According to Torres, one reason that his company, a full-service IT infrastructure solutions provider, rigorously goes through “resets” of its annual plan every 90 days is that, “by the time we get done with the first 90 days, undoubtedly something is going to change in phase two.”
Those changes can come from anywhere and be anything: “An assumption is going to be wrong, the external conditions may have changed.” Or it might be disruptions in markets or supply chains, whether that’s due to flooding in Thailand or the threat of civil war in the Ukraine, for example.
That need to be prepared for a shifting environment may also be one of the reasons Patti Glassford, VP and CFO of GE Energy Management, notes, “We’re doing a lot more contingency planning now.” GE recently revamped its planning process for its core businesses (Aviation, GE Capital, Energy Management, Healthcare, Home and Business Solutions, Oil & Gas, Power & Water, Transportation). Glassford acknowledges that one of the factors behind GE’s decision to adopt its quarterly Business Blueprint Reviews was the recognition that “too much was changing” in the world outside—and the GE companies would benefit from being better prepared for those changes.
Ed Morgan, CFO of Guaranty RV, Inc., says, “There is so much out there that we can’t control that will affect our business.” For example, he points to the availability of retail financing—that is, the ability of his customers to get financing for a big ticket purchase like an RV. “If the banks tighten up their policies, then people can’t afford to buy our products,” he explains. “It’s something we have no control over.”
But that doesn’t mean it’s something a company can’t prepare for.
Whatever the change, Vology’s Torres knows that, in their rapid recalibrations of the annual plan from one planning period to the next, “We’re going to learn something.” The business teams at Vology can be confident that they’ll be able to apply those learnings over the next 90 days either to affirm the direction they are headed or to make the necessary course corrections.
Torres advocates for the rapid development of a risk map by business team management in each review period. The exercise allows Torres and the business managers to revalidate known risks and surface new ones, then weight and prioritize the set for the upcoming period.
Torres explains that, through the Rapid Enterprise Development™, or RED™, planning process Vology has adopted, “we’ll rapidly go through what the risks are internally as well as externally. Then we’ll develop a risk map and weight those risks. We have four quadrants: The probability from low to high, and the impact from low to high. The top right quadrant is the high-risk, high-impact area, so we’ll make sure that we have specific process controls in place or we take positions to mitigate those risks. If they’re in the lower left, that means they’re really not a big risk, or even if they are, the impact is going to be relatively minor. So we don’t have to spend so much time on those items.”
Companies employing risk maps can translate upcoming risks into a scenario approach for the next planning period. Using the risk factors identified during the process, Paul Lehmann at Overhead Door says the company will develop range estimates for its businesses: “In a best-case environment, we might be able to do this. In a worst-case environment, it might look like this. And here’s what we’re thinking is a reasonable case approach.”
GE’s new planning process emphasizes the need to stay nimble and build process ownership at the P&L level. Greg Cameron, CFO of GE Capital, Americas explains, “You need to step back and say, ‘Are these results reflective of the business that we want to run, considering the market environment we’re in?’” He follows up on his own question: “The answer is rarely ‘yes’ the first time you roll it up,” and so you challenge and re-examine your assumptions every quarter, instead of just once or twice a year.
GE’s Glassford notes that the new planning process gives them a structured way of examining what’s changed from last year and provides a firmer basis for establishing next year’s targets. According to Bob McCarrick, who is Chief Commercial Officer, Lending for GE Capital, Corporate Finance, “It’s a more holistic planning process, and more frequent. We still talk about the numbers, but also about operations, processes, strategy, what markets are doing and how to make course corrections.”
Or, as Overhead Door’s Lehmann says, the regular review and re-examination of all the shifting variables gives your business leadership the confidence that, “no matter what your numbers are, there are always ways to find upsides.”
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