Mahmood Reza, a big fan of business planning, explains why it is vital and demystifies some of the terms and tools commonly used.

Image of a signpost pointing to success and failure

I admit to being a big fan of planning, whether at a strategic or business level. Over the last thirty years or so, I have been involved in formulating and implementing plans for my own businesses and activities, and advising and supporting arts and creative organisations, and my attitude and opinion as to what planning is and is not has changed over that period. But one constant is that effective planning is vital to help us navigate an uncertain arts landscape and reduce the risk of organisational failure.

Planning is to a large extent a continual activity and should not be confused with the end-documents produced such as a business plan, budget or cash flow. These documents are merely capturing in words and numbers the results of some clear thinking and likely outcomes of our business journey.

Planning is to a large extent a continual activity and should not be confused with the end-documents produced

One of the primary purposes of planning is to demonstrate that we have considered and tried to understand the risks involved in our organisational journey, and that we have considered how we may deal with those risks – all with the primary objective of realising and ultimately achieving our aspirations. Planning has to be based on solid foundations, and solidity starts with a mission statement, which helps our raison d’être, our calling card to the outside world. The mission statement tells the world what our aspirations are, how we hope to achieve them, and who will benefit from this. A mission statement is not a bland promotional tool − it needs to be simple, concise and memorable. Shared mission, value and vision are the bedrock of arts organisations, and work/business cultures create the environment in which behaviour − dysfunctional or otherwise − is created. Organisations are just another example of the family that we see and experience in our personal lives.

Our mission statement helps generate critical success factors (CSFs). CSFs are those areas in which we need to perform best if we are to achieve overall success and ultimately achieve our objectives. For example, CSFs for a theatre company would typically be audience numbers, audience satisfaction, effective marketing to attract audiences and cost control. CSFs help us generate measures to monitor and manage achievement. These measures are also referred to as key performance indicators (KPIs). KPIs should normally be a blend of numbers (quantitative) and non-numbers (qualitative). Targets can be set for these KPIs, and progress measured against these targets. Any variations against these targets should prompt investigation and ultimately action, to rectify the situation.

There is a general rule of management that you cannot manage what you cannot measure. We need clues and milestones to identify if we are progressing on our journey. Take the example of an individual who decides that their aspiration (mission) is to lead a healthier lifestyle. One identified objective is to reduce blood pressure to a certain level, so a CSF would be a change of diet and a KPI to monitor this would be blood pressure. If we measure blood pressure against a pre-set target and the required blood pressure is not achieved, then we can have a closer look at (say) lifestyle and then hopefully put this right. For an arts organisation, appropriate KPIs may be ticket sales, customer feedback, repeat visits and spend against budget.

Within the planning process we need to consider the resources, both physical (tangible) and non-physical (intangible). The ability of any business to perform effectively is determined by the adequacy and suitability of those resources, whether those resources are physical, intangible, financial or intellectual. A resource analysis needs to consider how resources are managed, deployed and used. For example, the impact of an organisation having a good reputation is minimised if it lacks the skills and expertise to exploit them effectively.

A popular tool in the business planning toolkit is the SWOT analysis, which is sometimes misused and misunderstood. The primary aim of the SWOT analysis is to identify the extent to which the current strengths and weaknesses are relevant to and capable of dealing with the changes taking place in the business environment. If the strategic capability of an organisation is to be understood, the SWOT analysis is only considered useful if it is comparative, and not absolute to its ‘competitors’ or other organisations, i.e. examining strengths, weaknesses, opportunities and threats relative to competitors.

There are many other aspects of planning not touched upon on in this article such as analytical tools, business stress tests, change management and implementation.

Happy planning!

Mahmood Reza is Proprietor of Pro Active Accounting.

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