Whether it is strategic planning, project planning or your own personal planning, planning seeks to define clearly the direction an organisation, a project or you personally is wanting to head and the decisions required to get there.
The need to plan has been around for basically ever. Whether planning the annual woolly mammoth hunt or provisions for a long winter in a rugged mountain cave, planning has been critical to survive. As the centuries progressed great fellas like the following would attest that planning has remained critically important. I like to simply say, “What gets planned gets done!”
For this article I will introduce the strategic planning process and the strategic plan, a very important document for all businesses. The strategic plan is critical for organisations like those in primary health and aged care for their medium to long term survival. The article then stresses how the strategic plan must link to its financial reality. That financial reality comes in the form of a financial plan and financial planning gives the strategic plan important rigor.
So what is Strategic Planning?
This is an organisation's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities and Threats) and PEST analysis (Political, Economic, Social and Technological).
In order to determine where it is going, the organisation needs to know exactly where it stands, then determine where it wants to go and how it will get there. The resulting document is called the "Strategic Plan”.
The Strategic Plan Process using Accommodation Supplement
To follow is a guideline for completing your organisations strategic plan. The guideline uses five steps and is from “Bean Soup – Beyond Bean Counting. Steps for Lifting a Finance Function Skill Set towards Adding Value” – refer page 172. And the illustration used focuses on aged care’s accommodation supplement. This is an additional revenue stream not too dissimilar to co-funded patient fees in primary health.
1. Environment Assessment - Assess the environment within which the company is operating and is likely to operate in the future. This includes economic, demographic, technological, social, political/legal, and ecological.
For example: Accommodation supplement is revenue from a private source. Look at the surrounding demographic, what is the social and economic environment for your aged care business location?
2. Market review and competitor analysis - Review and analyse the markets in which it competes or seeks to create, including competitor analysis. Market review typically includes size, segments, growth.
For example: What is the local competition doing? Now required to post accommodation supplement on their website, what can you find out? What is the typical percentage of rooms in the area attracting an accommodation supplement? What value adding extras do they provide? Compare their room/facility quality. Is it a recent build?
3. Performance and capabilities analysis - Review its own performance and understand its own capability and potential. This includes understanding the company’s market positions (SWOT), financial considerations and operational capabilities.
For example: How do we compare? What is our current accommodation supplement, what value added extras can we provide and how many rooms are currently earning this supplemental revenue? Are we falling behind the competition?
4. Development of Company strategy - In light of these analyses formulate the strategy to achieve the company’s potential.
For example: We find that we have less rooms attracting an accommodation supplement and those rooms attract a lower nightly fee. Our analysis indicates the competition provides a higher quality room and value added services. Growing accommodation supplement becomes part of our businesses growth strategy.
5. Setting corporate objectives - Distil this strategy into a set of corporate or business objectives, particularly in terms of profitability, cash flow and return on investment. Also in terms of the organisational context, capital requirement, sales, operations and finance.
For example: There will be a number of objectives that make up your businesses strategic plan. One will be accommodation supplement which the senior leaders and Board will set an objective to grow. They will also know that this will take capital investment with refurbishing rooms that are currently uncompetitive. Some of your strategic plan growth objectives may also require the preparation of a capital business case. This will be the case for the accommodation supplement objective.
Linking the Strategy to its Financial Reality
Financial Planning means different things to different people in different circumstances. It can be related to both personal and business, but for our needs it is the catch-all phrase for the art of planning a financial outcome for a company for the future. We base this off the strategic plan.
Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Usually a company creates a financial plan in conjunction with setting these objectives. It is difficult to have one without the other.
Performing financial planning is critical to the success of any organisation. It provides the Strategic Plan with rigor, by confirming that the objectives set are achievable from a financial point of view.
The most common form of financial planning is the company forecast (and annual budget). This forecast captures the capital plan, sales, operations and marketing inputs and is based on the financial objectives for the period that tie back to the strategic expectations of your organisation.
We recommend that the forecast should be for at least 36 months so that it captures the time to grow those objectives, like increasing accommodation supplement, to their potential.
Financial planning also includes capital evaluations such as the business case mentioned above for the accommodation supplement room refurbishment objective, cost management reviews, product development and funding plans for the bank.
All this explaining aside, I am sure you are well aware of forecasts and annual budgets, what they are and have used them for years. You probably also know that without a supporting strategic plan they are pretty much useless. In a nutshell, without the strategic plan you haven’t really planned ahead and as Benjamin Franklin told us, “He (or she) who fails to plan is planning to fail.”
Source of this article is: "Bean Soup - Beyond Bean Counting. Steps for Lifting a Finance Function Skill Set towards Adding Value." Stuart Bilbrough. 2013. SP.
We can help:
We recommend that all businesses need to have a 3 to 5 year strategic plan with key objectives and outcomes to be achieved linked through to defendable forecasts. We have many years of experience preparing strategic plans and linking this vision through to its financial reality in defendable and clear annual budgets and multiyear forecasts.
Stuart Bilbrough
Peak Care Advisory
Mob: 021 252 5778
Email: stuart@peakadvisory.co.nz
Website: www.peakadvisory.co.nz
