strategic planning process

1、txho/g:zxd453ppt10101 zxd453.ppt confidential this report is solely for the use of client personnel. no part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from mckinsey it is not a complete record of the discussion. jan

2、uary 2001 creating new planning processes in a large petroleum company andreas engertom molnar tom gracewarren strickland howard harrisstefan wisbauer greg lalicker petroleum practice txho/g:zxd453ppt10101 zxd453.ppt 1 introduction purpose of this document to provide an overview of the shareable rec

3、ommendations for redesigned planning processes for a large petroleum company who had not updated their processes since the1970s key functions addressed strategic planning capital approval performance management corresponding activities within the client business plan operating plan capital budget ex

4、penditure request approval accountability reviews txho/g:zxd453ppt10101 zxd453.ppt 2 overview current process issues new processes overview strategic business planning performance management organizational implications implementation roadmap txho/g:zxd453ppt10101 zxd453.ppt 3 overview current proces

5、s issues new processes overview strategic business planning performance management organizational implications implementation roadmap txho/g:zxd453ppt10101 zxd453.ppt 4 the current planning processes meets requirements but has areas of potential improvement strengths meets corporate obligations prov

6、ides long term financial forecast ensures projects are reviewed prior to approval provides annual budgets involves all parts of the organisation keeps the business running weaknesses dispersed accountability due to lack of clear ownership little time for in-depth strategic discussion at senior manag

7、ement level operational and project detail burden top management agenda large part of planning is paper exercise done at staff level requiring significant time and resources project execution dependent on business plan cycle no tracking of project performance or systematic capturing of learning txho

8、/g:zxd453ppt10101 zxd453.ppt 5 significant time & effort is invested in planning year-round business plan and capital programme issue guidelines management review sr. management review board review issue guidelines management review sr. management review board review operating plan issue instruction

9、s management review sr. management review board review accountability issue mid-year instruction sr. management review board review issue ye instructions sr. management review board review decjanfebmaraprmayjunjulaugsepoctnovdec prior year dec 4 jan 28 feb 15, 16 apr 4 jun 22, 23 jul 15 jul 1 oct 15

10、, 17 nov 12, 13 dec 1 nov 3 sep 18, 19 aug 29jun 27 may 3, 4 mar 24, 25, 26 mar10,11,12 dec 2 spring fall update operating plan mid-year year-end capital budget project submittal project submittal management review sr. management review board review nov 3 sep 18, 19 aug 29 aug 8capital budget aug 10

11、 txho/g:zxd453ppt10101 zxd453.ppt 6 forecast payment to government be ready and prepared for demand ensure strategy implementation to achieve targets budgeting set clear & consistent direction sustainable revenue/profit growth make superior decisions facilitate resolution of conflicting objectives i

12、dentify essential/strategic initiatives create maximum value understand what competencies need to be developed cope with potential threats function of planning process 0246810 success rating* yet constituents are only partially satisfied with the results internal perspective of planning process effe

13、ctiveness perceived weaknesses perceived strengths txho/g:zxd453ppt10101 zxd453.ppt 7 interviews with client management quotes from internal interviews confirms this dissatisfaction with the processes “we need to define more meaningful metrics to plan and evaluate what we do.” “petrochemicals? one d

14、ay its on, the other its off, we have no clear strategic direction.” “the mother companies used to do that for us. they used a lot of business sense, now it is much more operationally driven. they left a vacuum of decision support.” “we do not even have time to read all the material before the revie

15、w.” txho/g:zxd453ppt10101 zxd453.ppt 8 current process top-down paper dissemination, guidelines prepared at 3 levels actual planning done by planning staff little senior management involvement in content development department level admin. area level business line level corporate level reviews busin

16、ess plan consolidation business plan prepa- ration guideline preparation prepare business plan issue & prepare guidelines consolidate issue & prepare guidelines consolidate issue & prepare guidelines board sr. mngt. mngt one area identified is the paper-heavy process changes changes current process

17、top-down paper dissemination, guidelines prepared at 3 levels actual planning done by planning staff little senior management involvement in content development department level admin. area level business line level corporate level reviews business plan consolidation business plan prepa- ration guid

18、eline preparation prepare business plan issue & prepare guidelines consolidate issue & prepare guidelines consolidate issue & prepare guidelines board sr. mngt. mngt one area identified is the paper-heavy process changes changes txho/g:zxd453ppt10101 zxd453.ppt 9 along with the associated very tight

19、 deadlines jan 29th jan 31st feb 5th mar 10-12th mar 14th mar 17th mar 18th mar 24-26th mar 28th mar 31st apr 2nd may 3rd/4th capital appropriations submitted capital expenditures submitted businesses submit draft business plans management review of business plan and capital program changes submitte

