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Making a Risk Management Plan for Your Business
It’s impossible to eliminate all business risk. Therefore, it’s essential for having a plan for its management. You’ll be developing one covering compliance, environmental, financial, operational and reputation risk management. These guidelines are for making a risk management plan for your business.
Developing Your Executive Summary
When you start the risk management plan with an executive summary, you’re breaking apart what it will be compromised of into easy to understand chunks. Even though this summary is the project’s high-level overview, the goal is describing the risk management plan’s approach and scope. In doing so, you’re informing all stakeholders regarding what to expect when they’re reviewing these plans so that they can set their expectations appropriately.
Who Are the Stakeholders and What Potential Problems Need Identifying?
During this phase of making the risk management plan, you’re going to need to have a team meeting. Every member of the team must be vocal regarding what they believe could be potential problems or risks. Stakeholders should also be involved in this meeting as well to help you collect ideas regarding what could become a potential risk. All who are participating should look at past projects, what went wrong, what is going wrong in current projects and what everyone hopes to achieve from what they learned from these experiences. During this session, you’ll be creating a sample risk management plan that begins to outline risk management standards and risk management strategies.
Evaluate the Potential Risks Identified
A myriad of internal and external sources can pose as risks including commercial, management and technical, for example. When you’re identifying what these potential risks are and have your list complete, the next step is organizing it according to importance and likelihood. Categorize each risk according to how it could impact your project. For example, does the risk threaten to throw off timelines or budgets? Using a risk breakdown structure is an effective way to help ensure all potential risks are effectively categorized and considered. Use of this risk management plan template keeps everything organized and paints a clear picture of everything you’re identifying.
Assign Ownership and Create Responses
It’s essential to ensure a team member is overseeing each potential risk. That way, they can jump into action should an issue occur. Those who are assigned a risk, as well as the project manager, should work as a team to develop responses before problems arise. That way, if there are issues, the person overseeing the risk can refer to the response that was predetermined.
Have a System for Monitoring
Having effective risk management companies plans includes having a system for monitoring. It’s not wise to develop a security risk management or compliance risk management plan, for example, without having a system for monitoring. What this means is there’s a system for monitoring in place to ensure risk doesn’t occur until the project is finished. In doing so, you’re ensuring no new risks will potentially surface. If one does, like during the IT risk management process, for example, your team will know how to react.
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Business Plan – Operations &...
Business plan – operations & management plan.
Summary: Operations & Management Plan is an essential section in your business plan. Learn from this article what are the elements you should include into this section.
Image: Freepik
The operations and management plan describes how your business operates on a continuing basis.
This section covers things that are critical to operations such as your business’ physical location, labour, facilities, equipment and processes. This way, you will answer readers’ questions about operations without overwhelming them.
The section also highlights the management team such as the various responsibilities and tasks of the team. This is where you acknowledge your team and advisers who contribute to your business and success.
Location and Facility Management
If you have a retail location, describe the surrounding area and explain to your readers why is the location effective.
Tell your readers how your location provides access for the clients and suppliers. For example, your location might make it convenient for your potential clients to park their cars when they come to your office.
You can also attach the drawings of the building to show its structure and size.
In this part, do indicate the operating hours such as the opening hours and shifts.
And then list out your day-to-day operation details.
You should also talk about your products and/or services that you provide, how you provide them, standard operating procedures for the process and customer services.
The inputs that go into making your product will be your supplies and the final product will be your inventory.
So in this part, you should list your suppliers, their background their reputation.
It is also crucial to explain how you will manage your inventory. If you have too much inventory, you’re wasting money that could be put to active use elsewhere in the business.
If you have too little inventory, you might be losing out on potential sales and loyal customers. If you don’t have what they want, when they want it, they will go somewhere else, and they will likely turn to that company first the next time they need the item you used to sell them.
Management Team and Employees
Remember, your team of managers and employees play important roles in carrying out most of your company’s operating plan. Thus, it is important to describe who they are, what their qualifications are and what their responsibilities will be.
You should consider of having an organization chart that shows the hierarchical structure of your business. This will make it easy for your readers to understand.
You can also talk about how your measure employee and management performance and reward them or let them go if needed.
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Writing A Business Plan: Operations And Management
Feb 1, 1997
Generally, there are seven major components that make up a business plan. They are:
1. Executive summary
2. Business description
3. Market strategies
4. Competitive analysis
5. Design and development plans
6. Operations and management plans
7. Financial factors
The operations and management plan is designed to describe just how the business functions on a continuing basis. The operations plan will highlight the logistics of the organization such as the various responsibilities of the management team, the tasks assigned to each division within the company, and capital and expense requirements related to the operations of the business. In fact, within the operations plan you'll develop the next set of financial tables that will supply the foundation for the "Financial Components" section. The financial tables that you'll develop within the operations plan include:
*The operating expense table
*The capital requirements table
*The cost of goods table
There are two areas that need to be accounted for when planning the operations of your company. The first area is the organizational structure of the company, and the second is the expense and capital requirements associated with its operation.
Organizational Structure
The organizational structure of the company is an essential element within a business plan because it provides a basis from which to project operating expenses. This is critical to the formation of financial statements, which are heavily scrutinized by investors; therefore, the organizational structure has to be well-defined and based within a realistic framework given the parameters of the business.
Although every company will differ in its organizational structure, most can be divided into several broad areas that include:
*Marketing and sales (includes customer relations and service)
*Production (including quality assurance)
*Research and development
*Administration
These are very broad classifications and it is important to keep in mind that not every business can be divided in this manner. In fact, every business is different, and each one must be structured according to its own requirements and goals.
Terence P. McGarty in his book, Business Plans That Win Venture Capital , lists four stages for organizing a business:
1. Establish a list of the tasks using the broadest of classifications possible.
2. Organize these tasks into departments that produce an efficient line of communications between staff and management.
3. Determine the type of personnel required to perform each task.
4. Establish the function of each task and how it will relate to the generation of revenue within the company.
Once you have structured your business, however, you need to consider your overall goals and the number of personnel required to reach those goals.
In order to determine the number of employees you'll need to meet the goals you've set for your business, you'll need to apply the following equation to each department listed in your organizational structure:
In this equation, C represents the total number of customers, S represents the total number of customers that can be served by each employee, and P represents the personnel requirements. For instance, if the number of customers for first year sales is projected at 10,110 and one marketing employee is required for every 200 customers, you would need 51 employees within the marketing department.
10,110 ÷ 200 = 51
Once you calculate the number of employees that you'll need for your organization, you'll need to determine the labor expense. The factors that need to be considered when calculating labor expense (LE) are the personnel requirements (P) for each department multiplied by the employee salary level (SL). Therefore, the equation would be:
P × SL = LE
Using the marketing example from above, the labor expense for that department would be:
51 × $40,000 = $2,040,000
Once the organization's operations have been planned, the expenses associated with the operation of the business can be developed. These are usually referred to as overhead expenses. Overhead expenses refer to all non-labor expenses required to operate the business. Expenses can be divided into fixed -- those that must be paid, usually at the same rate, regardless of the volume of business -- and variable (or semivariable) -- those which change according to the amount of business.
Overhead expenses usually include the following:
*Maintenance and repair
*Equipment leases
*Advertising & promotion
*Packaging & shipping
*Payroll taxes and benefits
*Uncollectible receivables
*Professional services
*Loan payments
*Depreciation
In order to develop the overhead expenses for the expense table used in this portion of the business plan, you need to multiply the number of employees by the expenses associated with each employee. Therefore, if NE represents the number of employees and EE is the expense per employee, the following equation can be used to calculate the sum of each overhead (OH) expense:
OH = NE × EE
In addition to the expense table, you'll also need to develop a capital requirements table that depicts the amount of money necessary to purchase equipment you will use to establish and continue operations. It also illustrates the amount of depreciation your company will incur based on all equipment elements purchased with a lifetime of more than one year.
In order to generate the capital requirements table, you first have to establish the various elements within the business that will require capital investment. For service businesses, capital is usually tied to the various pieces of equipment used to service customers.
Capital for manufacturing companies, on the other hand, is based on the equipment required in order to produce the product. Manufacturing equipment usually falls into three categories: testing equipment, assembly equipment, and packaging equipment.
