Services To Tackle All Aspects Of Business From Managing Finances Integrative Business Planning – Managing Complexity

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Integrative Business Planning – Managing Complexity

introduction

Business planning is usually done when a business plan is needed for financing purposes or to be used as a guideline for a business (as a start-up or for another time frame). Many important features of the business need to be addressed and balanced in this planning process. Various options, issues and risks related to these facilities will be considered.

Entrepreneurs often assume that one variable has a linear relationship with another (for example spending $x on marketing generates $y revenue on sales). Business, however, is rarely that simple. Many multi-directional relationships occur between different traits. For example sales will also be affected by product quality, price, etc. Sales, on the other hand, will influence future expansion. An integrated business planning process is required to meet this eventuality.

Important issues in business planning

Every business is different and important issues in one may not arise in another. However, the important thing is that business planners analyze and plan all the relevant features for their specific business. This usually includes the issues highlighted below.

  • business – It is necessary to ensure that the opportunity, the business concept, its products, services and strategies and the industry in which it operates are sound.
  • Marketing – Marketing strategy needs to be considered. This includes aspects like pricing and promotion.
  • market research – This is an important issue that is often overlooked. It is important to know and understand the customers, market size and trends and who the competition is.
  • development – All issues related to the development of new products, services, markets and facilities should be planned for.
  • Operation – All aspects should be considered regarding what, where and how to operate.
  • group – The management team needs to match the needs of the business. It would be better to establish what skills/functions are required and then assign people to them. Where skills are lacking, training programs can be implemented and new people hired. It is necessary to plan for the overall organization and structure of the board of directors, management team etc.
  • financial – Finance is the ultimate measure of business success, but it cannot stand on its own. Important financial issues typically involve investment-, financing- and dividend decisions and policies. Planning for turnover (sales), gross profit margin and cost control (expenses) is also important. The relationship between these issues (financial ratios) requires further planning to establish whether the business will be profitable, liquid and solvent. Return on investment (ROI) and sustainable business growth will be specific aspects to consider for example.
  • risk management – The various risks that arise need to be identified, analyzed and resolved. Fatal errors need to be eliminated. Operational- and financial risks can often be hedged. It will impose fixed costs and strategies such as manufacturing in different countries and buying and selling futures and options in different currencies.

The complexity of a detailed business plan

A quick review of the brief summary of important issues to consider gives a glimpse of the complexity involved in business planning. If we only look at financial issues we will see that price will affect sales (turnover). The lower the value, the larger the physical volume will normally be (unless the image requires a higher value). Turnover and gross profit, however, need not be high. There is usually a good balance that exists between price, sales volume, turnover and profit.

To make it even more complicated, turnover, costs and profits and the timing there of have a direct impact on the company’s cash flow (a very important issue). This whole aspect is further complicated by investment- (capital expenditure), financing- (equity or debt?) and dividend decisions. Spending too much on plant, having too much debt and paying too much to shareholders will have a negative impact on the company’s sustainable business growth and reduce achievable targets. This scenario shows only a fraction of the various aspects that need to be balanced within the wider financial sector.

Unfortunately the complexity of the example does not stop with finance. Finance influences many other important aspects of business. On the other hand many other important aspects also influence the economy and each other.

For example, financial decisions have a direct impact on business growth (such as geographic expansion and new product development), marketing expenditures, and people employment and development. All these issues will have an equal impact on economic issues and on each other.

An integrated business planning approach

A common tendency in business planning is to address each issue independently and then put the pieces together and re-plan if nothing makes sense. A business plan often begins with some projected turnover and profit figures in mind. Then from there it all works backwards.

A very good option is an integrated business planning approach. The following steps are required to do this:

  1. Determine all the key features of the business.
  2. Determine the relationship between these key features.
  3. Try and solve each of the features while taking into account the casualties and effects of the other features.
  4. Use “what-if” questions to create better overall solutions.

summary

The idea in business planning is not to optimize one aspect of the business and neglect or ignore others. Various relationships (causes and effects) need to be fulfilled in an integrated manner. Neglecting an important key feature or relationship can threaten the survival of the entire business.

Copyright © 2008 by Wim Venter. All rights reserved.

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