20、d to senior management businesses submit revisions to business plan changes to capital submitted senior management business plan and capital program changes submitted for board review changes to capital submitted for board review businesses submit changes for board review board endorses business pla

21、n and capital program 2-6 days to submit changes before mngt. review 2-8 days to submit changes before board review short time windows to address issues identified in reviews limited potential for value creating changes date event txho/g:zxd453ppt10101 zxd453.ppt 10 other leading companies have evol

22、ved their planning processes while the client has not business plan time horizon nature of planning targets flexibility to change/expand operating plan tracking of actual investment returns planning process last re-engineered process in features 1-3 years mainly financial kpis medium-high yes highly

23、 interactive 1990s 3 years mainly financial kpis medium-high yes interactive 1990s 3 years mainly financial kpis high yes highly interactive 1990s 5 years mainly operational and cost data low no some interaction, paper-heavy 1970s client txho/g:zxd453ppt10101 zxd453.ppt 11 overview current process i

24、ssues new processes overview strategic business planning performance management organizational implications implementation roadmap txho/g:zxd453ppt10101 zxd453.ppt 12 the primary focus of the planning processes should be on delivering value creation (outputs) not on projecting resource requirements

25、(inputs) strengthen linkage between strategy, objectives and results create accountability for results in the business lines free up planning calendar to allow more time for in- depth discussions and input development focus on developing required outputs through a more interactive approach streamlin

26、e the process where possible align planning organization structure to support new model key objectives of the planning process redesign relates to both efficiency and effectiveness overall objectives process related objectives txho/g:zxd453ppt10101 zxd453.ppt 13 strategic planning busin ess plan iss

27、ue analysis capital approval projec t reviews activity the new calendar needs to provide time for planning capital bud. & operating plan ongoing throughout the year ongoing throughout the year board meeting strategic business planning process board meeting capital budget & operating planning capital

28、 and operating plan done in parallel 111234567910128 month 101112 no fall update txho/g:zxd453ppt10101 zxd453.ppt 14 11 performance management performa nce contracts and slas monthly performance reports ceo/ business line performance reviews 1234567910128activity define targets & service levels mont

29、h finalize contracts & slas and for performance management 101112 draft contracts & slas quarterly reviews focus on forward- looking problem solving 1-2-page scorecard & issue report performance contracts contract between ceo and business / service head key performance indicators and specific additi

30、onal goals monthly report 1-page scorecard report track progress against performance contract txho/g:zxd453ppt10101 zxd453.ppt 15 the new business planning process will focus on creating outputs in workshops interactive discussion of strategic issues and opportunities driven by ceo each business lin

31、e develops plan also kicked off by workshop challeng e/ review by ceo separately with each business line sept 01may 02 multiple workshops with in-depth strategy discussions separate discussions between ceo and individual business lines workshop preparation consolidated business plan development busi

32、ness line & services planning corporate planning economic & oil outlook competitor activity industry analysis cut at capital allocation range business line planning opportunity set for coming 5 years direction setting workshop consoli- dation workshop corporate planning consolidates business line pl

33、ans wo rkshop ends planning cycle business line workshops management-driven vs. planner-driven approach txho/g:zxd453ppt10101 zxd453.ppt 16 the key differences in the annual operating / capital planning process are minimal benefitfromto operating and capital plan developed and reviewed separately co

34、ordinated by different departments developed togetherreduced duplication of effort both coordinated by finance streamlined process txho/g:zxd453ppt10101 zxd453.ppt 17 operating planningworkshop corporate planning compile business line submittals of business line operating plan check fit with first y

35、ear of five-year business plan business line planning prepare and submit business line operating plan draft attendants ceo corporate planning, finance business line (s)vps business line planning agenda key features of submitted business line operating plans (max. 3 pages per business line), fit with

36、 business plan demands present cumulated operating plan and fit with overall business plan targets unresolved issues discuss overall plan format 12 days interactive short presentations relatively fixed format, yet flexible output agreed operating plan and capital budget final changes to be incorpora

37、ted by corporate planning purpose: the operating plan / capital budget review would also be conducted as a workshop agree operating plan & capital budget txho/g:zxd453ppt10101 zxd453.ppt 18 ongoing throughout the year ongoing throughout the year strategic planning busin ess plan issue analysis capit

38、al approval projec t reviews activity board meeting the capital approval process needed to be revised as part of these changes capital and operating plan done in parallel capital bud. & operating plan strategic business planning process board meeting capital budget & operating planning 1112345679101

39、28 month 101112 txho/g:zxd453ppt10101 zxd453.ppt 19 the capital decision-making authority is very centralized when compared to other leading companies $50 million for business unit vp most projects get discussed in peer groups at business unit heads discretion projects above $10 million get discusse