With these capital elements in mind, you need to determine the number of units or customers, in terms of sales, that each equipment item can adequately handle. This is important because capital requirements are a product of income, which is produced through unit sales. In order to meet sales projections, a business usually has to invest money to increase production or supply better service. In the business plan, capital requirements are tied to projected sales as illustrated in the revenue model shown earlier in this chapter.
For instance, if the capital equipment required is capable of handling the needs of 10,000 customers at an average sale of $10 each, that would be $100,000 in sales, at which point additional capital will be required in order to purchase more equipment should the company grow beyond this point. This leads us to another factor within the capital requirements equation, and that is equipment cost. If you multiply the cost of equipment by the number of customers it can support in terms of sales, it would result in the capital requirements for that particular equipment element. Therefore, you can use an equation in which capital requirements (CR) equals sales (S) divided by number of customers (NC) supported by each equipment element, multiplied by the average sale (AS), which is then multiplied by the capital cost (CC) of the equipment element. Given these parameters, your equation would look like the following:
CR = [(S &3247; NC) × AS] × CC
The capital requirements table is formed by adding all your equipment elements to generate the total new capital for that year. During the first year, total new capital is also the total capital required. For each successive year thereafter, total capital (TC) required is the sum of total new capital (NC) plus total capital (PC) from the previous year, less depreciation (D), once again, from the previous year. Therefore, your equation to arrive at total capital for each year portrayed in the capital requirements model would be:
TC = NC + PC - D
Keep in mind that depreciation is an expense that shows the decrease in value of the equipment throughout its effective lifetime. For many businesses, depreciation is based upon schedules that are tied to the lifetime of the equipment. Be careful when choosing the schedule that best fits your business. Depreciation is also the basis for a tax deduction as well as the flow of money for new capital. You may need to seek consultation from an expert in this area.
The last table that needs to be generated in the operations and management section of your business plan is the cost of goods table. This table is used only for businesses where the product is placed into inventory. For a retail or wholesale business, cost of goods sold , or cost of sales , refers to the purchase of products for resale -- the inventory. The products that are sold are logged into cost of goods as an expense of the sale, while those that aren't sold remain in inventory.
For a manufacturing firm, cost of goods is the cost incurred by the company to manufacture its product. This usually consists of three elements:
1. Material
3. Overhead
As in retail, the merchandise that is sold is expensed as a cost of goods, while merchandise that isn't sold is placed in inventory. Cost of goods has to be accounted for in the operations of a business. It is an important yardstick for measuring the firm's profitability for the cash-flow statement and income statement.
In the income statement, the last stage of the manufacturing process is the item expensed as cost of goods, but it is important to document the inventory still in various stages of the manufacturing process because it represents assets to the company. This is important to determining cash flow and to generating the balance sheet.
That is what the cost of goods table does. It is one of the most complicated tables you'll have to develop for your business plan, but it is an integral part of portraying the flow of inventory through your operations, the placement of assets within the company, and the rate at which your inventory turns.
In order to generate the cost of goods table, you need a little more information in addition to what your labor and material cost is per unit. You also need to know the total number of units sold for the year, the percentage of units which will be fully assembled, the percentage which will be partially assembled, and the percentage which will be in unassembled inventory. Much of these figures will depend on the capacity of your equipment as well as on the inventory control system you develop. Along with these factors, you also need to know at what stage the majority of labor is performed.
Part six of seven. Tomorrow, we'll cover the financial factors that go into your plan. Tips are updated daily at 8:30am PST or 11:30 EDT.
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- Grasshopper
Operations Plan
- Lesson Materials Operations Plan Worksheet
- Completion time About 40 minutes
The operations section of your business plan is where you explain – in detail – you company's objectives, goals, procedures, and timeline. An operations plan is helpful for investors, but it's also helpful for you and employees because it pushes you to think about tactics and deadlines.
In the previous course, you outlined your company's strategic plan, which answers questions about your business mission. An operational plan outlines the steps you'll take to complete your business mission.
Your operations plan should be able to answer the following:
- Who – The personnel or departments who are in charge of completing specific tasks.
- What – A description of what each department is responsible for.
- Where – The information on where daily operations will be taking place.
- When –The deadlines for when the tasks and goals are to be completed.
- How much – The cost amount each department needs to complete their tasks.
In this session, we explain each item to include in your operations plan.
Goals and Objectives
The key to an operations plan is having a clear objective and goal everyone is focused on completing. In this section of your plan, you'll clearly state what your company's operational objective is.
Your operational objective is different than your company's overall objective. In Course One , you fleshed out what your strategic objective was. Your operational objective explains how you intend to complete your strategic objective.
In order to create an efficient operational objective, think SMART:
- Specific – Be clear on what you want employees to achieve.
- Measurable – Be able to quantify the goal in order to track progress.
- Attainable & Realistic – It's great to be ambitious but make sure you aren't setting your team up for failure. Create a goal that everyone is motivated to complete with the resources available.
- Timely – Provide a deadline so everyone has a date they are working towards.
Different departments will have different operational objectives. However, each department objective should help the company reach the main objective. In addition, operational objectives change; the objectives aren't intended to be permanents or long term. The timeline should be scheduled with your company's long-term goals in mind.
Let's look at the following example for a local pizza business objective:
- Strategic objective : To deliver pizza all over Eastern Massachusetts.
- Technology department operational objective : To create a mobile app by January 2017 to offer a better user experience.
- Marketing department operational objective : To increase website visitors by 50% by January 2017 by advertising on radio, top local food websites, and print ads.
- Sales department operational objective : To increase delivery sales by 30%, by targeting 3 of Massachusetts's largest counties.
Sales department operational objective: To increase delivery sales by 30%, by targeting 3 of Massachusetts's largest counties.
Production Process
After you create your objectives, you have to think strategically on how you're going to meet them. In order to do this, each department (or team) needs to have all the necessary resources for the production process.
Resources you should think about include the following:
- Suppliers – do you have a supplier (or more) to help you produce your product?
- Technology team: app developing software
- Marketing team: software licenses for website analytical tools
- Sales team: headsets, phone systems or virtual phone system technology
- Cost – what is the budget for each department?
In addition to the production process, you'll also need to describe in detail your operating process. This will demonstrate to investors that you know exactly how you want your business to run on a day-to-day basis.
Items to address include:
- Location – where are employees working? Will you need additional facilities?
- Work hours – will employees have a set schedule or flexible work schedule?
- Personnel – who is in charge of making sure department tasks are completed?
Creating a timeline with milestones is important for your new business. It keeps everyone focused and is a good tracking method for efficiency. For instance, if milestones aren’t being met, you'll know that it's time to re-evaluate your production process or consider new hires.
Below are common milestones new businesses should plan for.
When you completed your Management Plan Worksheet in the previous course, you jotted down which key hires you needed right away and which could wait. Make sure you have a good idea on when you would like those key hires to happen; whether it’s after your company hits a certain revenue amount or once a certain project takes off.
Production Milestones
Production milestones keep business on track. These milestones act as "checkpoints" for your overall department objectives. For instance, if you want to create a new app by the end of the year, product milestones you outline might include a beta roll out, testing, and various version releases.
Other product milestones to keep in mind:
- Design phase
- Product prototype phase
- Product launch
- Version release
Market Milestones
Market milestones are important for tracking efficiency and understanding whether your operations plan is working. For instance, a possible market milestone could be reaching a certain amount of clients or customers after a new product or service is released.
A few other market milestones to consider:
- Gain a certain amount of users/clients by a certain time
- Signing partnerships
- Running a competitive analysis
- Performing a price change evaluation
Financial Milestones
Financial milestones are important for tracking business performance. It's likely that a board of directors or investors will work with you on creating financial milestones. In addition, in startups, it's common that financial milestones are calculated for 12 months.
Typical financial milestones include:
- Funding events
- Revenue and profit goals
- Transaction goals
In summary, your operations plan gives you the chance to show investors you know how you want your business to run. You know who you want to hire, where you want to work, and when you expect projects to be completed.
Download the attached worksheet and start putting your timelines and milestones together on paper.
