8 Steps to a beautiful annual operating plan

15 min read
Jan 20, 2022 12:00:00 AM


An annual operating plan is a prized document – it’s the blueprint for building your organisation in any given year. You wouldn’t build a house without architectural drawings. Unfortunately, many SME CEOs run their organisations with only a sketch of what they are building.

This guide is aimed at CEOs of commercial and not-for-profit organisations with revenues between $1M and $40M and a functioning management/leadership team (i.e., 3+ managers) who don’t have a strong track record of strategic/operational planning. If your organisation is smaller, absorb the principles and scale down the process to suit your resources.

From the Author

Like many CEOs, I have run an annual planning exercise with suboptimal results. In my early days, it was horrible – rushed preparation, lack of alignment, personal agendas at the board table, weak commitment, lack of diverse thinking – and I tried to create, run and contribute all at the same time! The outcome was frustrating and poor.

The good news is that annual planning is a craft which can be mastered.

Here’s how to run a lower-stress process to produce an annual operating plan that:

  • is consistent with your purpose and vision
  • involves the wider leadership/management group
  • incorporates feedback loops
  • produces diverse business thinking
  • is financially robust
  • aligns the board and leadership team

It includes a set of ‘cheat-sheet templates’ and ‘simple guides’ for managing the process and delivering the outputs. Once completed the management team should have an agreed action programme and results to which it will willingly commit itself.

  • intend to do
  • by when
  • what they need to achieve it and,
  • what are the expected results


STEP 1: The Setup Process

The most important thing is to start. It is easier to start and alter a draft than to stare at a blank canvas. This eBook assumes your business understands its reason for being (purpose). This is a guide on ‘how to’ get there, not ‘why’ you are on this journey.

The first step is to establish a basic plan and timeline, which gives you the confidence you’ll cover the essentials and provides a guide to your leadership team and board.

Here’s a template that sets out a basic roadmap for running the exercise, including:

  • organisational context
  • key phases and responsibilities
  • key meetings
  • tasks, deadlines and responsibilities.

TEMPLATE: Annual Planning Process

You can adapt it to your situation and needs.

Use this document to brief both your leadership team and board.

The strategy day is the core event in the process. Prior preparation is the most significant factor in determining how successful it will be.

If the right people (including some or all of your board) arrive at the strategy day well prepared and able to facilitate a focused dialogue on the right questions, the annual planning process is set up for success.

The CEO must own the whole planning process because, no matter who runs it, it is the CEO who is ultimately measured by its results.

  • Getting your leadership team and the board aligned is crucial. Bring both along on the journey and create opportunity for them to review the information, then discuss and agree on the plan.
  • Establish a clear timeline starting four months before the start of the new financial year.
  • Engage your functional leaders, i.e. marketing, production etc., to propose their own plan to support the overall organisational targets.
  • It is important to engage an independent facilitator. This allows the CEO, board and management to openly engage without the CEO having to be the meeting referee. It does not elevate one attendee over another, and can call out bad behavior/alternative views without endangering relationships or the success of the meeting. Ideally budget for a professional facilitator but, if not, the person must have a good framework and basic facilitation skills. See the facilitation guide in section 4.
  • A recommended phasing of the process is:
    - Part 1 - Review prior year/ set scope and constraints
    - Part 2 - Strategy day off-site
    - Part 3 - Operational plan and budget

STEP 2: Set Scope and Constraints

Setting scope is therefore a two-phased process:

  1. To secure a strategic mandate or direction from the board
  2. To communicate that scope and associated constraints to the leadership team as a basis for operational planning.

The leadership team can then develop operating plans and budgets that are consistent with the direction agreed by the board

Mature organisations have strong foundations already in place and a natural rhythm for reviewing strategic priorities that can feed into the annual operational planning process. Here, we’ve assumed a lower level of maturity and outlined a strategy day as part of the annual planning process – see step 4. If you don’t have any foundations in place at all, see expert tips in the next section

Put together a short briefing document that outlines the scope of the planning exercise including:

  • a reminder of the organisation’s vision, purpose and high-level direction
  • key constraints on the organisation, eg. Available capital
  • business model canvas
  • objectives and key results (OKRs) or business scorecard (already in play)
  • a SWOT analysis (strengths, weaknesses, opportunities, threats).

Confirm this with your board, prior to sharing with your leadership team.

Send out the summary to your leaders and meet with the group to highlight key aspects and allow for questions and concerns to be handled. It serves as a guide and input to your strategy day.

