26 March 2006

So what's wrong with a formal plan?

A Business Plan is a document which provides a model of the business and articulates a course of action which, given certain assumptions, may deliver particular outcomes. A Business Plan tends to be strategic in nature and considers the development of the business over the 3 to 5 year term. A Plan like this frequently considers the impact of acquisitions or changed resources. It is often written with a specific audience in mind – it should be; the needs of bankers and equity investors are quite different.

The major problem with Business Plans is that they are forecasts. The only thing that we know about a forecast is that it is almost certainly wrong – it is only the size of the error that is in question. The key to success is often not in having a formal plan, but in having a planning process. Plans, like forecasts, don’t survive long in the real world. The unexpected occurs, and all at once, the Plan doesn’t have a scenario which guides management what to do. Plans like that belong in the bottom drawer and that is where most managers keep them.

A planning process, on the other hand, delivers real value to managers because it helps to re-evaluate what is happening and how things can be brought back on track.


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