Talk about this lesson
Management Plan in a Business Plan
What is a management plan in a business plan? As a small business owner, you know you face an uphill battle. 4 min read
What is a management plan in a business plan? As a small business owner, you know you face an uphill battle. About 80 percent of new ventures fail within their first five years. Why? Most of the time it's due to flawed operating procedures or a less-than-optimal management structure.
What Is a Management Plan?
The management plan is all about employees and operations.
- Employees are one of the most important parts of any new venture. Good employees can make your life much easier, while bad employees can distract you and be a detriment to your success.
- Operational structure can be the difference between a successful venture and a failure.
When you're putting together a business plan , the operations and management section will describe how your business will operate on a day-to-day basis. It will cover all the essentials:
- Your company's physical location
- Other important processes
This section is an easy way to answer basic questions about your business without overwhelming readers.
Carefully crafting a professional and thorough business plan is an important step in forming a new venture. It will keep you on track and clearly define strategy and goals. However, business plans are only as good as the people behind them.
A venture's biggest asset is the entrepreneur. Investors won't make a move until they know they have complete confidence in an entrepreneur. Does he or she have the right experience? Is he or she willing to put in the work? These are just two of the questions Investors will have to answer before working with a new entrepreneur .
The management section of your business plan is an excellent space to highlight the members of your management team . Tell your readers and potential investors who will be managing your company, where they come from, how they will help your venture, and anything else that will signal your venture's future success. Be sure to cast the best light on your management team. Your investors need to know that this team is capable of anything.
There are usually three parts to a good Management and Staffing portion of a business plan:
- Management team details
- Key supporters and alliances, such as an advisory board
- Staffing and employment requirements
A few things to remember as you work on this section of your business plan:
- Your readers are usually potential investors. They need to know you and your management team are trustworthy and deserving of their investment.
- Investors need to know that you and your team can do the job; they need to get a feel for your attitudes and your abilities.
- Showing your team has a wide variety of skills and experiences will give you an advantage when presenting your business plan.
- It's all about the people. Business plans are great for answering key questions about the new venture, but at the end of the day, investors are looking to partner with hard-working, trustworthy people.
Now let's talk about operations. The operations section of the business plan describes several key characteristics of your business. For example, if your business has a physical, "brick and mortar" location, take time in this portion of the business plan to describe the area around your business. Tell your investors why your location is optimal for your business.
Make a note of your standard operating hours. Answer questions like,
- When will you open every day?
- When will you close?
- Will you be open during holidays?
- If so, which ones?
This is also a great section to list out your daily operation details, the different products or services you will provide, your standard operating procedures, customer service, and so on.
Take time in the Inventory section of your operations plan to list out potential suppliers, vendors, or contractors with whom you have agreements. Your partners, even the third-party ones, reflect upon you, so make sure to sing their praises. Put some thought into an inventory plan. Remember, too much inventory means you're likely wasting valuable resources that could be deployed elsewhere. On the other hand, too little inventory means you could be losing out on potential customers.
Once again, your management team plays a crucial role in your operations plan. Tell your investors exactly who they are, how they are uniquely qualified, and how their responsibilities will be divided with operations.
The management and operations sections of your business plan will demonstrate to your investors that you have the right team and the right strategy to be successful in a competitive industry.
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How To Write the Management Section of a Business Plan
Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.
:max_bytes(150000):strip_icc():format(webp)/SusanWardLaptop2crop1-57aa62eb5f9b58974a12bac9.jpg "management and operations in business plan")
Ownership Structure
Internal management team, external management resources, human resources, frequently asked questions (faqs).
When developing a business plan , the 'management section' describes your management team, staff, resources, and how your business ownership is structured. This section should not only describe who's on your management team but how each person's skill set will contribute to your bottom line. In this article, we will detail exactly how to compose and best highlight your management team.
Key Takeaways
- The management section of a business plan helps show how your management team and company are structured.
- The first section shows the ownership structure, which might be a sole proprietorship, partnership, or corporation.
- The internal management section shows the department heads, including sales, marketing, administration, and production.
- The external management resources help back up your internal management and include an advisory board and consultants.
- The human resources section contains staffing requirements—part-time or full-time—skills needed for employees and the costs.
This section outlines the legal structure of your business. It may only be a single sentence if your business is a sole proprietorship. If your business is a partnership or a corporation, it can be longer. You want to be sure you explain who holds what percentage of ownership in the company.
The internal management section should describe the business management categories relevant to your business, identify who will have responsibility for each category, and then include a short profile highlighting each person's skills.
The primary business categories of sales, marketing , administration, and production usually work for many small businesses. If your business has employees, you will also need a human resources section. You may also find that your company needs additional management categories to fit your unique circumstances.
It's not necessary to have a different person in charge of each category; some key management people often fill more than one role. Identify the key managers in your business and explain what functions and experience each team member will serve. You may wish to present this as an organizational chart in your business plan, although the list format is also appropriate.
Along with this section, you should include the complete resumés of each management team member (including your own). Follow this with an explanation of how each member will be compensated and their benefits package, and describe any profit-sharing plans that may apply.
If there are any contracts that relate directly to your management team members, such as work contracts or non-competition agreements, you should include them in an Appendix to your business plan.
While external management resources are often overlooked when writing a business plan , using these resources effectively can make the difference between the success or failure of your managers. Think of these external resources as your internal management team's backup. They give your business credibility and an additional pool of expertise.
Advisory Board
An Advisory Board can increase consumer and investor confidence, attract talented employees by showing a commitment to company growth and bring a diversity of contributions. If you choose to have an Advisory Board , list all the board members in this section, and include a bio and all relevant specializations. If you choose your board members carefully, the group can compensate for the niche forms of expertise that your internal managers lack.
When selecting your board members, look for people who are genuinely interested in seeing your business do well and have the patience and time to provide sound advice.
Recently retired executives or managers, other successful entrepreneurs, and/or vendors would be good choices for an Advisory Board.
Professional Services
Professional Services should also be highlighted in the external management resources section. Describe all the external professional advisors that your business will use, such as accountants, bankers, lawyers, IT consultants, business consultants, and/or business coaches. These professionals provide a web of advice and support outside your internal management team that can be invaluable in making management decisions and your new business a success .
The last point you should address in the management section of your business plan is your human resources needs. The trick to writing about human resources is to be specific. To simply write, "We'll need more people once we get up and running," isn't sufficient. Follow this list:
- Detail how many employees your business will need at each stage and what they will cost.
- Describe exactly how your business's human resources needs can be met. Will it be best to have employees, or should you operate with contract workers or freelancers ? Do you need full-time or part-time staff or a mix of both?
- Outline your staffing requirements, including a description of the specific skills that the people working for you will need to possess.
- Calculate your labor costs. Decide the number of employees you will need and how many customers each employee can serve. For example, if it takes one employee to serve 150 customers, and you forecast 1,500 customers in your first year, your business will need 10 employees.
- Determine how much each employee will receive and total the salary cost for all your employees.
- Add to this the cost of Workers' Compensation Insurance (mandatory for most businesses) and the cost of any other employee benefits, such as company-sponsored medical and dental plans.
After you've listed the points above, describe how you will find the staff your business needs and how you will train them. Your description of staff recruitment should explain whether or not sufficient local labor is available and how you will recruit staff.
When you're writing about staff training, you'll want to include as many specifics as possible. What specific training will your staff undergo? What ongoing training opportunities will you provide your employees?
Even if the plan for your business is to start as a sole proprietorship, you should include a section on potential human resources demands as a way to demonstrate that you've thought about the staffing your business may require as it grows.
Business plans are about the future and the hypothetical challenges and successes that await. It's worth visualizing and documenting the details of your business so that the materials and network around your dream can begin to take shape.
What is the management section of a business plan?
The 'management section' describes your management team, staff, resources, and how your business ownership is structured.
What are the 5 sections of a business plan?
A business plan provides a road map showing your company's goals and how you'll achieve them. The five sections of a business plan are as follows:
- The market analysis outlines the demand for your product or service.
- The competitive analysis section shows your competition's strengths and weaknesses and your strategy for gaining market share.