  • A strong vision and purpose statement anchors and empowers the entire organisation. Many are written, few resonate. A vision statement is simply a compelling statement of the future. JFK famously stated, “We’ll put a man on the moon and get him home safely within the decade.
  • Purpose is ‘why we exist’. It is defined by something that is external to you. At BoardPro, we are a force for good – we make good governance software affordable for all.
  • Vision is your long-term goal which provides the high-level direction you are going in. At BoardPro it is a million SMB/NFP users by 2030.
  • Set an ambitious but achievable financial target for the next two years and five years. Let the team imagine a bigger future. Don’t bother with detailed budgets beyond the immediate period of interest – just create a one-page model that’s within the bounds of reasonability and paints the picture of who and where the organisation will serve and what it might look like.
  • Use a professional facilitator for the strategy day. Developing an annual operating plan is a serious process. A facilitator is a process guide. The better the guide is, the more likely the plan will encapsulate the best thinking of the whole team. This is not a good place to try to skimp and save. Consider the benefit of getting the strategic priorities and initiatives 90% right vs only 75%.
  • The benefits of engaging a professional external facilitator are:
    - helping the group increase its effectiveness by improving process and structure
    - ensuring that constructive dialogue, rather than debate, takes place drawing on the collective knowledge, expertise and wisdom of the group
    - enabling the CEO and Chair to more fully participate in the discourse
    - encouraging participants to collectively maintain ownership of the purpose, process and objectives
    - supporting the participants to find common ground and areas disagreement.
  • If your organisation is too small, make sure – at very least – that you use a third party with some experience in chairing meetings or facilitating workshops.
  • Key constraints are those set by board and might include primary area of operations, capital available and efficiency guardrails.
  • A business model canvas is a succinct way of communicating the business model in a single page – the core target market, their problem, solution, proposition and financial model. Add comments to your business model to indicate which parts of the model are open for change and which aren’t.
  • Objectives and key results (OKRs) and balanced scorecards are useful tools for setting direction and targets in a structured way. Add your current iteration into the briefing pack to remind your leaders of those commitments.
  • A SWOT analysis (strengths, weaknesses, opportunities, threats) is a powerful tool for focusing the wider group on broader matters, leading into the strategy and planning process. Your facilitator can ask each leader (and board member) to supply their top three strengths, weaknesses, opportunities and threats – which the facilitator collates and shares back to the group. It is helpful for the group to then debate and vote on the overall top three in each category.

STEP 3: Review and Critique

Capturing the learnings of the last year is a vital part of the annual planning process. An honest review of the previous plan and your current position should not be treated casually. Organisations that do not incorporate learning loops are prone to continue making the same mistakes. This is time for honest reflection. Ask the team: “what is succeeding?” and “what has failed, what have we missed and why?”.

A simple hack is to take the prior year’s documents and convert the goals and objectives into a three-column table with the target in column 1, the actual results in the second column and commentary in column 3.

  • If a whole strategy or a particular initiative has not yielded the results expected, asking why is vital. Was it the wrong approach or poor execution? Knowing the difference is key.
  • Involve your independent facilitator from the beginning of the process. While not expected to contribute directly, their understanding of the organisation’s context, power dynamics and recent history is a must to help them to facilitate.

STEP 4: Strategy Day

Reviewing and confirming your foundation stones prior to producing your operational plan will lead to a stronger, more professional operating plan. Think of it in two parts:

1. A foundation comprising:

  • Purpose (or mission)
  • Vision
  • Values
  • Market (who you are addressing)
  • Core value proposition
  • Positioning in the market
  • Competitive advantage

2.The top 4-5 priorities, which the board wants achieved over the next 2-3 years.

Part 1 should exist and if not, should be produced prior to the annual planning cycle. It serves as an ongoing reference for leadership team and board for the annual planning process.

Part 2 should be refreshed/reviewed annually and serves as a natural input to the annual planning process.

The key is to develop the right context (with supporting resources) to be considered in advance (see above) to be debated by the right group in a relaxed environment.

Use the key supporting documents, especially the SWOT and environmental scan as prompts to begin debating what those top 4-5 priorities might be. A skilled facilitator will help enormously to draw out ideas from the entire group and prioritise the list.

