What to read first: Risk in work unit business planning: What is it?
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A business plan explains what the unit delivers to the organisation in exchange for the resources it uses.
The business plan normally covers one year of activity.
This guide assumes that the work unit is big enough to need its own business plan. It also assumes that the unit is headed by a middle manager or executive, but probably not by a C-level executive.
The unit may be big enough to contain smaller units that have their own business plans and risk assessments.
The language in the how-to guide assumes that you are the head of the unit.
The business plan is a formal document that usually sets out these aspects of the year’s work:
- Why the unit exists, and what it does for the organisation’s goals.
- Outcomes from the year of activity. An outcome from the year may be a total of many separate events, such as sales.
- Totals for financial and human resources for the year.
- A summary of how the human and financial resources will be used to achieve the outcomes. This part might be headed ‘strategies’. These ‘strategies’ are for the unit, not for the whole enterprise. The strategies may be linked with specific systems, facilities or other fixed capital, and with human and financial resources.
- Performance measures. Measures may be about outcomes, or about how well the unit is performing on other criteria.
- A space for ‘risks’. That space may or may not have something in it at the time you’re reading this.
In a large organisation, the unit’s goals might be understood as contributions to the next higher-level unit.
Job descriptions and performance plans for individuals within the unit show individual contributions to the goals.
The business plan finds the line of sight from individual efforts to organisational outcomes. The line of sight builds motivation and accountability for the individuals.
The business plan document is usually a formal record of decisions already made.
Most often, you will create each new business plan from last year’s plan and formal sources such as mission statements, function charters, and work plans. Conversations with the boss will have qualified the formal sources. Those boss conversations will have been less formal, but more important.
The big questions do not usually come up during development of the annual business plan. The big questions are answered at the time they need answers. ‘Business planning’ as an activity is mainly a matter of capturing those intentions in the form of words required by the mandated process. In formalising the business plan, you may find points where your understanding is not as clear as it should be.
Ideally, you consider ‘risk’ during the development of the business plan. You start both business planning and ‘risk management’ by identifying unit objectives. If the business plan does not yet exist, you will consider the unit objectives only once.
‘Risk’ is nothing more (or less) than the effects of uncertainty on objectives. It is not a separate entity.
From the objectives, you develop strategies, budgets, and performance measures. Budgets can limit the scope of your objectives.
The moment you define an objective, you see that its achievement is uncertain. The outcome may be different. Your chosen strategies and resources create secondary objectives and uncertainties. Thinking about uncertain outcomes will lead you back to changing the strategy and the allocation of resources. At a minimum, you will need to allocate resources to strategies or controls needed to keep risk acceptable. Risk thinking can also lead to changes to the unit’s role or even existence. That probably won’t happen if your unit has been around for a while and the big questions have been discussed already.
Ideally, risk is considered during development of business planning, in parallel with strategies, budgets and performance measures. Each element of business planning influences and works with the others.
It often happens that you get to ‘risk’ only after the other aspects of planning. If you have a business plan drafted already, the risk work can start from that draft. Risk work may lead to some changes to the business plan. If you are not allowed to make changes to the business plan, the risk work will change your detailed planning below the level of the business plan.
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