Is it time to get rid of annual planning?

Transcript

Christine Dela Rosa:
So every year around the same time I get this pit in my stomach. It’s a sense of apprehension that I just can’t put my finger on. Like something is coming. It’s creeping up behind me, right over my shoulder. And then suddenly, a chill creeps down my spine as I remember: it’s time for…annual planning.

Christine Dela Rosa:
Welcome to Work Check, an original podcast from Atlassian, makers of teamwork software like Jira, Confluence and Trello. I’m your host, Christine Dela Rosa. On this show, we debate workplace practices and separate the hype from the helpful. And in today’s episode, we tackle annual planning!

Christine Dela Rosa:
Let’s meet this week’s debaters. We have Kelvin Yap defending the annual plan.

Kelvin Yap:
Spoiler alert. You need one.

Christine Dela Rosa:
And Dominique Ward arguing against it.

Dominique Ward:
Well, this should be easy.

Kelvin Yap:
Oh yeah? We’ll see about that.

Christine Dela Rosa:
Hey. Hey. The debate hasn’t even started yet. Because first we need to level set with a little annual planning 101. We’re all familiar with some kind of annual planning. It’s a process that most businesses go through once a year, a time to decide on strategy, objectives, and create a budget to guide your spending and resources. Think of it like planning for a road trip. Before you start up the engine, you need to make sure everyone’s on the same page. They need to know where you’re going, who’s in charge of which leg of the drive and who’s paying for gas.

Christine Dela Rosa:
Then with your plan in place, you can relax and enjoy the journey. All that said, a lot of people dread annual planning. And after all the uncertainty caused by the pandemic, a lot of companies are rethinking the way they plan. Some are choosing more reactive alternatives, like real-time strategic planning or rolling forecasting. But not everyone agrees that they’re perfect replacements.

Christine Dela Rosa:
So today we’re debating: Should we do away with traditional annual planning?

Kelvin Yap:
All right.

Dominique Ward:
Let’s get into it.

Christine Dela Rosa:
Dominique, why don’t you start us off for round one by telling us why we need to ditch annual planning.

Dominique Ward:
Okay. Let’s start with the elephant in the room. Annual planning is the worst.

Kelvin Yap:
Objection, your honor.

Christine Dela Rosa:
I’m not that kind of judge, but I’ll allow it.

Dominique Ward:
Thank you. Because I have evidence. An HBR study from 2016 surveyed over 300 managers and found that most executives were frustrated with their planning process. And you know why? Because the process is slow and bureaucratic, and the big one: plans change. According to Kaplan and Norton’s balanced scorecard, nine times out of 10 that annual planning becomes irrelevant.

Christine Dela Rosa:
Whoa, nine times out of 10?

Dominique Ward:
Yeah. Now I’ve spent my entire career in operations across design, advertising and tech. What I’ve learned is that no matter the size or age of a company, we’re all still human and we’re terrible fortune tellers. We either suffer from being too cautious, having too much hubris or basking in willful ignorance. So trying to predict the future can be a waste of time. My guest Robin Aitken has worked as a finance director and CFO for decades, and he’s become frustrated with the traditional annual planning process.

Robin Aitken:
The biggest risk in short is just things change. By the time you get around to comparing your actual performance to the budget, the world’s moved on.

Dominique Ward:
And so many industries, including ours, move too fast to accurately predict a year ahead. And if we’ve learned anything in the past two years, it’s that “best laid plans…” You know the rest.

Christine Dela Rosa:
We sure do.

Kelvin Yap:
Oh, yeah.

Dominique Ward:
Here’s Robin.

Robin Aitken:
You’re basically making those decisions as you do the budget on the assumption that you’re going to carry on selling a load of stuff. And then you get to February of the following year and if you take what happened in 2020, a global pandemic comes along.

Dominique Ward:
The pandemic showed so many companies their planning process was not serving them, as they had to throw out all that work by the end of the first quarter.

Christine Dela Rosa:
Yeah.

Dominique Ward:
So if annual plans become redundant this quickly, why are we all putting ourselves through this long drawn out process every year? These days, companies ranging from healthcare to nonprofits and tech are asking themselves this question. And a lot of them are looking for alternatives.

Kelvin Yap:
Good luck to them.

Dominique Ward:
Don’t worry. I’ll tap into that a bit later.

Christine Dela Rosa:
Like the restraint there, Dominique. You’ve hit on the big association I have with annual planning. Planning for things so far in the future can feel ungrounded. And yeah – it can feel like a really long process. In fact, I have an old coworker whose annual planning process is six months long.

Kelvin Yap:
Christine, I’m sensing a bias here.

