the nested planning cycle 160516

The Nested Planning Cycle

Carpe Futurum


Strategic Long-Range Plan

Annual Plan

Rolling Monthly Update

Execution

Refined from Strategic to Execution

“If you don’t know where you’re going, any road will get you there” – Lewis Carroll



Annual Plan

Rolling Monthly Update

Execution

Structured Strategic Planning

supports

Annual Plan

supports

Rolling Updates

supports

Decisions &Execution

Many tenets borrowed from Ram Charan, Northwestern

University Graduate School of Management (pre-Kellogg)

Rolling 6 MosRolling 6 MosRolling 6 Mos

Strategic Long-

Range Plan


Year 5Year 4Year 3Year 2Year 1

Jan Jan

Annual Plan

Rolling Forecast

Rolling Updates

Execution

by quarter yearly totals

by month


Jan Jan

Annual Plan

Rolling Forecast

Rolling Updates

Execution


by month

The Nested Planning CycleStrategic Long-Range Plan (SLRP)

Strategic Long-

Range Plan




Strategic Long-Range Plan (SLRP)

• Structured• Done Annually• Multi-Year Horizon (5-7 Years)• Market Analysis by Strategic Business

Segment (SBS)• Internal Analysis by Strategic Capability

Segment (SCS)



• Market Models• Competitive Analysis• Market Segment Attack/Defense Plan• Capacity Plan• Technology Direction• Capital Requirements• High-level Financials by SBS• Data: Volumes, Pricing, Dates/Deadlines, Financing

Output:

This is not a Holiday from “Real” Work



• Structured – Ideally, Professionally Facilitated• Tangible Results• SLRP Horizon Typically 5 ++ Years, Practical Considerations:

o Product Life Cycleso Leadtime of Capacity Additions

• Done Annually – usually ~4-6 months before the Annual Plan


The Firm

Strategic Business Units

Strategic Capability Units

~ Profit CentersMarket Focus

Cost CentersCapacity Focus

Technology Focus

80% of the SLRP Effort 20% of the SLRP Effort


“The Market Segmentation – Product Definition Dance”

• This is a big, important part of the SLRP• What Market Segment(s) are you Targeting?• What is your Product? …your Complete Product?• How is the Product Tailored to Command the Segment

and Defend the Segment from Competition?



• Market Segment: a group of customers who share desires, needs, and buying patterns

• Market Segments are numerous – too numerous• The important (SLRP) process is to Pare to a handful of the most

important Market Segments




Market Segmentation Analysis is an art with many, many Drivers --some of the more common Drivers:

• Quality Needs• Distribution Channels• Service• Price• Geography

• Documentation Support• Credit• Customer Size• Brand Image• Consumer Age

• Sex of Consumer• Ethnicity of Consumer• Socio-Economics• Training Required



What is your Product? …your Complete Product?

Engineering creates devices, or structures, or “things”

Marketing creates Complete Products:

The brewmaster creates the beer, but Marketing creates the product…a six-pack, sold through supermarkets, delivered cold, that connotes certain personality traits of the drinker


Some CompleteProduct Attributes: • The Device (the “Thing”)

• Post-Sale Service• Design Aids• Warranty & Return Policy• Documentation• Delivery• Training

• Software• Spare Parts• Financing• Applications Engineering• Upgrade-ability• 3rd-Party Extensions



The Primary SLRP SBS function is to Define or Re-Affirm the Market Segments to pursue, and construct Complete Products to exploit these Segments

Market SegmentComplete Product

attributeattribute...



Then, the hard work of research, analysis, and data management, by Product-Segment, ensues; Tangible Output is generated:


• TAM/SOM (Total Available Market / Share of Market)• Competitive Analysis – Products, Strengths & Weaknesses, SOMs• Sales by SLRP Time Period – Quantities and Dollars• Product Life Cycle: Introduction, Penetration, End-of-Life• Investments Estimated (New Product Attributes, especially)• Competitive Entry Barriers Defined or Re-affirmed



Year 1Q1 Q2 Q3 Q4 Year 2 Year 3 Year 4 Year 5

Product – Market Segment:

Unit VolumeRevenueInvestmentProduct ROI

TAMSOM



The Market Segmentation -- Product Definition process should answer the question:

How will the product achieve a commanding and defensible position in the Segment?

What Competitive Market Barriers exist or can be constructed?



1) With Input summed across the SBS’s, Capacity additions/retirements are defined

2) Product Development and Manufacturing Technologies defined

• Capital Requirements• Timetables

3) Rough-Cut Cost Guidance for the SBS’s generated; Margins Analyzed4) Strategies and Tactics that supersede the individual SBS’s defined and analyzed

SCS’s



1) With Input summed across the SBS’s, Capacity additions/retirements are defined

o Data generated for the Site Selection Processo Capacity shortfalls identifiedo Prioritize Product Support using Strategic or Financial Criteria (margin

per constrained unit of resource) – Feedback to SBS’so Compile a Capital Plan



2) Product Development and Manufacturing Technologies defined

o Automationo New Product Design Technology (e.g., CAD Tools)o Timetableso Capital Plan Compiled



3) Rough-Cut Cost Guidance for the SBS’s generated

o Validate SBS Product Pricing and Marginso Use in/for Product, Capacity, Technology ROIs



4) Strategies and Tactics that supersede the individual SBS’s defined and analyzed