For example, the top strategic priorities for, say, a $10M ISP business in 1999, facing significant monopoly competition and technology changes, might have been:

  • Migrate revenue streams away from low-profit commodity products (i.e. residential ADSL) so that 80% of revenues are in higher-profit products like datacentre and website hosting by 2001.
  • Identify long-term technology trends and choose sustainable market space by 2003, i.e. web hosting or identify an exit pathway if there is no way to meet the shareholder goals.
  • Maintain existing operational excellence and staff engagement as measured by … to June 20XX.
7 free business templates
  1. Annual Planning Process
  2. Strategic Offsite Planning
  3. Facilitation Plan
  4. Dialogue vs Debate
  5. SWOT Analysis
  6. Competitor Overview Matrix
  7. Operating Plan Presentation

Download the templates here

  • It’s a significant investment of time and money to hold a strategy day. Make it count
  • Get the right team in the room. The best planning team is one that consists of the CEO, board, senior staff and 3-4 key stakeholders whose views matter. This should comprise no more than 12-15 people whose points of view help identify the top 4 or 5 key priorities.
  • Research has shown that the worst team for developing a strategic plan is one made up of only the board, closely followed by one made up of only the management.
  • Dialogue focused on strategic questions should not be comfortable. See this excellent article from our governance expert in residence, Graeme Nahkies - https://boardworks.nz/all-resources/why-fear-and-discomfort-are-essential-to-the-strategic-planning-process?
  • Your facilitator should encourage participation, ask questions of clarification and to try and summarise the core response to each key question.
  • By using an external facilitator, the CEO is free to participate as a relative equal and it also means they avoid consciously or unconsciously leading the discussion.
  • Hold the day in a comfortable off-site location to eliminate operational distractions.

STEP 5: Budget – First Cut

Choosing to produce your annual plan OR your budget first is something of a chicken-and-egg scenario. Do you create your plans and then cost them or do you create a budget first and fit your initiatives into the available cash? And how much expenditure do you allow to be covered by projected revenue growth?

There’s no right answer.

My preference is for the CEO and CFO (head of finance) to create a fast, simple, top-down initial financial forecast as a guide to the team. It doesn’t mean the team can’t later argue for more or less expenditure or more or less bullish revenue projections. The initial constraints will, however, allow functional leaders to size up a plan based on an expected financial model.

Try and keep this budgeting process focused on the smallest number of levers that have the largest amount of impact. For instance, in a high-growth business this will be the revenue growth rate and associated investment in customer acquisition and the desired investment in product and/or new market development. Try and get ahead of the curve on these high-impact items. Ways to do this might be reviewing industry benchmarking, conversations with key directors and advisors, or capital allocation discussions with the board. At the very least, put a peg in the ground with a starting suggestion – feedback from the team and the board will shape your view.

Everything else can be handled via expenditure buckets and simple ratios. For instance, general administration can be calculated as a single line based on a percentage of revenue.

For example, last year’s G&A might be $1M and 10% of revenue. You know you’re increasing the overall organisational headcount by 20% this coming year and that you also expect efficiencies. You might then settle on G&A as 9% of revenue, which boosts the gross budget line by several hundred thousand. Do no more work than that at this stage and certainly no detailed line-by-line budgeting.

Finally, the form of the initial budget should be very simple – a page of key numbers and a page of related graphs.

  • The revenue model is one area worth starting early and in much more detail than the rest of the initial budget. Getting a strong handle on expected revenue growth is the key to confidence in general and flow-on investment decisions. I typically run both a top-down and bottom-up exercise in parallel. We look at benchmarks from like businesses in our industry and ask the coal-face sales and marketing leaders and team for input into the expected monthly sales.
  • Ratios are such a wonderful tool for budgeting. In my inexperienced days, I’d build up a line-by-line cost budget, thinking about expected cost for dozens of individual expenses from rent to legal. This can all be bundled into a single bucket and a year-on-year increase applied based on prior year movements and industry benchmarks, i.e. what’s the typical G&A percentage of revenue in your industry?

STEP 6: Team Goals and Initiatives

With strategic direction emerging and an indicative budget to hand, it’s time to delegate the next phase of planning to your functional team leaders: marketing, sales, production, operations etc.

It’s better for these leaders to create their annual plan than for the CEO to lead. Buy-in is significantly higher if the person responsible for executing the plan writes it. The CEO’s role is one of inspiration, coach and co-ordinator.

Give your leaders a simple three-slide template and ask them to come back with:

  • a key objective and two or three related key results (measurable outcomes)
  • some SMART actions for achieving the key results.

Refer to the examples in

TEMPLATE: Operating Plan Presentation

Your CEO should be skilled and knowledgeable enough (on OKR or similar goal frameworks) to lead this process and act as coach to each of their functional leaders. If your CEO isn’t, don’t be afraid to invest in outside help to run the first exercise and train the CEO accordingly.