- The management plan outlines your ownership structure, the management team, and staffing requirements.
- The operating plan details your business location and the facilities, equipment, and supplies needed to operate.
- The financial plan shows the map to financial success and the sources of funding, such as bank loans or investors.
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Business Plan - Operations Section
Operations Section of the Business Plan
Written by Jason Gordon
Updated at April 14th, 2022
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Table of Contents
What goes into developing an operational plan.
All of the components that allow your business to create value.
- Allow you to take a holistic approach to your business, and
- Provide interested third parties with a description of your business.
The operational plan outlines the particular components that allow your business to create value.Below, we discuss the primary components of the businessoperations plan, including: a description of the product produced, the businesslocation, personnel, inventory, suppliers, payment processing (credit policies and accounts receivable/payable). You will describe each of these sections in detail to the extent that it is relevant or applicable to your business. You will need to outline where are you in the creation of your business. Specifically, what steps have you taken to put your business in motion? Now, what do you have left to accomplish?
Back to: Entrepreneurship
What is Product or Service Development?
How do you plan to make your product or carry out your service? Start with an outline of the process for delivering value to your customers. You will need to account for the necessary production activity at each stage. Outline the day-to-day activity necessary to carry out your business.
- Production Process/How Services Carried Out: Here you should outline the process of manufacturing your product. If you provide a service, you should outline all of the moving parts and individuals necessary to carry out the service. Provide a generally checklist or flowchart for delivering value.
- Production Timeline : Explain how long it takes to produce a unit, and when you'll be able to start producing your product or service. Include factors that may affect the time frame of production and how you'll deal with potential problems, such as rush orders.
- Production Feasibility : You will want to give an overview of any research or testing you have done to prove the feasibility of producing your product in accordance with your operational plans. This could include Market Research, Questionnaires, Competitor Process Analysis, Beta Testing, etc.
- Vulnerability : You should identify any potential problems that could arise in the production process. How will you handle any such issues? What would be the effect on the business?
- Quality Control : How will you maintain oversight of the production or service provision process? Develop a plan for supervision of the process.
- Customer Service : What is your plan for customer service? This includes sales communication, return products, and customer follow-up.
Equipment and Other Assets
- Necessary Equipment : What equipment do you need to carry out the basic operations?
- Current Assets : You may already have some of the necessary equipment to carry out operations. Identify these assets and explain what asset requirements they fulfill.
- Equipment Priority : Some equipment is may be desirable but not a necessity. Ascribe a level of priority to obtaining it. The priority should be higher depending upon the likelihood of the equipment to increase production or efficiency.It may also be helpful to outline the equipment output, required maintenance/repair, and expected life.
- Equipment Pricing : Outline a projected cost for purchasing (new or used) and renting the necessary equipment. You need to explain your rationale for your decision.
- Equipment Financing : Explain any financing arrangements. Make a list of your assets, such as land, buildings, inventory, furniture, equipment, and vehicles. Include legal descriptions and the worth of each asset.
Special Requirements
Are there any special requirements or situational factors necessary for carrying on your business? In this section, you will list any requirements that are unique to your business and would fall outside general expect ions. This could include special assets, economic conditions, legal conditions, etc.
- Drawings of the building, copies of lease agreements, and/or recent real estate appraisals.
- What is the expected value of the land or buildings required for your business operations?
- Explain the significance of each physical location to your business.
- Amount of Space : Explain the use of space. Have a plan for space demands with the expected growth.
- Type of Building : Justify your decision to rent vs. buy, and a class of facility.
- Zoning : Make certain the anticipated activity meets the applicable zoning requirements. If not, explain a plan to request a variance or petition the municipality for re-zoning.
- Power and other utilities : What will be your specific power needs. Have estimates for the cost of power and the resources/regulatory approvals necessary to obtain such funding. A strong plan will discuss preliminary data and on-going discussions with the available utility providers.
- Access : What type of access do you need for your location? Detail how customers, employees, logistics personnel, etc., will access your business. Ex. Do you need easy walkin access? Is it convenient for customers and suppliers?
- Construction : Will you build or rent a building? You should explain the benefits of one over the other. This justification should include a cost/benefit analysis of each option.
- Costs : Determine a preliminary figure for costs associated with building/occupying the intended location. Examples of expenses include: rent/mortgage, maintenance, utilities, property taxes, insurance, construction/remodeling, etc. These numbers will become part of your financial plan.
- Hours of Operation : Indicate and give a justification for your intended hours of operation. Does your location support these hours of operation? Does it conflict with other local or resident businesses?
In this section, you provide an overview of the key personnel involved in the business and the types of positions that will be necessary. Basically, you are going to tell who will do what. Describe whether you intend to hire new personnel or contract with independent contractors to carry out business functions. You will need to account for the personnel requirements as the business grows.
- Startup Team : Who is part of your startup team? What will be their primary area of responsibility? Describe what you understand their role and duties to be and explain how they are qualified or competent for these duties.
- Types of Personnel : Give a general description of the main employees or positions that you will need to fill. This includes skilled, unskilled, and professionals. As part of this process, your will outline who performs the specific tasks at each stage of operations. Some of these positions may be filled by independent contractors who render services on a fee basis. If so, document the nature of these anticipated relationships. At first, there will only be a few positions. Try to determine the types of personnel that will be needed as the business grows.
- Number of employees : Construct a timeline depicting the growth in personnel in accordance with the projected business growth.
- Procedural Protocol : Begin by describing the procedures necessary to effectively carry out each position or function of the business. This is necessary to maintain operational stability as well as consistency in operations. This could include procedural steps or written manuals for carrying out individual stages of the operations.
- Methods for Recruiting Employees : This is most important for professional service or high-tech companies. You will need to have a plan for recruiting new service providers and skilled professionals. This will first require establishing job descriptions and desired employee skills. Note: A good place to start is documented any established relationship with local universities with technical programs and professional schools.
- Personnel Training : How will you conduct the training? What will be your plan for preparing new employees? Do you have a continuation plan in the event you lose a key employee? Be careful not to place too much operational importance on any single individual without developing a training plan for replacements.
- Compensation : Along with the description of personnel and timeline for employment, you will want to associate an estimated cost at each period in time. As such, you will need to devise a projected compensation structure for employees. It is important to develop a realistic plan that fits the companies revenue projections and incentivizes the employee to perform and remain with the business. The startup team or key leadership compensation (including benefits and equity options) is often the most difficult to structure.
Inventory & Materials
In this section, you explain where you are going to receive your inventory or the materials necessary to produce your product or carry out your service. You should indicate your suppliers or manufacturers and outline the nature or terms of your agreement.
- Inventory : What type of inventory (finished product, supplies, raw materials, etc.) will you keep on hand and where will you get it?
- Cost/Value of Inventory : You will need to use the projections for the cost of inventory in your financial projections. A key provision in the pre-money valuation (pre-equity funding) of your business will be an accurate assessment of the value of assets, including inventory.
- Inventory Turn-Over : At what rate will you need to restock your inventory? This is an important figure used in assessing the sales strength of the business. You will want to make a special note about how the inventory turn-over compares to industry averages.
- Special Inventory Requirements : You will also want to outline a plan for dealing with inventory requirements seasonally. This includes a plan for lead-time ordering.
- Inventory Control : You will have to establish a plan for monitoring and controlling inventory. This should be incorporated into an employee/personnel description.
Production Costs
All of the above information will be combined as an estimate of production costs to include in your financials. You may want to maintain separate figures regarding the cost of goods and the cost of labor. You may also want to create a third category of production costs for non-recurring, incidental costs associated with operations.
Now is the place to provide detailed information about the companies/individuals who will supply you with the inventory/materials outlined above.
- Supplier Background : You should include background information on the supplier. This lends credibility to the stability/dependability of their service.
- Inventory Details : Attribute the type, amount, and cost of inventory supplied by each supplier. This should include a description of any anticipated fluctuations in the requirements or costs of the inventory. For example, you will want to outline the spikes in seasonal cost.
- Payment Terms : Outline the terms of performance of the supplier-purchaser relationship. What are the terms of payment? What are the terms of delivery?
