December 2018 Vol. 7 No. 12
charlie goodrich

Budgeting and planning are important, but not for their own sake. That said, doing this well - and regularly - can be quite valuable for any organization. 

In today's newsletter, I offer six suggestions for improving your process for the coming year.
Happy holidays,
Charlie Goodrich
Founder and Principal
Goodrich & Associates
In this issue…
Six Suggestions For Better Annual Planning
Heard On The Street
About Us
Six Suggestions For Better Annual Planning
With 2018 nearly at an end, the rush to meet goals and plans for the year is over. On to 2019 and, for most companies, a new plan and budget for the next 12 months.

Often, about now, companies think that there must be a better way to do all this annual planning and budgeting. Others stopped doing it long ago, but wonder if maybe they should. In the end, someone is usually charged with “fixing” the process so that next year’s plan will be less painful.

Here then, are six suggestions for doing exactly that…

Take a step back and consider, what are you really trying to achieve through all of this work?

Simply look into the future, to know where the business is headed financially ?

Set stretch goals?

Make resource allocation decisions?

Make sure next year’s business plans work financially? 

Set measures to track performance against goals? And if so, how detailed?

In most cases, it will be some combination of these. Whatever the specifics for your organization, start by becoming clear on what you are trying to do — and not trying to do.  

Design a process to get done what you want to get done.

If you have multiple objectives from your plan, break them into parts. 

For example, if you want detailed goals to track performance, such as machine or department productivity, and you also want to figure out and set stretch goals for business units, set the stretch goals first, before crunching through the detailed tracking goals.

Breaking the parts out separately provides both greater clarity and simplicity in your planning and budgeting activities.

Understand who needs to be involved in each step — then limit participation to only those people.

Having only the right people in the room makes all the difference. Not just because it avoids wasting the time of those who are not needed (although that’s important), but also because having the wrong people present can get in the way or preclude what needs to happen.

For example, many years ago when I overhauled the plan process for Kraft Foods, we deliberately limited attendance in meetings that discussed the plans of each particular business unit to the CEO, COO, Strategy head, HR head and the business unit chief in question. This allowed for candid discussions on critical topics, such as whether the business unit had the necessary people in place to meet its goals.

By contrast, when we reviewed department productivity goals, the CEO was not needed or present, and the planning was done with department heads and direct reports.

Use the right financial model for the right purpose.

If you are goal setting or making high level resource allocation decisions, you don’t need general ledger planning detail. Here, a financial model based on high level business drivers and key metrics is appropriate, and modeling the balance sheet may or may not be needed. 

When I ran the annual plan (pain) process for State Street Bank, everything was done in excruciating general ledger/department level detail. There were no models based on business drivers at that time, nor were any wanted. Not surprisingly, State Street really struggled with setting financial goals for the following year.

On the other hand, if the purpose of a planning step is detailed goal setting at low levels in the organization, tons of detail is needed. Note that this exercise is usually cumbersome, so do it just once, after all the other purposes of planning are locked down.

Pick the right time period.

Annual plans tend to be, well, annual. For many of the purposes of planning laid out above, that makes sense. It takes more than one quarter to achieve lasting results and two years or more begs for adjustment sometime before then. So once a year is about right. 

But with detailed department goals, these should be updated quarterly or so. So why plan in detail for a longer period of time?

And by the way, new plans and budgets don’t need to start on January 1. Is there a natural calendar for your business that’s different? If so, go with that.

Don’t forget to project cash flow and the balance sheet.

Depending on the structure and complexity of your business, cash flow, in particular, may only need to be projected and budgeted at a high aggregate level. That said, given most of the reasons why we have an annual plan or budget in the first place, it makes sense to think about the balance sheet, debt covenants, capital needs and so forth. 

Here as well, however, too much detail is a killer. When I ran the budget process at State Street (and it was definitely a budget, not a plan), the balance sheet was budgeted in minute detail by the business units. At the time, I had a department of seven people that tried to force all the intercompany accounts to net to zero (as they should). But why project things that are supposed to net to zero? For State Street, the reason was nothing more than, “This is how we do it.”

But, as I have often said, if you don’t forecast cash flow bad surprises can happen.  Do you really have the cash flow to fund that big capex project? Will borrowing to fund it blow covenants with your lender? Will landing that big new account, who will demand extended terms, suck up too much cash? Overall, make sure your plans are feasible by planning the balance sheet.


Budgeting and planning are important, but not for their own sake. If you’re just going through the motions, you are wasting precious time and money.

Begin by taking a step back and figuring out just what you are trying to achieve. Then apply these tips to do just that — and nothing more. 

P.S. If you’ve already given up on planning, think about starting it again!
Heard on the Street
“US Not the Source of China's Growth, China Not the Source of America's Problems,” says Timothy Taylor , the Managing Editor of the Journal of Economic Perspectives at Macalester College. 

His crisp article focuses on what really drives economic growth. Read it here .
About Us
Goodrich & Associates is a management consulting firm. We specialize in helping our business clients solve urgent liquidity problems. Our Founder and Principal, Charlie Goodrich, holds an MBA in Finance from the University of Chicago and a Bachelor's Degree in Economics from the University of Virginia, and has over 30 years experience in this area.

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