Strategic Planning – How Much Should Organizations Spend on Business Planning?
Well-crafted strategic and annual business plans provide a sense of purpose and direction. They establish the operations and initiative activities the organization will implement in order to achieve defined outcomes. Furthermore, these business plans serve as a communications mechanism to drive alignment of management decisions and employee actions to the effective and efficient achievement of the organization’s mission goals. (See StrategyDriven article, Why Do Organizations Need Strategic Planning.) Without business plans, time and effort may be applied to activities less directly focused on achievement of the organization’s goals thereby wasting the business’s precious limited resources.[wcm_restrict plans=”25541, 25542, 25653″]
Given the value strategic and annual business plans represent, how much should be invested in their development?
While studies and experts may not fully agree, our experience suggests that organizations efficiently developing and communicating their strategic plans invest roughly 0.5 – 1.0 percent of gross revenues in doing so. For example, a $100 million company would invest between $500,000 and $1,000,000 on their strategic planning efforts annually.
Organizations incur many costs during the development of their strategic and annual business plans. These often include but are not limited to:
- Business planning staff compensation
- Executive time for strategic planning meetings, offsite retreats, briefings, preparation/reflection
- Director, manager, and individual contributor time associated with the provision of input to the strategic plan’s development
- Strategic planning training and travel related expenses
- Planning meeting and travel related expenses
- Physical plan development costs including such items as graphic artists, photographers, and printing
- Subscriptions to outside data sources such as those providing economic estimates, competitive research, etcetera associated with the strategic planning process
- Strategic planning membership organization dues
- Planning software purchases and/or licensing
- Leadership and staff briefing time for the plan’s rollout
Some organizations house their program/project management office (PMO) within their strategic planning group such that the combined group oversees the development and implementation of the individual initiatives associated with the business plan. In these cases, the associated staffing and oversight costs of the PMO may also be included in the strategic planning cost estimate. When doing so, the overall strategic planning expense tends to be closer to 1.0 percent of gross revenues.
Finally, it should be noted that the execution of the strategic plan, the implementation of organization’s various operations and initiatives, is not included in the 0.5 – 1.0 percent cost estimate.[/wcm_restrict][wcm_nonmember plans=”25541, 25541, 25653″]
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About the Author
Nathan Ives is a StrategyDriven Principal and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.