5 Easy Steps to Develop an Annual Operating Plan
Planning is the only way to minimize inefficiencies and allocate resources properly to ensure the best outcome. In the business world, planning is a requirement for streamlining operations and fixing the mistakes that caused problems in the past. Regular planning will help to focus on what's really important, achieve growth, and increase profit margins.
During the planning process, it's important to write both short-term goals and long-term goals. Short-term goals are better for maintaining day-to-day operations because they can easily be attained by taking a series of small-steps. While long-term goals are also an effective motivating factor, they cannot be achieved without several years of meeting small-term goals.
Successful companies outline their smaller goals in annual reports to optimize performance tracking and focus on improving future operations.
Build an Annual Operating Plan in 5 Steps
An annual operating plan is a written report that describes the finances, budgets, key performance indicators, and other resources required to meet short-term business goals.
It is used as the foundation to carry out daily business activities, pinpointing the projects and objectives required to meet key targets.
An annual operating plan always covers the following year and is written to address important questions related to the business and its goals. These include-
- What business units perform key tasks?
- Who is responsible for overseeing these projects?
- How many resources are needed to perform key tasks?
- Is there any sort of financial risk involved in working towards these goals?
- How can the organization mitigate disruptions and risks to ensure success?
An annual operating plan is more limited in that it focuses on optimizing internal workflows and customer relationships to streamline operations and achieve key objectives.
An annual operating plan includes the following components-
- Goals
- Business Activities
- Desired Results
- Standards to Maintain Quality
- Hiring Requirements and Current Employee Requirements
- Milestones and Timeframes
- Metrics Used to Track Performance
How to Create an Annual Operating Plan
The primary purpose of an annual operating plan is to help a company focus on what's important so it can achieve growth objectives for the following year. It serves as a motivator and ensures accountability throughout the organization.
Decision-makers can curate job roles and department goals based on what is outlined in the annual operating plan to ensure alignment with key company objectives.
Best practices for creating an operating plan include-
1. Assess the Strategic Plan
An annual operating plan is a tool used to ensure the success of a strategic plan. Therefore, without a strategic plan in place it is impossible to write an annual plan. The business owner should make certain that the strategic plan has all of the necessary components to ensure the quality of the annual plan.
A strategic plan typically includes a vision statement, mission statement, core values of the organization, a SWOT analysis, long-term goals, annual goals, and required actions.
2. Identify Business Objectives
The goals included in the annual plan should be for the following year and are not long-term objectives. Best practices include listing 5-10 simple goals and then listing the actions required to meet them.
This may include improving asset management, enacting quality control techniques, implementing data security measures, or revamping the onboarding process.
3. Pick Key Performance Indicators
A set of KPIs is needed to measure and track the progress towards meeting these objectives. It's better to utilize leading key performance indicators that predict future outcomes rather than lagging key performance indicators that finds trends in historical information.
This is the optimal solution when mapping out goals in the future, as processes are new and cannot always be compared to older processes without more data.
Every objective should be SMART, or specific, measurable, attainable, relevant, and time-bound. It's also critical to review KPIs with all involved stakeholders to gain any feedback and ensure everyone is on the same page.
4. Identify a Tracking Solution
Once KPIs are determined, the company can discern which method to use to track them. KPI dashboards, advanced analytics, weekly meetings, excel spreadsheets, task management software, or one-on-one check-ins are the most common methods to track performance.
It's important to make sure everyone knows how their progress will be tracked to ensure workplace accountability.
5. Communicate the Plan
Finally, it's critical to make sure that everyone understands the new plan, what is expected of them, and what workflows/requirements have changed. At the start of the new year, business leaders should set time aside to communicate the annual plan with each department.
Weekly meetings can assist in tracking the progress towards implementing the annual plan and make certain workers know how to measure their own performance each day.
Key Takeaways
In conclusion, here are the key takeaways to remember about annual operating plans
- An annual plan describes the finances, budgets, tasks, and key performance indicators needed to operate the business and achieve key objectives.
- To write an annual operations plan, business leaders should first find their strategic plan and ensure its quality. They should next identify business objectives. These should be short-term goals that are specific, measurable, attainable, relevant, and time bound.
- After picking a set of objectives, business leaders can determine which key performance indicators will be used to track performance.
- A tracking system must be determined and used to monitor the progress towards achieving these goals. Finally, the plan must be communicated to everyone involved to make certain they are on the same page.
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