Christine Dela Rosa:
Hey, I’m just bringing in my own experiences to the discussion! Which I invite you to do now in your first round, Kelvin.

Kelvin Yap:
All right. Let’s be real here. I’ve been tasked with the less trendy, less sexy side of this debate today. Annual planning does have a seriously bad rep. People think of it as a necessary evil.

Christine Dela Rosa:
No objection here.

Kelvin Yap:
So I wanted to start my argument off with a bit of myth-busting. Dominique, you basically argue that annual planning is too inflexible for our fast paced world now. Is that fair to say?

Dominique Ward:
Absolutely.

Kelvin Yap:
See, this just doesn’t have to be the way. Annual planning can be flexible and responsive. My guest Lauren Bourke is a strategic advisor in the nonprofit sector, and she’s a huge advocate for nimble annual plans rather than “set it and forget it” planning.

Lauren Bourke:
I think an effective annual plan builds in flexibility. It’s really beneficial to – on at least a quarterly basis – to sort of be updating and modifying plans as needed. When you treat an annual plan like a living document that is used as a tool in everyday work, that’s going to be a much more effective plan.

Kelvin Yap:
A living document. I love this thought. It doesn’t have to be set in stone.

Christine Dela Rosa:
Interesting. So does a finished annual plan even exist if things are always changing?

Kelvin Yap:
Yeah. Details can adapt, but the larger direction stays the same. It still serves as a North Star of where you’re headed as a company. Here’s Lauren.

Lauren Bourke:
There’s less surprises. That doesn’t mean that there’s not going to be moments where an organization decides to take on new work that wasn’t in the plan. The idea is not that the plan has to predict everything, but at least gives you a tool to look at new opportunities and say, “How does this align with what we’re intending to do six months ago when we were developing a plan?”

Kelvin Yap:
Annual plans don’t have to inspire dread, Christine. They can be receptive to change and adapt to the pace of our world.

Christine Dela Rosa:
Trying to keep an open mind, Kelvin…but now it’s judgment time. So is annual planning too inflexible to work in today’s market? Or is a good annual plan able to shift and still serve fast paced industries? Kelvin, I liked your attempt at myth-busting, so I’m awarding that round to you – the annual planning side!

Kelvin Yap:
Woo-hoo.

Dominique Ward:
Okay.

Christine Dela Rosa:
All right, all. Round two. Let’s even things up. Start us off, Kelvin.

Kelvin Yap:
All right. So Dominique, last round you suggested some companies are looking for alternatives to annual planning. Sure.

Dominique Ward:
I did.

Kelvin Yap:
But most companies are still using annual planning. Why? One word: alignment. And I don’t just mean your investors and stakeholders. Annual planning gets all your employees and their teams on the same page, which is huge for morale. My second guest, Nels Gilbreth, is the co-founder of Daydream, a business forecasting platform. And he’s seen this benefit firsthand.

Nels Gilbreth:
The best annual planning processes connect all the different teams together. It’s a big coordination exercise across the entire company. And by the end of it, an individual should understand their connection to the goals of the company and to the financial plan. When people understand how the work that they are doing contributes to the larger goal of the entire organization, most people are really happy when that happens. It gives people a lot of comfort.

Kelvin Yap:
I mean, I felt this myself – that sense of purpose that a good annual plan can give you and your team. Earlier, Dominique, you suggested that our world moves too fast for annual planning now.

Dominique Ward:
It really does.

Kelvin Yap:
But I think that means annual planning is even more crucial. My other guest, Lauren, has worked at nonprofits with more ‘fly by the seat of your pants’ planning, which she said can create turmoil. She shared the concept of “shiny ball syndrome.”

Dominique Ward:
Yeah. When people change focus or direction every time they see a shiny new thing. Right?

Kelvin Yap:
Exactly. And it’s not great for morale. She saw this play out in an organization she worked for.

Lauren Bourke:
There was a lot of frustration because there were projects that sort of just showed up or there were times where you would think, “Hey, I need support from this other team.” And this other team would go, “Well, we don’t have capacity to support you right now.” And it meant there were a lot more silos and ultimately it was just less effective for everyone.

Kelvin Yap:
Annual planning, done well, should be clarifying. It should give each team and really each individual a clear idea of their role in the organization’s mission and what’s expected of them.

Christine Dela Rosa:
Yeah. I take that for granted. If I were driving a project that spanned years, I’d want to stop at the end of every milestone and see where we should be going next. And since teams don’t share the same timelines for those milestones, companies probably just need to designate a common time to get aligned.

Dominique Ward:
Yeah. But does it need to be an annual plan for you to get that feeling of togetherness?

Christine Dela Rosa:
Wait, what do you mean by that?

