Although organisations differ in their strategy and planning procedures, you should understand how these work, not least to ensure that your own plans are included into the process and that your needs of other departments are built into their plans and budgets. As a support function, Legal needs to know how to interact with its 'clients' and what resources it will have to undertake its work.
Understanding your organisation’s planning and budgeting processMost organisations plan around their products and services. Commercial organisations plan in order to improve their performance and maintain and build on investor and stakeholder confidence. They look at how to develop their products and brands, maintain or improve their position in a particular sector, decide whether to launch new products or services or move into, or out of, certain sectors. In non-trading organisations the planning process is equally important as they too need to demonstrate clear objectives and momentum in order to preserve stakeholder confidence.
The planning cycle can be lengthy. In a sense it is an ongoing process in that it is common for organisations to not only plan for the short term (12 months) but also for longer periods, typically three years. And rather than being fixed, these periods are often planned for (and measured) on a rolling basis. This allows management to consider and adapt to threats and opportunities in their businesses or in the areas in which the organisation operates. It also requires managers to think strategically and creatively and to work collaboratively in deciding objectives and how to achieve them.
One challenge for organisations is that they will often (and may be required to) set a budget and income forecasts for a shorter period (typically 12 months to tie in with the statutory annual financial reporting cycle). Budgets are important, of course, as they determine what resources the organisation and its different business units have to operate with. Without resources, plans and objectives will not be met. But budgets are also used as a measure of performance (by looking at variance against budget) which can drive short-term, localised actions and behaviour. For this reason, organisations recognise the importance of combining the planning and budget-setting processes to avoid disconnect between the two.
Many organisations also use financial forecasting tools and methods in order to support their business planning on an ongoing basis. These forecasts are forward looking and allow managers to have not only current financial data to hand (when planning ahead) but also forecasts of the financial impact of different plans and strategies in the future - after all the costs budgeted for can only be paid for if the revenues anticipated in the financial plan are actually achieved.
Of course, planning is not an exact science and strategic decisions don’t always follow a precise timetable. Organisations must navigate the environment they find themselves in and plan for, and respond to, changes brought about at a business, legal or political level.
The planning cycle
Typically, an organisation is structured on three levels:
- Team/department (the department);
- Division/business unit (the business unit); and
- Executive and Board (the executive).
Planning will incorporate all three levels. Broadly, the executive sets the organisation's strategy and goals, determines what resources are needed and how to allocate them. The business units are concerned with implementing the overall strategy within their areas of activity. Team managers make it happen at departmental level.
To plan at all three levels, organisations typically use a formal process with particular steps taken at points during the year. Particularly in larger organisations, the planning process takes a good deal of interaction between the different tiers as plans are formulated, honed and recalibrated as required, even before resources and budgets are formally allocated and signed-off. At the same time, the process needs to be sufficiently flexible and agile to take account of developments and changes in the business, economic or political spheres.
Most organisations also try to avoid having a solely ‘top down’ process as it can stifle creativity and agility if the contribution of those closest to the products, services, research & development, customers and regulators, for example, are not sufficiently taken into account. Of course, the environment in which organisations operate is increasingly fluid and rarely static as sudden changes can have major impact.
The planning processWhile there is no ‘one size fits all’ approach to planning, effective organisations have a defined process which requires advance planning and interaction between the organisation’s management. We set out here a mock six point process and timeline to provide an example.
1. Corporate objectives and goalsThe big questions about the organisation’s direction and strategy are ultimately matters for the executive. But the board and executive management will not want to plan in a vacuum.
Consequently, at an early stage in the process (typically in "Q1" - the first calendar quarter of the company's financial year preceding the year to which the activities that we discuss here relate), the executive will engage in exchanging information, ideas and plans with senior management in the business units. This is not, at this stage, about creating detailed and costed plans and activities. Rather, it’s to review existing, and create new, high-level objectives and goals for the organisation that the management are in tune with and can contribute to. High-level objectives will often include clear business objectives based on such as market share, sales and revenues, but may also include softer, aspirational, goals around brand awareness or sustainability targets, for example.
Having set the high-level objectives it’s then for the business management to develop their own plans for how their business units will contribute to, and achieve, the corporate objectives.
