Last week, we discussed financial planning and how it fits into the overall framework of integrated business planning.? This week?s post focuses on project planning.? Let?s first take a look at the three functions of managing a business: Running the day to day operations of the business; Transforming the business based on to the new demands of customers and changes in the economy; Growing the business; project planning focuses on the Transforming and Growing aspects of a business.? Project planning monetizes the cost and benefits of Capital Expenditures (CapEx), and Strategic Expenditures (Stratex).? Its objective is the efficient allocation of capital and resources to maximize shareholder/owner value consistent with the strategic plan.? To achieve this objective, project plans need to be considered as separate entities with separate Income Statement, Balance Sheet and Cash Flow.?? ?
Project Planning
The diagram below shows the relationship between project planning and the financial and operational plans as well as scenario management using an Excel metaphor.
Project Planning Diagram
In the diagram above, project planning is shown in the center cylinder labeled ?Capex and Stratex Projects.? Each spreadsheet in the center cylinder represents a separate project, with complete Income Statement, Balance Sheet and Cash Flow.? Collectively the cylinder represents the complete portfolio of projects across the entire organization and divides the projects up into three categories:
- Potential projects ? these are projects that have never been started but are ?on the drawing board.?? The level of detail in each of the plans may vary from a ?back of the envelope? calculation to detailed timelines, resource requirements and financial statements.
- Approved projects ? these are currently approved projects that are in implementation.? While operational and financial plans mentioned in prior posts may be updated monthly or quarterly, these projects are continually updated.
- Projects on hold ? these are projects that have been started and for some reason have been placed on hold.?
The key thought being conveyed in the diagram is each project plan needs to be treated as an independent entity that impacts both operational and financial plans. ?The system must have the flexibility to move these projects in and out of different forecasts and ?what-if? scenarios to measure the impact on required funding, operations and financial results.?
Transparency and Flexibility
The combination of driver based planning, discussed in the previous two blog posts, along with project based planning and the ability to move projects in and out of a plan provide the ?levers? integrated business planning requires creating a dynamic planning environment.
For a more detailed look at the templates and models behind project planning check out the white paper ?Achieving superior financial flexibility through project budgeting and planning?.
The models above fit in the overall IBP framework of the post on July 25, 2011 (click here to review) as shown in the diagram below:
Project Planning within an Integrated Business Planning Framework
Project planning is typically an ongoing process.? Initial projects may start with a ?back of envelope? calculation and are refined and ?tightened? as their feasibility and probability of execution become more certain.? As mentioned above, project planning requires the ability manage a portfolio of potential projects and move them in and out of the plan depending on economic conditions, market conditions, competitor actions and the company?s strategic plan.? Next week?s blog will focus on the strategic planning process and how it drives both Stratex projects as well as the financial and operational plan.
Source: http://www.fact-based-decisions.net/?p=709
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