Business Planning

Business Planning – What is it?

Coherent and robust business planning is a powerful decision-making mechanism allowing business managers to create an integrated forecast of their business, usually as an operational or financial statement of what future periods are anticipated to look like. A continuous business planning process should also include a comparison and review of actual performance to what was originally planned and a feedback of this understanding into revised planning.

High quality business planning based on the most recent historical data is a critical success element in modern business decision-making. This process involves taking historical data, typically the most recent actual performance and balance sheet data – whether input manually, converted from a general ledger accounting system or sourced from a database – and integrating this with the projection assumptions for the business.

The power of the business planning model is that the user is able to examine the direction of the business and understand what impact different strategies might have, thus providing visibility on the future. Fully integrated business planning models can also incorporate additional benefits by flowing operational and performance data all the way through to more complex metrics, such as EPS, gearing, liquidity and covenant ratios, profitability – all the ' must knows' of modern business.

BPM Consulting has considerable experience in delivering bespoke models that assist business managers in planning the key elements of their business and performing budget-to-actual comparisons, re-forecasting analysis and what-if scenarios. Delivered in Best Practice (robust, transparent, flexible and consistent), the business planning tool instills significant confidence in the user that the assumptions being made are in fact operating as anticipated and that strategic decisions are based on sound logic.

Business Planning – the BPM Process.

The two success factors behind BPM delivering high-quality business planning models are:

  1. The rigorous and consistent application of the Best Practice Modelling Standards in all of our modelling; and
  2. The use of a consistent and regular engagement process to deliver high quality business planning models to a wide range of organisations.

The engagement process employed by BPM Consulting in the delivery of a business planning model broadly involves the following key steps:

  1. Development and Approval of a Detailed Project Plan – including key personnel, engagement timetable and project Gantt.
  2. Documentation of Model Specifications Book – detailing model users, assumptions, drivers, logic trees, outputs and all areas material scope elements
  3. Construction of draft business planning model – modelling is all performed with the use of bpmToolbox and all content built in line with the Best Practice Modelling Standards.
  4. Review of draft business planning model – client model users review the draft model and provide feedback on content, functionality, ease of use, etc.
  5. Finalisation of draft business planning model – client feedback incorporated into the business planning model.
  6. Completion of engagement process – final model is delivered to client, along with documentation, training and socialisation.

The above steps provide a summary of the BPM process to modelling engagements. Steps 4 and 5 might be iterative as the business planning model is either adjusted to suit client requirements or made up of a suite of planning models, each of which requires a process of finalisation. Combined with the use of bpmToolbox and the repetitive use of the Best Practice Modelling Standards, the above engagement process assists in the construction of robust and high-quality business planning models.

Business Planning – Benefits

There are many benefits to business planning, from qualitative factors such as improved control to very real and quantitative financial benefits. BPM Consulting lives by the mantra:

A quality Business Planning Model should pay for itself.

There are many ways in which it is possible for a business planning model to pay for itself. The following are a few examples of savings created by business planning:

  • Closer analysis of forecast supply and demand enables an organisation to lower inventory levels and make working capital savings
  • Comprehensive treasury analysis can reduce costs by providing an organisation with the ability to forecast and better control:
    • Undrawn but available funds, reducing line fee costs
    • Gearing ratios, lowering weighted average cost of capital
    • Funding costs, with banks reducing risk costs due to better business planning
  • A high-quality business planning model for an import/export business provides better visibility on foreign exchange transactions and allows hedging to be implemented

    • Beyond just cost savings, comprehensive business planning should also lead to a host of profitability improvements through such analysis as:

    • Product mix forecasting
    • Pricing and elasticity analysis
    • Operational delivery comparisons
    • Strategic taxation planning
    • Return on capital expenditure analysis
    • Merger and acquisition projects
    • Divestment planning investigations