CREATING AN OPERATING PLAN 129
Documenting the strategy
You now should be ready to document your strategy. You will recall that the required five
steps are as follows:
1 Identify the domain sought – market niche, unique products, etc.
2 Explain your competitive advantages in pursuing that domain.
3 Introduce the strategy that you have devised.
4 Specify your objectives.
5 Outline the potential rewards (we will really bring out the rewards in the financials
– especially in Chapter 10).
An example is shown in Figure 6.4. Over to you again.
‘If there’s a way to do it better … find it.’
THOMAS A. EDISON
Creating an operating plan
By now, you could be thinking that I have dwelt very heavily on developing the strategic
part of the plan. Maybe I have, but for two good reasons. First, business managers rarely
seem to have enough time to think about strategy and I thought it was useful to spend
more time on this topic. Second, when the strategy and related objectives are carefully
defined, the operating plan becomes almost self-evident.
You need to develop the following operating plans:
one at a broad, high level of detail for the business as a whole; and
one more detailed plan for each functional department.
I think that business plans work best when they are developed using
a modification of the objectives down, operating plans up method. The
modification is that ideally department managers – and where appropriate
their deputies – should be involved in both setting the strategy and strategic
objectives and developing the plans. The gap between the two activities is then
bridged by people who understand and (in an ideal world) support all the concepts
and processes.
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130 CHAPTER 6 THE CORE OF YOUR PLAN
The broad high-level plan will identify major linkages and critical paths. It provides the
framework for developing the departmental operating plans. As with every other step in
producing a business plan, this is an iterative and interrelated activity. In reality neither
the broad, top-level plan nor the departmental plans can be produced in isolation.
The operational plans will each produce a series of operational objectives. Sometimes
these are more milestones to be reached rather than targets to be hit, but the more mea-
surable they are the better (this is discussed again in Chapter 13). For example, the plan
for the finance department might include a repetitive cycle for paying salaries. The oper-
ating objective would be similar to this:
Ensure that all casual labourers are paid their salaries at 3pm each Friday or if it is a public
holiday on the preceding working day.
If you then had a standard procedure for paying wages (underpinned by your wages
policies), and objectives in the plan were translated into personal objectives for employ-
ees, everyone would know exactly what they were expected to do. Carrying this through
to the whole business:
operating employees follow the operating plan, carrying out the standard
procedure for each activity;
department managers ensure that the operating plan is working by ticking off the
achievement of the operational objectives;
the chief executive ticks off the achievement of strategic objectives; and
the directors play golf.
Everything runs like a well-oiled machine. Well, maybe. But I am getting ahead of myself.
Chapter 13 provides guidance on how to execute the plan.
OPERATING PLANS IN GENERAL
It helps to think about every operating plan as comprising one overriding project plan
and a series of smaller project plans. Purists will argue that this is a programme-and-proj-
ects-plan but we can ignore this complaint for the sake of achieving a practical result.
The list on page 132 indicates nine steps that you can undertake to help
ensure that any plans work. The first step, breaking the required activities
into the smallest component activities, is an important initial step. Doing
this makes almost anything seem more manageable.
CREATING AN OPERATING PLAN 131
There are many well-known techniques that help you analyse and illustrate the link-
ages, critical activities and risks. Four of these are outlined below:
PERT (programme evaluation and review)
This was developed by the US Navy in 1958 to help co-ordinate a massive 3000 contrac-
tors and agencies working on the Polaris missile and nuclear submarine project. PERT
deals well with unknown time-scales and incorporates probabilities that activities will be
completed on time. It does not include consideration of costs (why should it, the Navy
spends public money).
CPA (critical path analysis)
CPA originated on the European side of the Atlantic at about the same time. This has
greater emphasis on known completion times (expected and fastest or ‘crash’ times).
Network diagrams
These are spiders’ webs, with each thread representing one activity. They are arranged in
order and come together at required coincident events. These help plot critical paths (see
page 132) to completion of the project.
Gantt charts
Developed a century ago by none other than (as you guessed) Henry Gantt, these are bar
diagrams that help document a plan.
These techniques can be usefully combined. Figure 6.5 illustrates one way of doing
this. The illustration is highly simplified and shows some of the activities that have to be
undertaken prior to opening a new retail outlet.
It is very easy to draw up project plans using computer software
applications for project planning. These allow you to record information
about the project, make changes with relative ease, and view project
information in various ways. Options range from the free and relatively simple
GanttProject (good, as its name suggests, for making Gantt charts) to the wide-
ranging and costly Microsoft Project (which requires some effort to master). You are
in a happy situation if you already have project planning software and know how to
use it. Do not rush out and get it just because I have mentioned it here, but it can be
a pretty useful tool.
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132 CHAPTER 6 THE CORE OF YOUR PLAN
The critical path
The linkages (arrows) included in Figure 6.5 show the critical path. Each activity on the criti-
cal path has to be completed before the next can begin. This path is actually the longest
path through the diagram – and the shortest possible time to completion of the project.
Assuming a 7-day week, this critical path requires 52 days (allowing 1 day for deliv-
ery). This is the expected time to completion. Unless the time taken for these activities can
be shortened, the project cannot happen any faster than this. If the target is to open on
1 June, the slack time in the overall project is 9 days.
Fastest and slowest completion times
If for each activity the minimum and maximum completion times are noted, you can then
identify the earliest and latest likely completion dates. Remember to check that these
extremes do not change the critical path. For example, if the legal adviser can shorten
step one (completing the premises lease) to 5 days, the critical path becomes the 43 days
defined by the inventory activities numbered 9 to 12. If you assign probabilities to each
time period, you can calculate the probability of opening on time.
Start and end dates for each activity
You can also work through the chart identifying the earliest and latest start dates for each
activity. As shown, the inventory planning can begin on any date between 1 and 9 April.
Activities such as this with slack time may yield resources for other tasks.
Nine steps to successful project planning
1 Break the project into the smallest possible component activities.
2 Identify linkages and critical paths.
3 Order the activities, with the critical and higher-risk ones scheduled as early as
possible in the project.
4 Set measurable targets for each activity – preferably at least one a week.
5 Assign responsibilities.
6 Set up a mechanism for tracking the reporting on each target.
7 Establish a culture that encourages problem reporting the instant that a
possible difficulty, delay or other unwanted situation comes to light.
8 Execute the plan, ticking off the completed activities.
9 Act immediately if a target is missed or a problem report is generated.
CREATING AN OPERATING PLAN 133
Making it more useful
In practice, all other linkages would also be drawn – such as those linking activities 3 to 7
in sequence. You can also include responsibilities, probabilities, maximum and minimum
times, costs and so on. We will look at costs in the following chapters about financials.
Chapter 11 introduces techniques for assessing probabilities relating to completion time,
costs, etc.
Legal
1. Review and sign lease
2. Obtain permits
Fitting
3. Brief interior designers
4. Design time
5. Review and approve designs
6. Order fittings, etc.
7. Install flooring
8. Install shop fittings
Inventory
9. Plan and order
10. Order processing
11. Take delivery
12. Stock shelves
30 Days
5
3
5
14 Days
7
3
9 Days
3
30 Days
9 Days
April May
Figure 6.5 Charting your way through a project
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