In the previous installment of this series, we laid out the performance management lifecycle and its four phases. We also explored in detail the first phase of the PM lifecycle, strategize and prioritize, where we develop and set the strategy, plan risks and set KRIs, plan compliance and set controls, and put together strategic action plans and initiatives. The next phase, planning and execution, gets into the details of planning the strategic initiatives both from a financial and operational standpoint. The details of this phase can be depicted as such:
Align Corporate Budget to Departmental Budget and Link Corporate and Departmental Initiatives
The budgeting process takes each of the outcomes or actions from the planning process and aligns revenues and expenses against them. Decisions regarding investment priorities and resource allocations define how the company will operate and set the bar for measuring performance.
To create risk-adjusted budgets, incorporate the range of possible revenues and costs of each action into the budget at the appropriate organizational level. A risk-adjusted budget is one that responds to changing circumstances, providing the financial capability to react to events in a planned, proactive manner. Align risk adjusted budgets with contingency plans should risk events occur, or if risks exceed the acceptable threshold to achieving budgets.
Align Departmental Budget to Departmental Operational Plans
The operational planning process links the financial budget to specific operational factors. Plan out each step of each initiative. Consider what risks you have in each area of the operational plan. For example, in a risk-adjusted operational plan, for every decision to allocate resources to one set of operational activities versus another, you determine the impact and probability of the highest priority operational risks on those individual line items and use this to set a range of expected and forecasted values instead of fixed values. If the risk materializes, you would want a contingency plan in place that showed the performance and risk implications if we moved the budget from one initiative to another.
Forecast Performance and Risks
Create rolling, risk-adjusted forecasts of the budget (revenues and costs) and operational plan (including number, capacity, and cost of resources necessary to achieve plan) so that you can see trends over a rolling time horizon for those risks whose probability, consequence, and resiliency over time. That way if you have to make adjustments, you can see where you’ve been and the direction in which things are likely to go. Predictive analytic techniques can be a particularly powerful tool for building risk-adjusted forecasts by modeling the impact previous risks had on previous forecasts.
This step is essential but obvious; put the plan into action. Be prepared to execute on the type of risk associated with the plan once the threshold or tolerance is exceeded.
In the next installment, we’ll look at the the monitor and analyze phase, which is most traditionally associated with reporting and dashboarding capabilities in the business intelligence arena.
(Cross-posted @ Strategy-Driven Execution)