40、d with ceo for projects above $50 million, business unit lead will ask ceo for sign-off $50 million for business line senior vp $20 million for business unit vp projects rarely get changed or rejected client $2 million for business unit ex. vp projects above $10 million go to the board capital appro

41、val authority levels (within budget) txho/g:zxd453ppt10101 zxd453.ppt 20 yet centralized review does not prevent significant wastage abandoned engineering total spent, u.s. $ millions implementation ratio percent of total projects project completed project canceled total 1996 - 2000 91 9 txho/g:zxd4

42、53ppt10101 zxd453.ppt 21 other significant differences in capital project planning are present business planning and project approval schedule coupled filtering of project ideas tracking and discussion of actual project returns minimum project size within budget requiring additional corporate level

43、approval role of support functions typical project planning cycle time availability of extra funds for new opportunities features no peer groups yes $50m support only 1 year high no business line executive committee yes $50m support only 1 year high no business line yes business line discretion supp

44、ort only 6 months very high, extra funds can be secured within days yes multiple no support and control/ audit 2 years low client txho/g:zxd453ppt10101 zxd453.ppt 22 projects approved both in business plan and as individual expenditure requests large number of projects require corporate level approv

45、al fixed schedule for approval same group approves all projects at corporate level no tracking of actual project performance expenditure request approvals within budget at business line level only large projects go to corporate level continuous approval ceo & specific others post project reviews avo

46、ids redundant reviews frees time for strategic thinking at corporate level faster approval times more relevant participants clearer accountability for results the design principles for the new project capital approval process focuses on overcoming these problems benefitfromto txho/g:zxd453ppt10101 z

47、xd453.ppt 23 project scope description econo mic assessment project proposal including economic case development detailed engineering procureme nt strategy procure implement gate 1gate 2 econ omic screening fit with corporate/ business line strategic direction final screening expen diture request ap

48、proval project scope and business case initial project design detailed design and implementation project performance tracking accountabilit y reviews for milestones, budget and economic returns completion proponent manages project throughout lifecycle business line has increased authority for expend

49、iture request approval within budget idea proponent has clear ownership proponent fully accountable for results business line has primary responsibility for allocating funds within its budget txho/g:zxd453ppt10101 zxd453.ppt 24 project scope and business case initial project design detailed design a

50、nd implementation project performance tracking proponent manages project throughout lifecycle engine ering services purchasin g contractin g project management engine ering services support services the project proponent has ownership throughout its lifecycle but accesses specialist support as neede

51、d idea proponent has clear ownership proponent fully accountable for results corpor ate planning assistance provided assist for specialist questions in scope development specialist input into detailed design recommend contracting / purchasing strategy provide expert team members for proponent-led te

52、am drive performance review txho/g:zxd453ppt10101 zxd453.ppt 25 used by principle key success factors issues peer reviews business unit leaders jointly select best opportunities collaborative behaviour group level incentives effective consequence management constraints on incentive and consequence m

53、anagement may limit format effectiveness business line planning group review specialist planners recommend investments to business line management senior management involvement skill level of planning group effective cooperation with project proponents business lines need required skills must ensure

54、 neutral perspective two viable options for project screening at business line level have been identified txho/g:zxd453ppt10101 zxd453.ppt 26 the first phase involves defining the project scope and business case busin ess line leadership ok initial assessment need/issue assessment economic valuation

55、 of options project scope and economic assessment business line planning engineering services and other support functions suggest issue/ opportunity assess context (fit with strategy, future threats,) assess importance/value at stake identify options review overall value proposition compare with oth

56、er project opportunities go/hold/n o go assign project manager in case of “go” expert input if required expert input if required gate 1 player key steps idea chief role in project screening lies with business line planning assess cost/benefit option value fit with strategy refine economic assessment

57、 of preferred option project manager assigned early txho/g:zxd453ppt10101 zxd453.ppt 27 manages process busin ess line leadership initial design initial procurement strategy assessment economic case refinement business line planning project manager engineering services and other support functions as

58、sess options optimize strategy “final” screening of fit/value- creation and other opportunities approval / hold/nogo/ decision expert input if required purchasing/ contracting input if required refine economics option valuation scenario analysis fit with strategy key steps external support (experts,

59、 contractors,) expert input if required player the next phase needs to ensure proper project design idea gate 2 advanced tools used in economic project evaluation expenditure request approval before detailed design develop design review updates txho/g:zxd453ppt10101 zxd453.ppt 28 busin ess line lead

60、ership detailed design economic optimization implementation business line planning project manager engineering services and other support functions specialty service support player key steps detaile d engineering external support (experts, contractors,) look for synergies across bus. lines optimize