04/10/23 1

Business planning

04/10/23 2

Definitions

• Planning– process of deciding which objectives

need to be achieved and the preparing of how to meet them

• Objectives– anticipated end result of activity, the

things you hope to achieve

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Business Planning and Control

• “To Plan” is to arrange beforehand • PROACTIVE

– Give time to something before it happens in order to have influence over events when they do happen

• REACTIVE– Avoid crisis management and

responding to things when they have gone wrong

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The planning gap

Where we are nowWhere we want

to be

The planning gap

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Main management activities

Planning is one of the 4 main management activities

Planning

Motivating

Controlling Organising

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Planning

• Precedes all other management activities

• Focus attention on objectives through unity of purpose

• Removes uncertainty by providing a framework for contextualised activity

• Facilitates control by setting targets

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The planning hierarchy

MissionObjectivesStrategies

PoliciesProcedures and Rules

ProgrammesBudgets

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Definitions

• Mission– the organisation’s basic functions

• Strategies– course of action including resource

use to achieve overall objective• Policies

– general statements to guide thinking and actions

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Definitions

• Procedures– customary methods of action

• Rules– specific statements of what may or

may not be done

• Programmes– collection of activity carried out to

achieve desired outcome

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Definitions

• Budgets– statements of expected results

expressed in financial terms

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Planning is a continual process

Establish objectives

Review progress

Implement the strategy

Decide tactics

(budget)

Plan the strategy

How best can the strategy be implemented?

How successful have we been in implementing the strategy ?

What do we want to

achieve?

How can we achieve our objectives?

How do we make the strategy

operate with success?

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Planning

“….Change is inevitable. In a progressive country change is

constant….”

DISRAELI

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Types of plans

Strategic plans

Operational plans

Tactical plans

Unit plans

Long term (produce milk from grass)

Short term (milk 3

times a day if below quota)

Feed according to

yield

Milking at 0600 and 1600 hrs

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Planning horizons

• Time or duration of plan• Should cover

– LONG TERM - significant commitment– SHORT TERM

• Long and short term plans may conflict

• Attempt to reconcile

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Strategic planning

Managerial process of developing and maintaining a strategic fit between the

organisation’s objectives and resources and changing market

opportunities

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Strategic planning

• Define the direction of other plans– Long term– Comprehensive– Clear mission or purpose– developed and controlled by

management

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The external environment

SOCIAL

PHYSICALCOMPETITIVE

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Physical environment

• Natural conditions– location– climate

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Social environment

• Political-legal• Economic• Social-cultural• Technological

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Political-legal environment

• Legal constraints– Parliament– European Union

• Employment law• Health and Safety• Marketing• Financial law• Environmental

law

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Political-legal environment

• Benefits can arise from political sources

• Areas receiving special assistance– Objective 1– Less Favoured

Areas

• Subsidies– Single Farm

Payment

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Economic environment

• Regional economic influences– labour, disposable income, subsidies, roads

• National economic influences– inflation, interest rates, exchange rates,

taxation

• International economic influences– economic growth rates, inflation, interest

rates, protectionist measures and economic measures

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Some economic information

agricultural employment ('000 hd)

0

200

400

600

1978 1982 1986 1990 1994 1998 2002

total employment ('000 hd)

20000

22000

24000

26000

28000

1978 1982 1986 1990 1994 1998 2002

base rate %

0

5

10

15

03/ 86 12/ 88 09/ 91 06/ 94 03/ 97 12/ 99 09/ 02 05/ 05

retail price index

- 10

0

10

20

30

1948 1956 1964 1972 1980 1988 1996 2004

%

Office of National Statistics - Economy

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Social-cultural environment

• Demography– growth, age distribution,

concentration of population• Cultural change

– ethnicity, religion, social class, membership of organisations

• Social change and social trends– standard of living, attitude to

business, workforce

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Some demographics

Population age structure

0%

20%

40%60%

80%

100%

1971 2002 2031

65 and over

16- 64

0- 15

natural population change

-200

0

200

400

600

800

1901 1923 1945 1967 1989 2011 2033

'000 h

d

net migration within UK - '000 hd

-55,0

00

-40,0

00

-25,0

00

-10,0

00

5,0

00

20,0

00

South WestEast MidlandsEastSouth EastYorkshire and the HumberWalesScotlandNorthern I relandNorth EastNorth WestWest MidlandsLondon

age vs gender

0

200

400

600

0 10 20 30 40 50 60 70 80age

'000

Males

Females

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Technological environment

• Type of products or services– Ready meals

• Method of production– Larger farms

• Market identification– Information chain from supermarkets

• Mobilisation of employees– Single market, gangmasters

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Competitive environment

• Threat of new entrants• Threat of substitute products• Bargaining power of customers• Bargaining power of suppliers• Rivalry amongst current

competitors in the industry

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Uncertainty

"Reports that say something hasn't happened are always interesting to me, because, as we know, there are known knowns, there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns - the ones we don't know we don't know."