- Back-Up Plan :It is important to have a back-up plan in the event you lose a supplier or the supplier is unable to meet for operational needs. This could include options of alternative suppliers. This avoids placing too much operational importance on third parties.
Payment Policies
- Issuing Credit : Are you planning on accepting in-house credit? You will want to look at industry standards and the payment policies of your competitors. Don't forget, your payment policies can be a point of differentiation between you and those competitors. What will be the terms of payment for customers who purchase on account?
- Determining Who Can Purchase on Credit : You will have to have some established policies in place to determine who can purchase on credit and under what terms. Remember, you will have to comply with applicable laws prior to carrying out a background check. Also, extending credit could implicate fairness or anti-discrimination in lending laws.
- Terms of Credit : What will be the term of payment? If you extend credit you will need to decide on the terms of repayment and the interest, if any, attributable to giving the credit. What will be the rate of interest charged and penalties for late payment? Will there be a discount for early payment?
- Security Interests : Will you take a security interest in the goods sold? If so, do you have a standard documenting these transactions?
- Slow-Paying or Non-Paying Customers :You will need a policy for dealing with slowpaying customers. What process will you establish for reminding, urging, and possibly threatening customers to render payment? You should outline an escalating plan for requesting payment, such as making a phone call, sending a letter, using a collection agency, and hiring a collection attorney.
- Credit Cards : If you accept commercial credit, doyou have a service provider to process the payment?
- Costs of Extending Credit : Any time that you extend credit there will be a cost involved. The cost could be the risk of the purchaser not paying or it could be the cost of capital over the credit period. Regardless, you will need to build these costs into your financials. For example, there always needs to be some allowance for bad accounts.
Managing Your Accounts Payable
As part of the operations process, you may be in the role of a creditor to a servicer or supplier. You should develop a plan for payment of accounts owed. The key considerations in developing a payment plan include: maintaining positive relations with the supplier/servicer, optimizing the use of available cash. If the supplier/servicer offers a discount for early payment then you should consider whether this option is in your best interest. If your business would greatly benefit from making a payment toward the end of the available period, then it may be worth extending the payment obligation out.
Legal Environment
Establishing and maintaining operations will require the crossing of numerous legal hurdles. You should describe the anticipated legal issues in advance and outline a plan for addressing them. Below are some sample, but common, legal issues.
- Entity Selection and Formation : Outline your justification for choosing a given entity structure. Explanations should include: taxation, equity funding, and ownership and control.
- Business License, Professional Licenses, Inspections, and Zoning Requirements : Identify all of the licensing requirements for carrying on your business. This includes the licensing of your business, personnel, property, etc.
- Insurance and Bonding Requirements : Outline the requirement for bonding of professional insurance. You should indicate the plan for obtaining coverage, as well as the cost of such coverage.
- Permits : Certain business activities in specific places require special permits. You must conduct the necessary background research on the legal requirements and provide a synopsis of how you will handle those requirements.
- Workplace and Environmental Regulations : Outline a plan for the necessary workplace inspections and standards. These standards can drastically affect your construction plans and applicable costs. Environmental regulations include proper documentation and accountability for waste, waste and environmental surveys of the location, etc.
- Employment Laws : Develop a plan for legal compliance with all employment laws. This includes hiring/firing procedures, employee benefits (Health Insurance, etc.), worker's compensation, affirmative action (if accept federal contracts), etc.
- Taxation : Federal tax registration, state tax registration, estimated tax payments, employee payroll withholdings, sales tax registration and withholding, property tax, etc.
- Protecting Intellectual Property : You will need to develop a plan for protecting and maintaining all applicable forms of intellectual property, including: trade secrets, trademarks, copyrights, and patents. In some cases, protecting your intellectual property can be very costly (such as patent filings). Account for these costs within the financials.
Related Topics
- Business Plan, Part 1 (Outline Overview)
- Business Plan, Part 2 (The Executive Summary)
- What is a Mission Statement?
- What is a Values Statement?
- Setting Company Goals
- Business Plan, Part 4 (Market Analysis)
- Business Plan, Part 5 (Competitive Analysis)
- Business Plan, Part 6 (Marketing Plan)
- Business Plan, Part 7 (Operations)
- Business Plan, Part 8 (Management and Organization)
- Business Plan, Part 9 (Financial Projections)
- Business Plan, Part 10 (Appendices)
- Business Plan , (Final Modifications)
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How to Write an Operations Plan Section of your Business Plan
Your business plan is an elaborate set of instructions stating how to run your business to achieve objectives and goals. Each section describes a part of the process to reach your desired goal. Similarly, the operations plan section of your business plan explains the production and supply of your product.
An operations plan is formed to turn plans into actions. It uses the information you gathered from the analysis of the market , customers, and competitors mentioned in the previous parts of your business plan and allows for the execution of relevant strategies to achieve desired results.
Operations Plan Template
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In this article, you will learn how to create an operations plan, its key elements, and an example to help get started to draft one for your business plan.
What Is an Operations Plan?
An operations plan is an in-depth description of your daily business activities centered on achieving the goals and objectives described in the previous sections of your business plan. It outlines the processes, activities, responsibilities of various departments, and the timeframe of the execution.
The operations section of your business plan explains in detail the role of a team or department in the collective accomplishment of your goals. In other words, it’s a strategic allocation of physical, financial, and human resources toward reaching milestones within a specific timeframe.
A well-defined operational plan section of your business plan should be able to answer the following questions:
- Who: Who is responsible for a specific task or department?
- What: What are the tasks that need to be completed?
- Where: Where will these operations take place?
- When: When should the tasks be completed? What are the deadlines?
- How: How will the tasks be performed? Is there a standard procedure?
- How much: How much is it going to cost to complete these tasks?
How to Write an Operations Plan Section?
Creating an operational plan has two major stages, both addressing different aspects of your company. The first stage includes the work that has been done so far, whereas the second stage describes it in detail.
1. Development Phase
In this stage, you mention what you’ve done to get your business operations up and running. Explain what you aim to change and improvise in the processes. These are the elements your development section will contain:
Production workflow:
Explain all the steps involved in creating your product. This should be a highly informative, elaborate description of the steps. Here, you also mention any inefficiencies that exist and talk about the actions that need to be taken to tackle them.
Write down the risks involved in the productions and potential problems you may face later down the line. State the safety measures employees take to avoid any misfortune while working. Explain how you store hazardous material and discard waste.
Membership:
It is essential to include this information to convey to the reader that you are aware of the organizations and associations in your industry. If you are a member of any, make sure to mention them. You can also include the names of the association you wish to be a part of. Finally, here you can also elaborate on the laws and regulations that you abide by in your industry.
Supply chains:
Here, you mention the vendors you work with to sell your products. Give a quick rundown of the agreements you signed with them. Mention the terms and conditions, prices, and timeframe of the contract. You can also mention if you have any backup suppliers if the existing ones fail to fulfill the requirements.
Quality control:
Describe the measures you’re taking to assure and verify the quality of the end product. If you are working towards getting a product certification, explain the steps you take to meet the set standards.
2. Manufacturing Phase
The development stage acquaints the reader with the functioning of your business, while the manufacturing stage describes the day-to-day operation.
This includes the following elements:
Outline of daily activities:
Create an outline of the day-to-day activities of the production process. This includes the hours of operation, days the business will be open, and whether the business is seasonal or not.
Mention the location of your business , other branches you have, and their locations. You may also include images or drawings of the buildings, lease documents, real estate agreements, and other relevant documents. If you include these in your plan, mention why they’re crucial.
Tools and equipment:
Describe the tools and machinery you use. You should also include the cost of the equipment; these will be important to predict financial requirements.
List down all your assets. These include land, buildings, tools, machinery, vehicles, and furniture. Include a legal description and the value of these assets.
Special requirements:
If you require any additional facilities like water supply or power requirements, you mention them here. Specify what you need to do or have already done to acquire permissions for these requirements.
Raw materials:
Mention your raw material suppliers. If you need any extra materials, you can also include that in your operations plan. Here, you also mention the contracts and agreements with your suppliers.
Productions:
Explain the production process and the time required for you to produce one unit. Include the factors that may disrupt the production flow. Further, mention your strategies to tackle these inefficiencies to avoid delays in manufacturing.
