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Conducted as an annual exercise, the business plan is the volume,
cost and profit plan for, typically, the upcoming year. This
is also referred to as the annual budgeting process. Some companies
conduct this as part of the long-range forecasting process, which
cover anywhere from three to seven years.
Business planning is critical for every company, while long-term
forecasting is indispensable for companies with longer
product development cycles. The long-term plan provides the
inputs for capacity planning and other
long-term expansion initiatives.
It is common knowledge that longer-term forecasts
are more erroneous than short-term forecasts. There are more
dynamic variables and error processes at play in determining the
conditions expected to prevail in the future. So it is also necessary
to subject your forecast to a sensitivity
analysis to understand the robustness of the forecast if
the underlying economic and business environment changes. DemandPlanning.Net
has developed a unique methodology to develop long-term forecasting
and analyzing the forecast sensitivity.
Often the annual Marketing Plan is
the driver for the demand information in the annual budget. The
Marketing Plan is developed with a volume forecast for the year
along with the spend levels necessary
to create and sustain the expected demand for the products. The
process for Market share forecasting is explained
here.
Marketing-mix modeling is a key component
of developing the Marketing Plan.
The Business Plan or the annual Budget often follows the following
outline:
| 1. |
Strategic analysis of external factors |
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a. Economic |
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b. Political |
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c. Competitive |
| 2. |
Internal Factors |
| 3. |
Development of a Sales and Marketing Plan |
| 4. |
Calendar Monthly forecast |
| 5. |
Operating Budget |
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a. Manufacturing Costs |
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b. Administrative costs |
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c. Sales and Marketing Overheads |
| 6. |
Capacity and other bottlenecks |
| 7. |
Organizational Consensus |
| 8. |
Revisions to Spend and volumes |
| 9. |
Management buy-in |
| 10. |
Outlining Key risks and opportunities to the Annual Budget |
Key process driver is forecast reconciliation
and a methodology to determine and analyze exceptions.
Reconciliation can often be painful. And it can be made worse
by a simplistic process lacking an exceptions methodology. Identifying
major variances and diagnosing the root-causes
for the variance can quickly result in plan consensus. If you
would like to find out more details on facilitating or developing
an effective Budgeting process, please
contact
us.
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