a technique used to evaluate an organisation’s strengths, weaknesses, opportunities, and threats. By analysing these factors, organisations can identify areas where they are well-positioned to succeed and potential obstacles.
- Risk assessment: Risk assessment involves identifying and analysing potential risks that could impact the execution of an operating plan. By assessing the likelihood and impact of each threat, organisations can develop strategies to mitigate or avoid these risks.
- Scenario planning: Scenario planning involves creating multiple scenarios that explore different possible futures for the organisation. By considering a range of possible outcomes, organisations can develop strategies that are flexible and can adapt to changing circumstances.
- Benchmarking: Benchmarking involves comparing an organisation’s performance to that of other similar organisations. By analysing best practices and performance metrics, organisations can identify areas for improvement and opportunities to enhance their operating plan.
- Key Performance Indicators (KPIs) are metrics used to track progress towards specific goals and objectives. By identifying and monitoring KPIs, organisations can assess the effectiveness of their operating plan and make adjustments as needed.
- Pilot testing involves implementing a small-scale version of the operating plan in a controlled environment to assess its effectiveness. By testing the program on a small scale, organisations can identify potential issues and make necessary adjustments before rolling out the plan on a larger scale.
These techniques can help organisations evaluate the success probability of implementing an operating plan by identifying potential obstacles and risks, benchmarking performance, and monitoring progress towards specific goals and objectives.
How important is understanding, developing and assessing operating plans to mergers and acquisitions activities on both the buy and sell side?
Understanding, developing, and assessing operating plans is critically essential to mergers and acquisitions activities on both the buy and sell side for several reasons:
Strategic fit: Operating plans provide insight into how the target company operates and how it fits into the overall strategic objectives of the acquirer. This information is critical to evaluating whether the acquisition is strategically aligned and likely to achieve the intended goals.
Valuation: Operating plans provide a basis for valuing the target company, which is a critical component of the M&A process. By assessing the target company’s historical and projected financial performance, acquirers can estimate the company’s value and determine a reasonable purchase price.
Integration planning: Operating plans provide a roadmap for integrating the target company into the acquirer’s operations. By understanding the target company’s existing operating procedure, the acquirer can identify areas for integration and develop a plan for achieving the expected synergies.
Risk assessment: Operating plans provide insight into the risks associated with the target company, including potential operational, financial, and legal risks. This information is critical to assessing the overall risk profile of the acquisition and developing a plan to mitigate these risks.
Post-merger integration: Operating plans are also critical to the post-merger integration process. The acquirer can ensure a smooth transition and minimise disruption to both companies’ operations by developing a detailed integration plan based on the target company’s operating plan.
Overall, understanding, developing, and assessing operating plans is a critical component of the M&A process. By evaluating the target company’s operating plan, acquirers can determine the strategic fit, value the company, develop a plan for integration, assess risks, and ensure a smooth post-merger integration process. Similarly, for the seller, understanding their own operating plan and presenting a clear and compelling vision for future growth can increase the company’s value and make it more attractive to potential acquirers.
If understanding operating plans is crucial to mergers and acquisition activities, why does the investment sector need more senior people with real-world operational and operational planning and execution skills?
The investment sector may need more senior people with real-world business operational and operating planning and execution skills. There are a few reasons why this may be the case:
Focus on financial skills: Historically, the investment sector has placed a strong emphasis on financial skills, such as financial analysis, modelling, and valuation. As a result, many senior professionals in the industry have a background in finance, accounting, or related fields rather than in operational roles.
Short-term focus: The investment sector often focuses on financial returns rather than long-term business operations. This can lead to focusing on financial engineering and short-term cost-cutting measures rather than building sustainable businesses.
Limited exposure to functional roles: Many investment professionals may need direct experience in operating roles or developing and executing action plans. This can limit their understanding of the operational challenges and opportunities that a company may face and may lead to a focus on financial metrics rather than operational ones.
Limited incentives: The incentives for investment professionals are often aligned with short-term financial performance rather than long-term operational success. This can lead to focusing on financial metrics rather than developing and executing successful operating plans.
While understanding operating plans is essential for mergers and acquisition activities, the investment sector may need more senior people with real-world business operations and working planning and execution skills. This is due to a historical focus on financial skills, a short-term focus, limited exposure to functional roles, and limited incentives for long-term operational success. However, as the importance of operational success in driving long-term financial returns becomes more widely recognised, we may see a shift towards hiring more senior professionals with these skills in the investment sector.