Dominique Ward:
I’m saying a well-communicated rolling plan can still keep everyone on the same page. And in a lot of ways it’s better for morale because teams can be more empowered to take action.

Christine Dela Rosa:
I see.

Dominique Ward:
Annual planning is often done in this top-down way. You get a directive from on-high that lays out your year, your budget, your resources. It’s all predetermined. So team leaders within that organization don’t always get enough flexibility to react. Here’s Robin Aitken.

Robin Aitken:
You want managers who are close to the action to be able to own the problem and come up with ways to solve it, and an annual budget can stop that.

Christine Dela Rosa:
Okay. Just to make sure I have this – Robin is saying that in a rolling planning cycle, those managers can have more freedom to move resources around and solve the problem themselves, right?

Dominique Ward:
Precisely. Resources can be allocated at the appropriate time and the people closest to the problems are driving the problem solving. I’ve seen teams need to hire in the fourth quarter, but because they lack headcount funding for the rest of the year, they’re left stretched, and under-resourced. There is a very real impact on the team and the team’s capacity.

Christine Dela Rosa:
Okay. I think we can all agree that having a lot of red tape in that situation would be extremely frustrating.

Kelvin Yap:
Sure. But if I can jump in here, Dominique?

Dominique Ward:
Please do.

Kelvin Yap:
Annual planning doesn’t have to be “top-down” as you put it. My guest Nels, in fact, suggests what he calls a “W” annual planning format.

Christine Dela Rosa:
W, like the letter?

Kelvin Yap:
Yeah. First senior leadership up here proposes a plan, then the team takes that plan and adjusts it down here, and sends it back up…

Christine Dela Rosa:
And then down, and up?

Kelvin Yap:
You got it. Nels says this strategy gives teams a say in the decision-making process. He used the “W” when he was the head of global strategy at Eventbrite, and it really helped them through a huge organizational overhaul.

Nels Gilbreth:
It allowed the team to take ownership of certain ideas and respond back to the executive team on how they wanted to approach certain strategic goals, gave them a lot of confidence and a lot of ownership to go out and achieve those goals.

Dominique Ward:
But with that, they still can’t make changes on the fly the way they can with a rolling plan.

Christine Dela Rosa:
No, that’s fair, Dominique. I’ll say that I’ve seen the pendulum swing too far in some rolling plans where each team is constantly singing for their supper, quarter after quarter. Is it nimble? Sure. But I don’t think it’s necessarily empowering. In fact, it might feel like you have to justify your existence, all the ding dang time.

Kelvin Yap:
Excellent point.

Christine Dela Rosa:
Thanks.

Dominique Ward:
Okay. I hear you. Trust me, I’ve been there. But assigning resources on an annual basis could also mean that you end up getting fewer resources. Do you want one small pot of cash for sure, or a chance at even more resources as a year goes by?

Christine Dela Rosa:
No, that’s a really good question. Because I see the value in both, but annual planning means you can guarantee your project’s future for at least 12 months, and that’s something. Right?

Kelvin Yap:
Mm-hmm (affirmative).

Christine Dela Rosa:
But no need for me to go down the rabbit hole right now..because it’s judgment time! All right. In a way, that round was about which is better for morale. Kelvin, you argue that annual planning is crucial for alignment and clarity, and I see that. But Dominique, you argue that annual planning can actually disempower teams to solve their own problems, which really speaks to me. So I’m siding with Dominique this round.

Dominique Ward:
Yes.

Kelvin Yap:
Boo.

Dominique Ward:
In it to win it.

Christine Dela Rosa:
All right. Final round. Kelvin, please take it away.

Kelvin Yap:
Gladly. So I think it’s fair to say no one is arguing against planning.

Dominique Ward:
Oh, definitely not.

Kelvin Yap:
Just against the annual part of annual planning. Every company is going to have some kind of planning process, but my guest Nels shared why he thinks the annual cadence is still the best choice.

Nels Gilbreth:
There is something nice about the annual cadence in my experience that gives people an appropriate amount of time to have this retro-like quality to it. And over that time, opinions build out about how we should be doing things differently. And annual planning can act as this release valve to, like, let those opinions out in the open.

Kelvin Yap:
Think of it like a new year’s resolution. It’s a time once a year for reflection for the whole organization to hit pause, think about direction or their North Star and potentially find better solutions. Nels believes an annual cadence provides the best balance between planning and execution.

Nels Gilbreth:
If you can do that every quarter in an efficient way, then all means go ahead. In my experience though, it usually requires a little bit more time. You probably don’t want to be doing it every quarter. Having a little bit of time every year to take your head out of the sand, so to speak, look at a 10,000 foot view and allow people just a little bit more space away from their work to think about what they want to accomplish for the year has big advantages.