Here, you state the process of storing manufactured products, managing the stock, and the costs of the storage spaces. Stringent management of inventory is essential to maintain product quality and assure customer satisfaction.
Feasibility:
Specify any tests that your product has undergone. This can include prototype tests, product or service tests, price testing, etc.
Include the pricing strategy for your products or services . You can also include the final prices of your products.
Why Do You Need an Operations Plan?
An operations plan is essentially an instruction manual about the workings of your business. It offers insight into your business operations. It helps investors assess your credibility and understand the structure of your operations and predict your financial requirements.
An operations plan reflects the real-time application of a business plan.
Internally, an operations plan works as a guide, which helps your employees and managers to know their responsibilities. It also helps them understand how to execute their tasks in the desired manner—all whilst keeping account of deadlines.
The operations plan helps identify and cut the variances between planned and actual performance and makes necessary changes. It helps you visualize how your operations affect revenue and gives you an idea of how and when you need to implement new strategies to maximize profits.
Advantages Of Operations Plan:
Offers clarity.
Operational planning, among other things, makes sure that everyone in the audience and team is aware of the daily, weekly, and monthly work. It improves concentration and productivity.
Contains A Roadmap
Operational planning makes it much easier to reach long-term objectives. When members have a clear strategy to follow: productivity rises, and accountability is maintained.
Sets A Benchmark
It sets a clear goal for everyone about what is the destination of the company and how to reach there.
Operations Plan Essentials
Now that you have understood the contents of an operations plan and how it should be written, you can continue drafting one for your business plan. But before doing so, take a look at these key components you need to remember while creating your operational plan.
- Your operations plan is fundamentally a medium for implementing your strategic plan . Hence, it’s crucial to have a solid strategic plan to write an effective operations plan.
- Focus on setting SMART goals and prioritizing the most important ones. This helps you create a clear and crisp operations plan. Focusing on multiple goals will make your plan complicated and hard to implement.
- To measure your goals , use leading indicators instead of lagging indicators. Leading indicators is a metric that helps you track your progress and predict when you will reach a goal. On the other hand, lagging indicators can only confirm a trend taking the past as input but cannot predict the accomplishment of a goal.
- It is essential to choose the right Key Performance Indicators (KPIs) . It is a good practice to involve all your teams while you decide your KPIs.
- An operations plan should effectively communicate your goals, metrics, deadlines, and all the processes.
Now you’re all set to write an operations plan section for your business plan . To give you a headstart, we have created an operations plan example.
Operations Plan Example
Operations plan by a book publishing house
Track and Accomplish Goals With an Operations Plan
Drafting the operations plan section of your business plan can be tricky due to the uncertainties of the business environment and the risks associated with it. Depending on variables like your market analysis, product development, supply chain, etc., the complexity of writing an operations plan will vary.
The core purpose here is to put all the pieces together to create a synergy effect and get the engine of your business running. Create effective operations plan to convey competence to investors and clarity to employees.
Frequently Asked Questions
1 what role does the operations plan play in securing funding for a business.
The operations plan defines the clear goals of your business and what actions will be taken on a daily basis to reach them. So, investors need to know where your business stands, and it will prove the viability of the goals helping you in getting funded.
2 What are the factors affecting the operations plan?
- The mission of the company
- Goals to be achieved
- Finance and resources your company will need
3 Can an operations plan be created for both start-up and established businesses?
Yes, both a startup and a small business needs an operations plan to get a better idea of the roadmap they want for their business.
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A Small Business Guide to Operational Planning
by DP Taylor | Updated Aug. 5, 2022 - First published on May 18, 2022
Image source: Getty Images
Operational planning isn't glamorous, but it's a must for any small business. Without a roadmap, you’ll get lost when you set out to accomplish a goal.
But where do you begin with an operational plan? It sounds complicated, and in some ways it is. But you don't need to be a business genius to draft one.
An operational plan is about understanding your vision, creating goals, and laying out the concrete steps to realize them. This handy guide will help you get it right.
Overview: What is operational planning?
Operational planning refers to the creation of an outline of what activities a department or organization will focus on in the coming months.
An operational plan is the "how" to any organization's long-term vision. It lays out how a department will accomplish a specific project that is part of a larger effort in the company's vision.
A strategic plan sets big, grand goals for a vision, with major tasks you must complete over time to get there, while an operational plan serves as the blueprint for how a department will complete each task.
Operational planning vs. strategic planning: What's the difference?
An operational plan differs from a strategic plan in that the latter is more about your organization's vision, while the operational planning dives into the nuts and bolts of how that's going to play out day to day.
A strategic plan looks at long-term goals five years into the future or more, while an operational plan looks at what you will work on for the next, say, six months to a year.
An operational plan is also more department-focused than the strategic plan, which concentrates on organization-wide goals. The time involved may vary; annual operational planning is common, but an organization may just draw up a plan for the next three or six months.
Benefits of operational planning
Organizations that don’t spend time on operational and project planning are often winging it, which means they run into obstacles along the way and fail to achieve overarching goals. Here are three main benefits to doing this planning correctly:
1. It makes success more likely
Setting ambitious goals is important as an organization, as it gives you something to drive toward. But you won’t realize those goals without a practical, realistic plan. Drafting an operational plan makes it more likely the organization will succeed.
2. It improves teamwork and collaboration
With an operational plan in place, everyone has a role and teammates aren’t stepping on each other's toes. The plan lays out who is responsible for what and sets expectations on how and when these tasks are achieved.
3. It boosts productivity
Everyone is more productive when they have proper guidance on what they should be doing. An operational plan provides that direction to your team.
They’ll know what’s expected of them and understand the deliverables . They'll just flat out be more motivated to do the work when they understand and believe in the vision.
Types of operational plans
You’ll likely use two types of operational plans: single-use and standing.
A single-use plan is an operational plan relates to a particular project, and it’s discarded once the project is complete. Use this when the project doesn't match another project or isn't likely to be used again later. You can customize it to fit the individual project.
A standing plan is an operational plan that’s used repeatedly. A department will use this for projects or tasks that crop up frequently. Having these plans in place means you won’t have to "reinvent the wheel" each time, but you will sacrifice some flexibility.
How to create an operations plan for your small business
An operations plan is straightforward, but devote sufficient time to draft one -- don't cut corners. These five basic steps can help you create your own:
Step 1: Examine your organization's vision
Any organizational project is a steppingstone to achieve a larger vision, so know and understand that vision before initiating any project. What is your organization trying to accomplish at a macro level?
Talk to leadership and find out what they consider important. Then think about how your project fits into that bigger picture.
Quick tips:
- Ask leadership what success looks like to them: Frequently, a department manager's idea of success looks different than organizational leadership’s idea. That's not surprising, because leadership’s focused on the big picture while a departmental vision is a bit narrower. Ask leadership what they think success looks like for your project so you’re not guessing.
- Create a vision for your own department: After that conversation, draft a vision for your department that’s closely aligned with the organization’s vision -- like a localized version of it. As you draft it, constantly compare it to the organizational vision and make adjustments as necessary. This will ensure you have the proper focus before you begin the project.
Step 2: Define the goals and strategy
Now that you understand where your tasks fit into the big picture, figure out what the goals of this specific project should be. Then draft a strategy on how you'll get there as a department.
At this point in the operational planning process, draft a scope of work and identify stakeholders .
- Use project management software : Software can help you track the metrics you set in your goals to see if your team is meeting them. You can use other project management tools as well to help you during the project.
- Use past projects as your guide: Examine an operating plan example from a previous project that’s similar to yours. What mistakes did they make you can learn from? What timeline did they work with and how successful were they in terms of sticking with it?
Step 3: Plan out activities
With vision, goals, operations strategy, and project scope handled, now you can get into actually planning the activities . You must be very specific, laying out what concrete plans to reach the end goal. Break these into small steps.
- Work backwards: Start with the goal, and then determine what the preceding step would look like. For example, if you set a goal "increase sales by 20%," the preceding step might be "pitch to 20% more leads," and the step before that might be "generate 20% more leads," and so on. Each larger step could have subsets to further break them up.
