In this booklet, we will consider the question of resource management. We will begin by making the fundamental point that resources are limited and therefore their employment has to be planned for if the business’s objectives are to be achieved in a cost-effective fashion. We will begin therefore by reflecting upon the wider objectives of resource management. In this first chapter we will consider the reasons for business planning. Having done this, we will outline the key processes associated with the production of a plan.
Why are enterprises required to do business planning?
Business planning is now a feature of both commercial and social enterprises. There is, of course, no one answer to the question ‘why plan?’ The most obvious reason is that any well-run organization needs to think ahead if it is to be effective and efficient. It also needs to demonstrate that it is capable of learning from its own and other’s experiences. In other words, the enterprise should think strategically and consciously integrate best practice experiences into its own investment and management activities if it is to survive and prosper. Furthermore, social businesses are now expected to be answerable to their primary stakeholders (tenants, patients, students, parents, customers, clients, etc). This accountability involves, among other things, explaining what they plan to do and then demonstrating the extent to which they have achieved these promised outcomes cost effectively and on time. Other stakeholders (the Government, regulators, local residents and businesses, community groups, etc.) may also have an interest in the organization’s plans and achievements. In particular, if the organization wants to borrow money from a bank or some other financial institution, then the lender will require a workable business plan before venturing the funds. Similarly, grant providers want assurance that public or charitable funds will be put to good use.
Social enterprise, shared value and business planning
The drive for a social enterprise/shared value approach to service provision and management is now well established. All departments of central and local government are expected to incorporate business planning principles (such as resource accounting and budgeting) into their management practices and procedures. In addition, a whole range of social enterprises (sometimes referred to a ‘public interest companies’) now operate in many parts of the economy to help tackle a wide range of social and environmental issues. Social enterprises are businesses that have social objectives and whose surpluses are reinvested in the organization or in the community rather than distributed in the form of profits to shareholders or other owners.
The Nature and Scope of Business Planning
Business planning and value-for-money
The over-arching aim of a business can be said to be the pursuit of value-for-money for its shareholders and other stakeholders. In commercial enterprises, value-for-money is determined by the business’s ability to generate long-term profits. Free enterprise markets are also assumed to be in the interests of consumers so long as competitive conditions exist. Sometimes value-for-money in the public service sector is defined by reference to the principles of ‘Best Value’ (See Garnett 2015 pp.64-5).
A plan is a ‘thing’ but planning is a ‘process’
By focusing on activity we move our attention from product to process – from the idea of a static plan to the idea of a dynamic planning process. Business planning should not be founded on an artefact – a fixed historic document – but on a documented process. This process should be systematic, open, and flexible.
Broadly speaking, we can think of a plan as a proposal for doing or achieving something. The Business Plan comprises a collection of documents that points to action – it sets out the over-arching strategy for the longer period. In order to progress the strategy, the organization will need to translate it into a more detailed corporate or company plan that sets out operational objectives and tangible targets for the medium term. In turn, to achieve these corporate objectives and hit these targets, the various sections and departments within the organization will need to devise fully detailed, action plans of their own to guide their immediate and short-term programmes of activity. This means that the overall business planning process involves a number of linked plans and other documents that cascade down from the strategic to the operation level. (See figure 2).
The business plan is the highest level document and it sets and establishes the key business assumptions and earmarks the budgetary provisions of the organisation in the broadest terms. Business plans have to be financially viable. This is just as true of regulated social businesses as it is of free enterprise commercial businesses. Typically, the business plan looks forwards for a number years and it sets the overall prudential guidelines within which the business has to operate in order to demonstrate its ability to cover its long-run costs and repay any major long-term loan liabilities. The appropriate length of the business planning period will, to a large extent, depend on the nature of the business and how it was financed. Some volatile businesses such as retailing have relatively short planning horizons. On the other hand public sector enterprises typically have 30 year business plans.
We need to appreciate that finance is not an end in itself but an instrument of action (i.e. a means to an end). This means that although financial planning and management are at the heart of every successful business plan, the documents should set out all the main commercial, political and social objectives of the business’s long-term strategy.
Long-term strategic goals are normally designed around mission statements. These tend to be written in language that is more aspirational than technical. They usually incorporate an analysis of the organsation’s underlying values (that gives its activities a moral orientation), and a description of its operational culture (that gives its actions an ethical orientation). As well as providing a moral and ethical orientation for action, mission statements should succinctly summarise the business’s overriding purpose. The strategic plan is then grounded in this publicly declared mission. The strategic plan identifies four planning levels that can be represented by the acronym MOST.
Mission >> Objectives >> Strategy >> Tactics
Objectives are specific goals that need to be achieved in order to fulfil the mission; they constitute the various priorities, projects and activities that naturally flow from the mission. The strategy describes how the objectives will be achieved and in so doing, it specifies key policy directions and identifies the real and financial resources needed. Usually there are a variety of approaches to delivering policies and acquiring and using resources. The organisation therefore also needs to consider its tactics. Tactics determine what the business does on a day-to-day basis to achieve its objectives. Tactics determine immediate actions.
The four key aspects of business planning
Inevitably, a business plan contains a lot of detail. However, we can summarise the general purpose of business planning by reference to four key activities: assessing, determining, developing, and monitoring.
- Assessing the organization’s current position with regard to its performance, resources and business environment.
- Determining its priorities and objectives for various planning periods (the long, intermediate and short term).
- Developing action plans and using its resources to achieve these time specific aims.
- Monitoring performance against the plan on a regular basis.
Figure 1 The Classification of Business Planning Functions
These four key of business planning functions permeate the overall planning process.
The Overall Business Planning Process
Below the Strategic (or ‘Business’) Plan and the Corporate (or ‘Company’) Plan sit the Service Plans for each service area, for example Production, Personnel, Sales & Marketing, Property Services, Customer Relations, Financial Services, and so on. These contain the relevant key tasks for each area. These are drawn down from the Corporate Plan but also include local performance indicators and additional key tasks where these are considered necessary. Progress against the tasks in these plans is reported by members of the management team to the Executive (or a senior officer in the case of a local authority) on a regular basis (typically quarterly). If the organization embraces the principles of ‘total quality management’ (TQM), they should then be reported to all staff. Any significant operational problems that emerge as a result of this process should be reported to the appropriate management group or council committee (in the case of a local authority) or relevant committee of the Board of Management (in the case of a social enterprise).
 TQM is a management approach that requires everyone in the organization to be engaged with, and accountable for, client satisfaction.