Christine Dela Rosa:
Nice. The 10,000 foot view. It’s a good reframe for annual planning.

Kelvin Yap:
Exactly.

Dominique Ward:
Let’s not jump the gun, Christine.

Christine Dela Rosa:
Right. Right. What is your last say, Dominique?

Dominique Ward:
As ever, you paint a lovely picture, Kelvin.

Kelvin Yap:
Thank you.

Dominique Ward:
Like you said, it’s the annual part of annual planning that creates issues. Your new year’s resolution metaphor is on point, because most people don’t stick to their new year’s resolution past January.

Kelvin Yap:
Speak for yourself.

Dominique Ward:
When it comes to annual planning, a year long cycle is both too long and too short sighted. You start the year looking into the distance 12 months ahead, but as a year comes to a close the horizon recedes. Let’s bring back Robin Aitken with a great metaphor to explain this idea.

Robin Aitken:
It’s like your car headlights, the equivalent of annual budgeting is as you drive forward, the bit lit up by your headlights comes towards you until you can virtually see nothing and then it shoots ahead again. It’s this inconsistency that it’s creating.

Dominique Ward:
That makes driving or operating your business really dangerous. You need a steady look ahead, and that’s what rolling forecasting gives you. Robin worked with a management consultancy who were operating with a traditional annual plan. Having that receding horizon where the plan abruptly stops at the end of the year really hurt their business.

Robin Aitken:
When they got to month 11 or 12 in a year, they’d look over the horizon to the next year and suddenly realize that they had a problem with cash flow, which they just hadn’t focused on when they were only looking ahead to the month 12 in the current year and they haven’t started to look ahead into the following year.

Kelvin Yap:
I don’t think that’s an annual planning problem though. That just sounds like a planning problem.

Dominique Ward:
It’s bad business, definitely. But it happens. Robin moved this company to a rolling forecasting plan and they’ve found that they have more control over their business and are starting to see an increase in sales.

Christine Dela Rosa:
I like this. When you’re working with a rigid time horizon, I think you’re rigid with your solutions.

Dominique Ward:
Correct. And to Kelvin’s point, having times of deep reflection and strategy are important in any planning cycle. But it doesn’t have to be once every 12 months. It should instead be dictated by your circumstances.

Robin Aitken:
If a new competitor enters the marketplace, if there’s a problem with technology, if some pandemic comes along, that causes you to re-plan your business. The passing of a year doesn’t.

Dominique Ward:
So there you have it. It’s arbitrary. Time is an illusion! All it is is a measurement of change. And what good is all that change if you don’t learn and adjust? Too often, businesses and teams are hamstrung because they stick too stringently to an arbitrary annual cadence without taking into account tides that change. But by replacing annual planning with an alternative like rolling forecasting, it means that you can have a steady view of the next six, 12, 18 months while still being able to pivot as things change – as they always do.

Christine Dela Rosa:
I love that headlights metaphor as an idea. But in practice, does that mean you’re reworking your budget allocation and strategy every month?

Dominique Ward:
Sure. If necessary. And listen, I’m seven years into my concurrent five, 10 and 15 year plans and you best believe I reevaluate on the regular. I take into account all changes, whether they be in the market or in circumstance, and I adjust accordingly. But I’m not particularly bound by those time markers.

Christine Dela Rosa:
Okay. I can see some upsides and some downsides there when you scale that idea out. If I had to put on a dog and pony show for my budget on a monthly basis, I do not think I’d get much done. But from a big picture vantage point, that steady look ahead makes a lot of sense. And that ends round three. So is the ‘annual’ in annual planning necessary?

Dominique Ward:
No.

Christine Dela Rosa:
Kelvin, I really appreciate this idea that a planning process can act as a retro or release valve, but I’m not convinced that the yearly cadence is essential. I think defaulting to traditional annual planning is lazy unless companies do the work to prove that cadence is right for them. Which means…I’m awarding Dominique the winner of today’s debate!

Christine Dela Rosa:
So if you’re looking to revise your annual planning process, here are some things to consider. Don’t just look at the next 12 months and stop there. Strategy should include three or five-year goals, or you might find yourself stuck in month 12.

Christine Dela Rosa:
Also, think about how your planning cycle affects culture and morale. People need to know how they fit into the larger vision for the company, while also being empowered to problem solve throughout the year. That’s all for our episode on annual planning. Thank you to our debaters, Dominique and Kelvin.

Dominique Ward:
Always a pleasure.

Kelvin Yap:
Thanks, and see you in 12 months for the rematch.