A Better Approach to Planning Initiatives

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Planning initiatives or (to use a more formal word) projects can be challenging. Most business is process- rather than project-oriented.

Processes are routine and have well-defined inputs. Making a widget requires these materials and so many labor hours. A sales call involves the following steps and these pieces of collateral. You execute the monthly close in a set pattern.

Projects or initiatives, on the other hand, are irregular in both time sequence and resources used. Projects are planned as discrete efforts while processes are recurring and routine and so do not require definition before they are started.

Laying out a project/initiative plan and the budget that goes with it may not be difficult. However, adapting the plan to changing circumstances, calculating the financial impact of those changes, and assessing performance to the plan can be time-consuming and ineffective if you don't use the right software.

If initiatives or projects have a visible impact on your bottom line, you should look into improving the way you plan and review them.

There are some industries, such as engineering and construction, that deal almost exclusively in projects, so they often keep their books and plan their business using software designed to manage projects. Mainstream ERP, accounting, and planning applications do not handle projects or initiatives well because they lack the ability to orient and manipulate sets of activities and their related financial characteristics (such as revenues, expenses, and cash flow) along a time dimension.

By contrast, project orientation makes it easy to adapt a plan to reflect schedule changes such as a delay in one aspect of a project that creates delays elsewhere. It takes considerably more work to do this in general planning tools and spreadsheets. Moreover, initiative- or project-oriented systems automatically calculate the financial consequences of the delay on revenue, expenses, and cash flow.

Almost all process-type businesses have projects or initiatives, but often these can be handled using their core software. For some of them, however, these projects/initiatives are large and frequent enough to warrant special attention, especially if managing the full planning-to-review cycle is business-critical. For example, a fast-food chain or an asset-heavy services business needs to plan and manage ongoing construction and capital projects. These organizations routinely adjust their capital programs to respond to economic or market conditions as well as unplanned developments in their projects, so they must continually adapt their revenue, expense, and cash flow forecasts to reflect the evolving market demand and capacity supply elements of their business.

Similarly, mature companies in capital-intensive businesses may build new facilities infrequently but need to plan and manage initiatives such as expansions as well as major maintenance, repair, and overhaul (MRO) activities, especially if they do not have MRO software that is capable of handling the planning and performance evaluation aspects of these processes well. Hotel chains, for example, are consistently performing upgrades to their physical plant that can take rooms out of inventory for a period and involve considerable costs.

The large majority of these process-type companies are getting by today in managing these small and infrequent initiatives without using project-oriented software. They do what they've been doing for decades, usually planning and tracking them in spreadsheets. Some individuals may be using project software to manage the resource scheduling aspects of these initiatives/projects. Unfortunately, they may struggle to incorporate the financial elements into these plans and, in any case, their individual plans may not be integrated into their company's main planning and budgeting process and systems.

However, I believe that there is a better way, one that will enable them to manage their operations more effectively and improve the performance of these projects.

“Initiative-based planning” is the term that software vendor Planview uses to cover these sorts of project-oriented activities in companies whose core business model is not project-driven. The company has adapted its project planning software to enable departments and business units to plan the aspects of the business that happen frequently but irregularly, that require a significant but different set of resources, and that can have a noticeable impact on the corporation's top and bottom lines.

Currently, companies use various approaches to plan and track these efforts. Although some are better than others, they take more time and do not provide the kind of detail, precision, and accuracy that project-oriented software can. They do not enable companies to adapt easily to change or to do the kind of real-time contingency analysis that helps them to make better decisions more consistently.

People in finance departments or in the project-oriented parts of the business that need to plan operations and their financial consequences should consider replacing their spreadsheets or conventional planning tools with software that helps them to plan, manage, and review projects. But these sorts of tools are designed to complement a company's corporate planning applications, not replace them. In practice, the output of initiative-based planning software – especially the financial aspects – feeds directly into their main enterprise planning system. This cuts the effort needed to update forecasts and plan contingencies. It also enables companies to do more incisive analyses so that they can assess more aspects of the performance of the project-related elements of their business.

Note: Professionally, I focus on how companies can best use information technology to achieve better results. This blog is designed to offer readers information, perspective, and informed opinions. Vendors mentioned in my blogs may or may not be (or have been) clients. My aim is to be objective; you are free to take my views with how many grains of salt you wish. ###

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Robert Kugel supplies the Business Finance community with reporting and commentary on the intersection of finance, software and systems.

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