Strategy to Budget – Seven Types of Plans For Building Sustainable Advantage


A plan is a proposed statement of direction and course of action to achieve a desired result. The planning horizon is the period over which the end-result is expected to be delivered, and can range from months to years. The planning cycle either refers to the process by which plans are prepared, or represents the time frame between planning activities. The budget cycle is the most common, and is usually annual with quarterly updates aligned to the fiscal year.

Many enterprises have planning methodologies that describe the scope, objectives, approach, estimating guidelines, deliverables, roles, and responsibilities of the activities. They also have formal schedules for preparing plans that tie to financial reporting periods. However, sometimes it is necessary to prepare or update a plan at any time as, or as a consequence of, a “hi-spot” review – an “ad-hoc” project to determine the impact of new innovative ideas on existing plans, programs, and projects.

The seven types of plans are:

  • Strategic plans: long-term statements of direction – typically three-to-five years or more, with short-term initiatives as necessary from the point of departure to one-to-three years out. Strategic plans decompose into enterprise aspiration and industry position and posture, competitive position and posture, performance improvement, constituency-based, functional, and governance components. Strategic decisions are made in the present about the future, and are about doing the right thing.
  • Information technology strategy: a special case functional strategy because information technology impacts all functions within the enterprise.
  • Tactical plans: activities to implement strategy – tactical decisions are those made in the present about the present, and are about doing things well.
  • Operational plans: address sales and production activities – quantifiable targets in terms of markets, products and/or services, and constituencies based upon market share and penetration, product and/or service usage, satisfaction, quality, time-to-market, cycle time, productivity, and asset capacity and utilization.
  • Financial plans: pro forma sets of projected financial statements with assumptions. These plans represent the translation of tactical and operational plans into financial targets in terms of revenue, costs and expenses, profits, cash flows, financial capital, operating capital, investment capital, and returns on investment based upon rates, quantities of input, and volumes of output.
  • Business plans for financing: abstracts of strategic and tactical plans aimed specifically at raising capital from third-party investors – applicable to both private and public enterprises, and commonly used by early stage entrepreneurial enterprises. Financing plans can also be used for internally for bootstrapping new product lines, business lines, and business units, or for research and development initiatives. Plans are funded when commitments are actually made and when sources are available.
  • Budgets: annualized financial plans at working levels of detail. Budgets are the translation of strategic, tactical, operational, and financial plans into specific period-based financial and non-financial goals.

Plans are implemented through programs, projects, and perpetual processes within and between functions.

Periodic checkpoints should be established to review progress and measure performance as plans are deployed and executed. A feedback loop should be established between performance measurement and planning and policy development activities so that adjustments can be made in estimating guidelines, projections, and assumptions accordingly.

Developing plans is an enterpriship (entrepreneurship, leadership, and management) competency.

Source by Nigel Brooks

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