  • Concentrate all available resources on accomplishing two or three specific, operational objectives within a given time period.
  • Businesses have limited time and money. You will achieve better competitive advantage when playing for limited, explicit gains in a marketplace of your choosing. Specialisation creates a team that is sensitive to opportunities and quick to act. But this advantage dies if execution is poor and it will be poor if resources are spread to thinly. This is like running a long race with half the fitness of the other athletes, winning is out of the question, it is just a matter of how much you lose by.
  • Neither a functional team nor the organisation itself needs a fully detailed operating plan outlining dozens of targets and initiatives. In military parlance: ‘No battle plan ever survives contact with the enemy.’ Likewise, your operational plan will instantly change (at the detail level at the very least) once in contact with the market, with customers and with competitors.
  • Most critical is a logically developed statement of direction and just a few key objectives and projects.
  • Fully detailed operating plans are an exercise in disappointment.
  • Your team leaders will appreciate succinct directional plans and commence work on detailed planning and execution within the natural rhythms and demands of their functions.

STEP 7: Present Draft Plan to Board

Presenting your annual plan to the board should be relatively straightforward as they have already provided your scope and constraints and participated in a strategy day.

The annual plan should be a natural out-working of the broad directions already agreed to with your board.

Go about the process in this way:

  1. Create a single operating plan presentation.
  2. Insert your organisational purpose and vision as opening slides to orientate the reader to the big picture. Consolidate the functional goals and initiatives produced by your team leaders and insert these into the presentation. Add your initial budget.
  3. Send to your board as pre-reading material.
  4. Have each team leader present their function’s plan on the day. Engage in open discussion and solicit feedback from the board. Openly acknowledge constructive feedback and intent to incorporate into the operating plan. As CEO, take the opportunity to set the scene and ask questions throughout the process. Be the chief solicitor of feedback.
  5. Have your head of finance present the initial budget, focusing on the current charts and trends.
  6. Task the facilitator with summarising feedback and key take-aways.
  7. Avoid the need to finalise all the key questions raised on the day. Reserve the right to receive the feedback and incorporate it into the final plan after appropriate consideration.
  • Avoid writing detailed operational plans. Simple slides, spoken to, are less intensive to produce and help focus attention on the headline ideas.
  • Be the CEO who doesn’t need to be right about everything and who is genuinely seeking feedback and critical debate on the plan. This communicates flexibility and confidence to the board and allows the CEO the opportunity to make the final call on big matters after the presentation day.

STEP 8: Finalise Plan and Budget

Consider feedback soon after the presentation day and absorb what makes sense into the operating plan and budget within a week. Upgrade the initial budget into a final version including:

  • all salaries and expected increases
  • review and acceptance by functional team leaders.

Circulate the document to the board for final sign-off.

Upload the final version into a central repository accessible by all team leaders.

Download 7 free business templates


Martin Oxley: Professional Director


Martin is a Professional Director who provides governance support primarily to SaaS businesses that are expanding internationally. He has a technology-based career spanning 30 years. He has had operational roles in developing off-shore markets (UK, EMEA and USA) where he specialized in Sales & Marketing and legal frameworks for distribution channels. He is also experienced in Branding and Pricing strategies

Graeme Nahkies: Principle – Boardworks NZ


Graeme Nahkies co-founded BoardWorks in 1997, Australasia first specialist governance consultancy. Since then the company has worked with over 600 client across all sectors

Graeme came from a series of senior roles  in local and central government. He is now BoardWorks Practice Leader ensuring BoardWorks stays at the forefront of contemporary practice.

John Page: Managing Director – Boardworks NZ


John Page is Managing Director of BoardWorks. His early career was in senior roles across the professional performing arts before leading the highly successful governance programme for Sport New Zealand. With Graeme he writes across governance subjects and particularly enjoys teaching face to face with boards.

Steven Bowman: Principal, Conscious Governance


Steven is a seasoned Board adviser, with a great depth of experience and skill facilitating Board reviews and strategic planning process. He has held numerous senior executive, CEO and Board positions with some of the USA and Australia’s most prestigious organisations, as well as authoring and co-authoring over 14 books on governance, strategy, risk and executive leadership.

Chris Mene: Principal, Mene Solutions


Chris Mene has worked as a professional facilitator for more than 25 years. He has provided facilitation for governmental organisations such as United Nations ESCAP , International Association for Public Participation Australasia (IAP2) and The New Zealand Royal Commission of Inquiry into the Terrorist Attack on Christchurch Mosques on 15 March 2019.

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