2. Business unit plansThe business managers will assess what these corporate objectives and goals mean for their units and scope their activities for the relevant period. At this point, they’ll need to think strategically and work out how their business area can best contribute to the overall corporate objectives. Involving all the business managers at this stage increases horizontal and vertical communication and reduces the risk of creating silos of activity that are not joined up with meeting the corporate objectives. In planning for their business units, managers will need to evaluate alternative strategies, where relevant. In our example timeline, this process would occur late in Q1.
3. RefiningAt this point, in Q2, business managers may present their outline plans to the executive. How detailed these plans are will depend on the size and complexity of the business. In a larger organisation, this may not yet be the time for detailed financial planning as plans may be modified further after discussion. The executive will give feedback on the business units’ plans in relation to how they fit with the corporate strategy and objectives. In a smaller business, this may be the time for resources to be allocated and budgets formulated. The executive may, for example, consider whether the business plans are ambitious enough or they may be prompted to divert resources into another business area or into an acquisition. Or the plans may be the trigger to plan a reduction in a particular business activity. The interactive nature of the process can help recalibrate the high level corporate plans in the light of changing internal or external factors which are highlighted in the business unit plans.
4. FinalisingWith feedback from the executive, business managers can then finalise their plans (and actions) for the period. At this stage all managers in the business unit will need to be involved. Typical matters for consideration will include revenue projections for existing and any new products and services and what support and resources will be needed, including from other business areas such as HR, Legal, IT and Communications in order to deliver these plans.
If you are not able to provide your reasoned resource requests and explaining why they are essential for the planned for deliveries at this time then you will get caught up in the: "more for less" challenge rather than the much preferable: "efficient use of demonstrably necessary resources to deliver defined goals" challenge.
Once complete, the business units then submit their near final plans to the executive for sign-off and allocation of resources. This could typically be in Q3.
5. Resources and budgetsBy the end of Q3, the executive will have considered and signed-off on the different business plans from across the organisation. They will then need to decide on the allocation of resources and budgets. For this, the executive will need costed plans and financial data and projections detailing their impact on the organisation’s financial position.
Each area of the business will have made its ‘bid’ for resources based on their costed plans and it may well not be possible for them all to be met, leading to some further prioritisation or calibration of the plans as, without sufficient resources, certain plans may need to be scrapped or scaled down. Consequently, this stage in the process can involve a good deal of negotiation - think for example, of the annual budget setting round in government! It can be similar in business.
Once plans are agreed and resources allocated, budgets can be finalised and signed-off – bearing in mind that budgets will typically cover the next 12 months whereas business plans may be carried out over a longer period. This will typically occur in Q4 ready for the next business/financial year.
6. ReviewBecause of the need for the organisation to regularly review its performance and progress, the planning process is not fixed in time but is, effectively, ongoing. Review is important as the organisation looks to adapt to changes and optimise its position in the markets in which it operates. This means also having up to date business and financial data and forecasts available to support these reviews.
The in-house lawyer’s contributionAs well as being involved in the planning for the Legal department, it's important for in-house lawyers to be actively involved in the planning cycle. You need to be at the planning table (at all levels) giving colleagues targeted, planned and costed legal support and spotting issues and legal resource needs that need to form part of their plans - whether it be registering their new IP, opening up a new company branch, researching the legal and regulatory compliance requirements that will affect a planned new product or service or simply ensuring that there is enough resource and an agreed framework to perform sales or purchase negotiations.
You will also need to become good at negotiating for resources because they’ll always be finite and subject to competition. Generally it is far better to agree what "planned performance" from your team is which is what your colleagues pay for within the budget settlement and then also to agree when they must give you more resource because of their own poor planning, pet projects or "pollution" (things that the get wrong that someone else, normally your team, then has to pick up the pieces for!).
The business planning cycle is vital to an organisation’s momentum and progress. It provides focus, sets goals and harnesses the energy of management and other employees. Understanding, and participating in the process is important for any team that seeks to be seen as a valued business partner. As we’ve seen, planning and budgeting are really year-round processes. Don't be reticent about pressing for the resources you need. You’ll need to become adept at making your business case - otherwise you will never get the resources that you need.