Biz Doc: It Has Come To This

Annual Operating Plan: Step 4 of 4

October 2014

ObjectivesThe final step of drafting the Annual Operating Plan should be a straightforward and efficient task: The establishment of 10 – 15 key objectives in support of the Core Goals for the year (which, in turn support the 3-year strategic plan).

Objectives are essentially sub-goals (written in the S.M.A.R.T. format) that, if met, ensure a particular Core Goal is met.  In my experience, there are usually no more than 3 or 4 Objectives attached to each Core Goal.

Let’s review the sample Core Goals I presented in Step 3 (found here) and add some numbers:

  1. “$25M” Gross Revenue @ “50%” Gross Margin;
  2. “$6M” Operating Expenses;
  3.  “$3M” R&D spend expensed on the P&L and delivery of the Product Plan
  4. At least “$3M” EBITDA and “$2.5M” Positive Cash Flow optimized in the face of any challenges or windfalls.

A solid set of objectives might look like this:

Core Goal 1: $25M” Gross Revenue @ “50%” Gross Margin;

1A.  Sequentially increase topline revenue each quarter starting with at least $5.5M in Q1 and not less than that in any subsequent quarter.

1B.  Achieve full-year Gross Margin of at least 50% with not less than 47% Gross Margin in any month.

1C.  Increase Indirect share of revenue from 40% to 45% by year end through the addition of 3 channel partners generating not less than $1M each for  the year.

The above is a clear, concise set of objectives ready to be assigned as sub-goals to the Chief Revenue Officer or VP of Sales.  Measurement during weekly 1:1 meetings can then commence in a straightforward manner.

As you can see, this is not a difficult process.  It can be made difficult, however, if loose language or complex algebra is employed.  The more specific and more conforming to S.M.A.R.T. methodology the better off you will be.  It also staves-off or eliminates complicated discussions later as executives seek bonus payouts (and pitch their value and accomplishments).  Reflecting back on the Annual Operating Plan during 1:1s leaves no surprises when that same document becomes the measuring stick for bonuses, annual reviews and subjective performance grading.

If you have successfully navigated this step – the 4th and final milestone – then your document should be completed.   It should present your mission, vision, values and clearly articulate the story of your 3-year strategic plan followed by a detailed set of current year goals and the objectives that will ensure those goals are met.

You are ready to hand out the document and start measuring people weekly, monthly and quarterly according to the specific goals and objectives set forth in it.  Quarterly meetings of management become sessions to identify solutions to increase performance rather than argue about goals and objectives.  Any sane and rational individual cannot deny the goals and objectives set form in the plan.  Measurement is a simple numerical exercise led by the “evil folks in Finance” – just kidding.

In other words, “Now the fun starts!”


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