- Identify resources: You must list all supplies, equipment, training, and other resources you will need to accomplish each task. Without these, you will fall behind.
Step 4: Assign roles and responsibilities
Next, assign roles and responsibilities to team members. Select and assign people to tasks based on their skills. Lay out communications strategies so you’re all on the same page. Be specific about team member reporting structures and deadlines you expect them to meet.
- Consult with each member of your team: After you draw up the plan and assign responsibilities, meet with members of your team individually for a gut check. Did you miss anything? Did you put too much on their plate (or not enough)? Did you assign tasks appropriately? Should you reassign tasks based on your meetings with team members?
- Reward successes: Motivate your team by offering them rewards if they meet critical milestones: maybe a bonus or a pay raise, or something more modest, such as a gift card.
Step 5: Monitor and adjust
Monitor progress and adjust as necessary to ensure everything is on track. Hold your team to the deadlines you set, and if you miss a deadline, adjust the plan to keep from getting off track. Draft work reports throughout the project so you can properly analyze team performance.
- Be flexible: A rigid project is doomed to failure, so bake in room for adjustments. Be willing to drop some less-important goals for more important ones, and be prepared to shuffle people into different roles at a moment's notice.
- Have a post-project meeting: When you’ve finished with the project, meet with your team to talk over what went right and what could be improved. Keep a positive outlook and encourage honesty so you can identify opportunities to execute the next project even better.
Set aside time to do operational planning right
The bottom line is that an operational plan is not rocket science, but you've got to put in the work. A good operational plan will be mapped out in great detail, spelling out manpower, resources and specific steps you must take.
This isn’t something you can whip up in a half hour on your lunch break. Set aside hours or even days to do the legwork, meet with stakeholders and leadership, and draw up a strategy, with detailed action steps.
It may seem like a lot of effort, but it will pay off in the end when your department completes a praiseworthy project on time and on budget.
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Operational Planning: How to Make an Operational Plan
The presence of a strategic plan is essential to any company, but it's not enough. You need an operational plan for day-to-day work to make sure that the broader organizational goals are within reach.
Operational plans are not only for large enterprises — small businesses and individuals too can benefit from operational planning. According to University Lab Partners , a lack of planning is one of the top reasons that startups fail. What's more, a survey by Gallup found that only about half of employees know what is expected from them at work. Without a robust operational plan in place, organizations are risking losing their best workers and their business success.
In this blog post, we will explain what is an operational plan and show you how to create one without being overwhelmed.
What is an operational plan?
An operational plan is a document that outlines the key objectives and goals of an organization and how to reach them.
The document includes short-term or long-term goals in a clear way so that team members know their responsibilities and have a clear understanding of what needs to be done.
Crafting an operational plan keeps teams on track while guiding them in making crucial decisions about the company's long-term strategy.
Operational planning vs strategic planning
Though related to each other, these two planning strategies differ in their focus.
Operational planning is the process of the day-to-day work to execute your strategy. It ensures you have all the resources and staff necessary to get work done efficiently.
On the other hand, strategic planning is about looking ahead into the future, identifying the upcoming pipeline, and figuring out how you can prepare for it.
According to the U.S. Bureau of Labor, nearly 7 million Americans are self-employed, with an additional 10 million employed by small businesses.
If you're working at a large corporation, chances are your company will have some form of strategic goals in place. However, if you're one of the millions who work remotely and independently, your success will rely on operational planning instead.
What are the key elements of an operational plan?
The success of operational planning largely depends on setting realistic expectations for all teams.
Here are the key elements of a functional operational plan:
- Clearly define the ultimate vision or objective for the plan
- Review and break down the smaller goals for the operating budget, team, and resources required to put the plan into action
- Assign budgets, team members, key stakeholders, and resources
- Monitor progress with consistent reports
- Refine the operational plan and be ready to pivot if needed
Ensure all teams understand the parameters of success. Doing this shows how their work contributes to wider company goals and ensures better decision-making for the business operation.
How to create an operational planning process
Think of an operational plan as a key component in a team puzzle. It provides employees with a manual on how to operate the company.
It should be created in tandem with other foundational documents like an organizational mission statement, vision document, or business strategy. Daily, it can help answer questions such as:
- Who should be working on what?
- How can we mitigate those risks?
- How will resources be assigned for different tasks?
- Are there any internal and external risks facing the business?
To create a successful operational plan, it's important to define goals clearly. Here are several steps that will help you develop a functional operating plan:
Start with the strategic plan
Before defining an operational goal, make sure your strategic objectives are in place and relevant.
Prioritize the most critical activities first
Once these goals have been decided on, prioritize the most critical activities required to achieve these aims.
Stop diluting team efforts and let them focus on the most important goals first. Doing this means everyone works on a smaller set of tasks, instead of spreading themselves thin in multiple areas. It also helps in optimizing available resources.
Use predictive indicators
For a robust operational plan, consider using key performance metrics or indicators that can help you determine project progress and lend visibility to team activities.
While lagging indicators look backward, leading indicators look to the future. Think of the plan as a car — the rear-view mirror would be a lagging indicator, while the windshield would be the leading indicator.
A leading indicator could be a new product, higher customer satisfaction levels, or new markets. Examples of lagging indicators include the number of people who attended an event or the monthly operating expenses for specific departments.
Instead of lagging indicators, use leading indicators. Lagging metrics will show that your efforts are falling short only after you execute the operations.
Leading KPIs include predictive measures that allow early identification of problems before they become critical and impact business performance negatively.
Get team buy-in
The key to defining appropriate KPIs is involving the whole team in the process. Meet to discuss the business goals and figure out what measurements are right for the team instead of working independently or outsourcing them.
Ensure consistent communication
Communication is key. By understanding your company's metrics and what they mean, you'll be able to work together more effectively with colleagues to reach common goals.
Operational plan example
Let’s say that a company plans to increase production volume by 50% at the end of a fiscal year.
When the company goal is clear, the team will make a strategic plan with three main components: marketing, sales, and operations.
This can be further broken down into an operational plan, which will assign resources, teams, budgets, and timelines for different departments such as manufacturing, sourcing, accounts, finance, and logistics to achieve the increase in production. Such a plan should include a financial summary and financial projections as well.
Operational plan template
Think about the example above. The goals and parties involved are clear as part of the operational plan. At the same time, to remain on track, the plan requires continuous analysis and reviews. An operational plan template can be extremely helpful to achieve that.
An operational template can be a simple document that is reused for different plans by the same organization. However, it is also possible and extremely helpful to make use of project management software tools to create one.
For instance, Gantt charts can serve exactly that purpose. Using a Gantt chart as an operational plan template, it is possible to create and manage plans, track changes and edit project-related activities in real time. The chart allows clear visibility for timelines, tasks, responsibilities, and team members.
Operational planning advantages and disadvantages
Most businesses utilize an operational plan to keep track of their daily tasks.
The plan outlines the day-to-day activities for running the organization — teams, managers, and employees are then able to visualize their contribution, which is crucial for reaching company goals.
But every process has two sides. Let’s review the operational planning advantages and disadvantages in more detail.
Operational planning advantages
Clarifies organizational goals.
An operational plan helps managers and department heads define their daily tasks, responsibilities, and activities in detail.
It also illustrates how individual team members contribute to the overall company or department goals. Without a clearly defined plan, managers and employees have no way to measure their daily tasks against predefined outcomes.
Boosts team productivity
Business owners are always looking for ways to increase productivity, which in turn translates into higher profits. One of the best and easiest ways to boost efficiency is through an operational plan.
Employees are more productive when they know their daily objectives and responsibilities. Conversely, if they're unsure of what is required of them, chances are their productivity will suffer.
An operational plan provides this vital information to employees in each department and across the company as a whole.
Enhance organizational profitability
Having a plan helps in keeping projects and teams on track.
When operations are managed properly, teams are able to consistently increase revenue and develop new products.
Innovation pays off. A BCG survey points out that 60% of companies that are committed to innovation report steadily increasing revenues year after year. With an operational plan in place, teams are able to innovate better and faster.
Improves competitive advantages
Competitive advantages are made up of multiple levels and components.