Donald Rumsfeld2003

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Uncertainty

Events

Know Unknown

Com

pre

hensio

n

Know•Size of herd•Area of land

•Lambing %•Mortality %

Unknown

• X factor•Unusual perception

•What will hit us next?•Force majure

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Whole business planning

• When will the need arise?– Old system unacceptable– Changing circumstances

• age, health, labour, profitability• Change in subsidy rules

– Cross compliance, single farm payment

– New business / extra land

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Assembling the facts

1. Determine the objectives2. Assess the resources3. Make an appraisal of the present

system

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Objectives

The anticipated end result should be:-

• Specific• Measurable• Agreed• Realistic• Timetabled

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Determine your objectives

• Agree the objectives• Prioritise• Define activities and tasks• Agree standards of performance• Allocate roles• Set and timetable performance

criteria

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Types of objectives

• Financial– Profitability– Stability– Adaptability– Reduction of

borrowing– Avoid tax

• Short term• Long term

• Non financial– Quality of life– Personal satisfaction

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Assess the resources

• Land• Labour• Capital• Management

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Make an appraisal of the present system

• Assess both PHYSICAL and FINANCIAL performance

• Compare– Current vs Past performance– Current vs Budgeted performance– Current vs Industry performance

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Financial assessment

• Gross margins• Profit• Net Income (Net Farm Income)• Balance sheet

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Reductionalist theory

• Breakdown items into individual components– Milk revenue to milk price per litre and

litreage produced– Trekking revenue to no horses, no treks

per day and £ per trek– Fertiliser expenditure to £ per tonne,

application rate per ha and number of hectares covered.

• MAKE APPROPRIATE COMPARISONS

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Dairy sales example

Dairy sales

Milk yield (litres)

Milk price (p per litre)

Milk receipts

Cull sales

Calf sales

No. calves sold

Calf price (£ per hd)

No. culls sold

Cull price (£ per hd)

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Planning business structure

4. List all possible enterprises5. Select the best combination of

enterprises6. Prepare a complete detailed

budget for the plan

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Planning techniques

• Short list and budget method• Gross margin planning• Linear programming

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Shortlist and budget method

1.Set your objectives. 2.Subjectively formulate alternative plans choosing the most attractive to include in a short list. (A plan which is a continuation of the present system should be chosen as one alternative for comparative purposes.)3.Prepare budgets for each of the chosen plans.4.Select the plan that best fulfills the objectives set at the start.

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Shortlist and budget method

• No straightforward answer• Two plans may seem attractive but no

decision either way is apparent• Construct a STRENGTH AND

WEAKNESS TABLE• Set pros and cons out on paper in order

to make a judgement. • Not complex, practical

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Strengths and Weakness tableOption 1 Option 2

Strengths

Weakness

Opportunities

Threats

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Gross Margin planning

• Expand the enterprise which contributes most towards your objectives to its most limiting constraint.

• Enterprise with the second largest contribution is then expanded to its most limiting constraint etc

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Gross Margin planning

1. Decide which key resource is the most limiting (land, labour, capital).

2. List all feasible enterprises and calculate a GM per unit of limiting resource.

GM / haGM / £100 working capitalGM / 100 man hours

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Gross Margin planning

3. Identify enterprise with largest GM per unit most limiting resource and introduce into plan to maximum that constraints allow eg dairy up to quota, or silage stocks, or cubicle availability, pigs up to housing available.

4. Introduce enterprise with second largest GM per unit most limiting resource into plan, and so on.

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Gross Margin planning

5. Continue process until one of key resources used up.

6. Introduce enterprises which do not utilize used up resource.

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Gross Margin planning

• Limitations– Deciding on most limiting key

resource– Fixed costs assumed to remain

constant

• Simple and practical and logical• More sophisticated techniques

tend to be less practical.

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SOLUTION

Linear programming

• Wheat vs Barley• Max 50 ha• Contract 20ha

barley (minimum)• Contract 20ha

wheat (maximum)

Area wheat ha

Are

a b

arl

ey

ha

50

50

20

20

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Detailed budget for the plan

• Quantify physical components• Construct

– Gross Margins– Trading Profit and Loss Budget– Balance Sheets– Cash Flow Budget

• Normally a 3 year span

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FINANCING & IMPLEMENTATION

7. Physically phase in the plan 8. Prepare interim plans & budgets9. Prepare cash-flows & balance

sheets.

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Physically phase in the plan

• Seasonality is a major factor• Availability of livestock• Seasonality of crop work• Erection of buildings• Availability of finance

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Prepare interim plans & budgets

• Monitor the plan• Review where necessary

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9 point plan

Assembling the facts

Finance and implement

Planning the system

• Determine the objectives• Assess the resources• Make an appraisal of the present system• List all possible enterprises

• Select the best combination of enterprises

• Prepare a complete detailed budget for the plan.

• Physically phase in the plan• Prepare interim plans & budgets• Prepare cash-flows & balance sheets

Success orfailure?