Developing strategies and tactical plans to address specific areas of business should be compiled into an all-inclusive annual plan. This will provide a picture of the overall impact of the annual plan and allow adjustments to be made if necessary. Budgeting is about developing an integrated plan so that the inter-relationships between strategic objectives can be analyzed and refined. The final plan should be a detailed projection of business activity for the upcoming year. This can be done using a spreadsheet with projections by month. Following are steps to creating an annual plan:
- Project Fixed Overhead Costs – Fixed overhead costs will remain constant from month to month. There may be projected changes and they should be included in annual planning.
- Quantify Sales Impact and Costs of Marketing Campaigns – Marketing should generate sales and there is a cost associated with them. Identifying the sales and cost impacts whether the objective is to maintain current levels or achieve business growth should be an integral part of annual planning.
- Estimate the Effect of Sales Process Improvements – Sales increases and corresponding costs resulting from changes in the sales process should be included in annual plans.
- Project impact of Operational Changes – Operational changes should serve to reduce costs thus widening profit margins. The expected benefits of changes enacted should be part of annual plans.
- Calculate Adjusted Variable Overhead Costs – The result of marketing, sales and operational changes will lead to an increase in sales and production volume. Thus variable overhead costs will increase accordingly.
- Assess Profit and Return on Investment – After all components of the annual plan have been formulated – profit and return on invested capital should be readily discernable. The consolidated plan will indicate the impact of chosen strategies for the upcoming year.
- Alter Strategy and Tactics if Necessary – Once the complete plan has been put together adjustments may be necessary. It may be necessary to choose different strategies or employ different tactics. This process should be iterative and repeated as many times as necessary until the best possible plan is developed.
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