• Corporate-level Strategies• For example, an investment in a European Service Center that is used

by all SBS’s in supporting their European accounts• New Product Attributes, as proposed by one or more of the SBS’s

need to be assessed; example: extending credit terms

The Firm


• Ensure the Aggregate Total makes sense• The CEO & Executive Staff bless-or-kill (or modify) SBS & SCS Strategies…

…Sanctioning

• High-level Financials generated…and…Value of the Firm• Fodder for Capital/Financing Strategy• SLRP Data Finalized (for the various planning exercises throughout the year)




Rolling Forecast

Rolling Updates

Execution


The Nested Planning CycleThe Annual Plan

Jan Jan

Annual Plan

by month


• Highly Structured• Done Annually; usually 4-6 months after SLRP• SLRP Year 1 “Drill-Down” Exercise• ~ 15 Month Horizon (i.e., remaining months of

current year + 12 months of the Plan Year)


The Annual Plan’s Purposes and Output:

• Goal-setting• Budget determination – Zero-Based Budgeting (ZBB)• Master Schedule Determined; Constraints managed• Materials Purchasing Plans Determined• Project Staffing, Deliverables, Timetables Validated/Reset• Detailed Forecast Financial Statements; Cash Planning• Basis for Incentive Plans• Detailed plans developed for SLRP SCS and SBS Investments


SLRP Year 1 ”Drill-Down” Exercise

Detailed Demand Forecast

• Unconstrained – if you don’t ask for it, you know you won’t get it• Inputs from the Field Sales Force, rationalized by Marketing Mngt.• Product quantities and pricing by month

Manufacturing Response/Commit – The Master Schedule

• Master Schedule determined; Constraints (Product Quantity Shortfalls) resolved using Strategic and/or Financial criteria

• Costs and Margins Forecasted


Detailed Operating Budgets Determined• Headcount• Spending• Project Deliverables and Timelines Validated/Updated

Zero-based Budgeting is an Annual Necessity


What’s a Zero-Based Budget (ZBB)?

Simply: No Baseline starting point; no blind % increases

All Budget Elements and Amounts are scrutinized and justified anew, for example:

• Headcount (of course)• Floor Space• Office Equipment

• Travel• Outside Services & Contracts

ZBB – “Every Dollar has a Name”


ZBB + Driver-Based Budgeting (DBB) = Good Combination … DBB?

DBB…Identify the fundamentals that Drive Spending, such as:

• New Product Introductions drive Advertising Spending• # of Manufacturing Job-Orders drives Production Control headcount• Specific Machine Usage drives Spare Part Consumption


Annual Plan Project Management• Resource Deployment by Project• Determine/Update What’s Delivered and When

J F M A M J J A S O N D

Project AProject BProject CProject DProject E

Resource XYZ

1 2 2 3 3 2 2 1 11 1 2 2 3 3 3 2 1 1 1

4 2 2 “ZBB Line”

No Support

Support



Jan Jan

Annual Plan

Execution


by month

The Nested Planning CycleRolling Monthly Updates

Rolling Updates

Rolling 6 MosRolling 6 MosRolling 6 MosRolling

Forecast


• Highly Structured• Done Monthly• Update to the Prior Month’s Update and the Annual Plan• ~ 6 Month Horizon (Materials and Labor Leadtimes determine)• Purposes and Output:

o Master Schedule; Constraints rationalizedo Budget updates – but, NO Zero-based Budgetingo Project Staffing, Deliverables, Timetables Validated/Reseto Detailed Forecast Financial Statements; Cash Planning


• Process and Results very similar to the Annual Plano Unconstrained Demando Manufacturing Response; Constraints Managedo Detailed Budgets and Headcount Forecastso Materials Purchasing Plans Revisitedo Project Resource Deployment Reviewed/Updated

Rolling 6 MosRolling 6 MosRolling 6 MosRolling 6 Mos

The Nested Planning CycleExecution

Hire, Spend, Commit, Procure as per the Approved, Current Rolling Forecast as Items roll within Leadtime

Compare Actuals vs the Rolling Forecast AND the Annual Plan

Incentive Programs Payout accordingly

Ready, Aim, Fire

Plan, Update, Execute

• Should Your Marketing Manager be Doing Your Cost Accounting?• Combating “Whack-a-Mole” Business Management• How Intel took on the Japanese … and Won!• Do you view the World like an Accountant… or an Economist?• Making a Profit Selling $1 Bills for 99¢• The Nested Planning Cycle• ERP – Dare to be Mediocre!• 3/5’s of a Mile in 10 Seconds• Does your Company know its Costs? Take the Quick Test

• Managerial Finance Series:o Integrated Cost Managemento The Cost of Variabilityo Activity-based Costingo Managerial Modeling of non-Manufacturing Areaso Cost-based Pricing – A Bad Ideao Internal Profit Centers – Another Bad Ideao Job-Order vs Process Costingo Plant-Specific vs Like-Plant Costingo Fully Absorbed vs Direct vs Incremental Costingo Complete Unit Integrity (CUI)o Is Direct Labor Really Direct?o What’s a Joint Cost?o The Cost of Capacityo Inventory Valuation Methodso Zero-based Budgeting & Resource Deploymento Yield Loss or Scrap?

Jeff [email protected]

Most of these presentations were originally created and delivered as part of Intel Corporation’s internal training and employee development program, known as “Intel University.” The author updated them for more general use in 2016.

from Jeff Johnson

the nested planning cycle 160516

Economy & Finance