Coordinating the different parts with an operational plan will make your workflows run more smoothly. This allows you to deliver high-quality deliverables on time, creating an outstanding customer experience and keeping you ahead of the competition.
Operational planning disadvantages
Possibility of human error.
Human error is a common problem in manufacturing that can often occur when transitioning from production to sale.
Operations management teams will need to coordinate effectively with diverse cross-functional teams such as finance, accounting, engineering, and human resources. In doing so, each team will have a clear understanding of the end goals of each department.
Interdependency amongst parts
One of the main disadvantages of implementing an operations planning process is that its success depends on coordination across parts.
Plans end up failing due to one part not working, which can have an adverse impact on the subsequent process. Disruptions in one process can end up affecting the entire process, making the entire operational plan useless.
Using Wrike for operational planning
Give your organization a boost by ensuring every project starts off on the right foot.
Wrike's award-winning project management tools help you craft and execute an operational plan template with Gantt charts and various other premade templates .
Establish your operational plan, monitor progress, and be ready to pivot if required. Wrike lets you share real-time data that makes all milestones crystal clear for your team, helping them stay updated and on track.
With Wrike, your team can create and monitor a high-quality operational plan that ensures the achievement of organizational goals. Start a free two-week trial of Wrike to put your operational plan into practice today!
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Business Operations:
Define operations management in your plan.
Your business operations need to be detailed in your operating plan; it's the core function of your organization. When writing a business plan, define operations management tools and strategies, as well as your target operating profit margin.
Business growth and operations objectives depend on accurate, up-to-date information in your plan.
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Business Operations and the relationship to your business plan: your operations include the physical location, facilities, equipment, inventory, warehousing, management information systems, people - everything that is required to operate your business.
Understanding and effectively managing the operations side of your organization is key to running a successful business.
Ensure that you include your business operations strategies in the business plan outline.
Your strategies might include a lean approach to your operations, or a focus on continuous improvement, or on investing in high technology equipment.
Define Operations Management
By detailing what is required from your operations to achieve your overall business objectives, you will keep the business focused on the day to day events that are necessary to keep the business going.
That includes equipment and facilities management and cost; maintenance management and cost; labor force (number of people required for the production and sales goals); the budgets for each of the operations line items; and the planned operating profit margin for each product.
Your operating function is the core of your business and it's extremely important to manage it effectively, while integrating the other business functions into your planning.
16 Operations Management Tools and Techniques:
Indicate operating hours (shifts, open for customers, days of week open, etc.). Indicate the address of your location(s).
Describe how your product is made or how your service is provided.
- Detail your day-to-day operation, including all the products and/or services you provide, how you provide them and standard operating procedures for each process.
- Provide information on the average production time from quote or estimate (if applicable) to shipped order.
- Detail any seasonality (e.g. Christmas season) that requires peak staff, peak service, peak performance.
- Also detail your inventory requirements (for materials and finished goods) and how you keep track of your inventory (method; system).
Provide information on costs to produce (or service cost) by item and project those costs to align with sales plan projections.
Identify your labor force requirements (by department) - actual and projected based on sales projections. Also include training and development required to meet the operation's need. Include wages and benefits paid (and future employee compensation costs, e.g. wage increases, benefits increases, insurance increases), employee policies and practices for full time, part time and contract personnel. Part of the role of human resources is to provide this information to management; but some businesses do not have human resources support - that means the business owner must provide this information for planning purposes.
Identify your operations challenges to overcome and the costs associated with those challenges. For example, a steep growth curve over the next two years will require a larger physical footprint in the warehouse and additional warehousing equipment (forklifts, etc.) and staff) and will have an impact on your capital expenditures plan, on the operating profit margin, and on your financial ratios .
Identify the industry standards and regulations and how you meet them (e.g. safety, environmental, competition, etc.).
Identify your suppliers, what they supply, their pricing today and what you expect their pricing to be for the life of the plan.
- Include how these suppliers rank in terms of volume and importance to you.
- Identify any supplier that is critical to your business (i.e. only they can supply what you need) - if that is the case, make sure you put together a plan for alternative or substitute materials or supplies.
- Identify the terms and conditions and annual invoice amounts.
Identify your quality standards, how you are doing against those standards and if you plan any changes to your standards. Some associations can provide industry quality standards for comparison (e.g. the type of association that might have this information are industry or trade associations).
Use your safety checklist to identify what safety standards you want to measure, how are you doing against those standards and if you plan any changes.
If applicable, identify your environmental standards and how you are doing against those standards. Also indicate if you foresee changes in the near (next 5 years) future.
Identify any operational risks: for example - changing environmental standards; a key piece of equipment nearing the end of its useful life; etc.
Identify the physical storefront or plant or location.
- The type of structure, the size, the location.
- If you have them, include the most recent building drawings or a schematic; property appraisal (if you own the building); lease agreements, including the details on any leasehold improvements (if you lease the space).
- Indicate also if the space you own or lease is used to capacity or if there is room for growth. If you feel you have adequate space now, project into the future (based on sales growth) and predict when and how much space you might need 5 or 10 years from now.
- Indicate how the location provides access to, and for, customers, suppliers and the marketplace.
Prepare a list of all equipment (including what it does), what it cost, what its worth today (market value), financing arrangements, and the remaining estimated useful life of the equipment.
Prepare a list of all other assets (you might want to include the equipment list in this list too - even though it's a duplication, it's easier to read if in the two sections). Include land, buildings, equipment, inventory (finished goods as well as materials or supplies and in-process inventory at the time of writing the plan), vehicles, and whatever else you have as assets. Include what you paid for the assets, the worth today, any legal descriptions and/or identifying numbers.
Identify any special requirements (emissions, power, ventilation) that the business operations requires and how you deal with it.
Ensure that you list all operations management tools that you plan to use (for example, Lean Manufacturing, 5S, Six Sigma, ISO, and more).
Your Business Operations and Workflow
Make sure during your planning process that you consider operation or production constraints. Where is the bottleneck in your operation? Understand what slows your process down; then manage those constraints. For example, if you have a workflow issue (too many 'touchpoints'), analyze the problem using DMAIC (define, measure, analyze, improve, control) and then streamline the process to enable increased efficiency - and less touchpoints.
Once you develop your business operations plan, and define operations management strategies, track the actual results to the projected forecast on a monthly and annual basis. See how your business operations are doing compared to your plan: and manage the differences (if any).
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Return from Business Operations to Small Business Plan .
Human resource planning needs to be part of business continuity planning.
Ensure your Business Financial Plan includes a provision for emergencies.
Build your Business Continuity Resources and Business Continuity Plans .
Your Business Exit Strategy needs to include management succession planning.
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Implement your plan: for results.
Once you've built your plan, you need to implement it.
Developing your strategy (in the plan) is the first, necessary, step. You need to know the direction you want to go, and you need the strategy and the plan to help you get there.
But once you've built the plan, you must execute it.
There is no value in building a plan that just gathers dust.
When building your business plan, make sure that you include an action plan for the strategies, techniques and tactics.
The actions need to include who's responsible for doing what; measurements for success (such as deadlines and timelines, targets and goals, costs, etc.); and why you need to take the action (in some cases, one action needs to be accomplished before subsequent ones can be launched).
As you work through the plan, make sure that you build reporting periods into the implementation: you need to know what's going on and why something is working, or not.
Make sure to communicate progress, or lack of it, throughout the organization. And re-visit the plan when and where necessary.
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Focus on Your Plan
Plan for the future: lots of business owners want to get, or keep, moving forward. Planning seems to be more of a passive activity.
However, to ensure that your business goes in the right direction and that it optimizes all its opportunities, and manages its challenges, it is important to plan.
Balance your activities against the plan: make sure that you are investing your time, and money, on the elements of your business that will help you succeed.
Measure what works, and what doesn't work, and keep your focus: use your business plan as a map to guide you in the direction you want to go.
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IMAGES
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COMMENTS
Preparing a financial plan for your business is important if you plan to pursue business finance options such as loans, according to Inc. Business finance companies look at the short-term viability as well as the long-term potential of a bu...
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Your business operations need to be detailed in your operating plan; it's the core function of your organization. When writing a business plan, define