A "reliable" annual business plan

It’s time to make the annual business plan again, which is also the most headache for data analysts. How should a reasonable annual business plan be made, and how should business analysis play a role? This article will give you a brief explanation of the logic. Friends who do data analysis should not miss it.

It’s time to make the annual business plan again. This is when data analysts are most needed, but also when they are most powerless. Because many companies’ annual business plans are just “one shot, two blows, three quibbles”:

• Predict next year's sales trend based on your own thinking
• Big bosses boast about a grand sales target
• The departments bargained and compromised on a number.

Students who do business analysis are caught in the middle. On the one hand, they are asked to "calculate scientifically and reasonably", and on the other hand, they have to "give reasonable explanations to the conclusions made by the leaders on the spur of the moment, and allocate them scientifically to each month". How can it be so depressing? How should a reasonable annual business plan be formulated, and how should business analysis play a role? Today, I will give you a brief introduction.

1. The key to solving the problem

This contradiction between guessing and scientific calculation actually comes from the contradiction between data logic and business logic. Data logic only recognizes facts and makes predictions based on facts that have already happened. However, business logic considers subjective initiative more. If someone insists that he can change his fate, it is difficult for you to refute him before he actually takes action. This contradiction can be summarized in the following figure:

Therefore, the key to solving the problem is: business analysis should first state the facts that are supported by data. It should clearly explain the current business situation, business development trends, and observable changes in the external environment. Then, based on the facts, use data logic to make reasonable inferences. In this way, the conclusions drawn from business analysis are solid and reliable.

After that, we wait for the bosses to have a fierce confrontation. Their judgments based on facts and business logic do not need to be paid attention to at all, just wait for the final conclusion. After the bosses "shoot" their results, we compare the data to predict the conclusions, and then point out the risk points.

Therefore, in the annual plan, the core focus of business analysis is four:

1. Review of current business situation
2. Collect sufficient evidence of external factors
3. Draw conclusions from the data
4. Collect and verify business conclusions

II. Review of current business situation

Reviewing the current business situation is the basis for predicting the trend of next year. Note! When reviewing here, you cannot simply list the results, such as: the cumulative performance of XX billion this year, the sales of each product line. Instead, you need to list the source of this year's growth.

Common growth drivers include:

• People: From the growth in the number of new users
• People: From the increase in user purchasing power
• Goods: driven by new products
• Goods: From the launch of popular products
• Market: New additions from offline stores
• Market: From the growth of online traffic

Listing the main growth points will make it easier to combine them with the external environment to determine whether there is a driving force for continued growth in the future. Note! There may be cross-effects between the growth points, so when presenting the results of the review, you need to build an analysis tree to systematically present various factors (as shown in the figure below).

With the current situation reviewed, the next step is to see whether changes in the external environment will support this growth point to continue into next year, so as to make a judgment on the fundamentals for next year.

3. Collection of external influencing factors

There are many external factors that influence your decision. The key to this step is to present the results in an organized manner and find sufficient evidence. It is recommended to present them in this order, which will make the order clear:

When collecting evidence, except for policies which are relatively difficult (unless the company has high-level resources, it is difficult to get wind of it in advance), other factors can be judged by combining internal and external data.

When making a report, remember to attach the source of information + results. Because it is very likely that the business leader will bring up some new ideas when reviewing the report later. For these ideas, the focus of business analysis is: whether there is solid evidence.

For example, a leader may say, "I don't think it will happen. If you don't believe me, let's wait and see." This is a typical case of no evidence, so don't pay attention to him. Another possibility is that a leader may say, "The news I received from the upstream manufacturer is..." This is based on evidence, and you can confirm it with the purchasing department. In short, only accept those with evidence, and ignore those without evidence.

4. Give data inference conclusions

This is the step that many students fear the most. Oh my god, how can we make accurate predictions? Attention! In the stage of making business plans, we are more "speculating" than "predicting". As long as we can come up with reasonable, theoretical speculation results based on the current trend + expected results, we don't need 100% numerical accuracy. The actual business trend is the comprehensive effect of the theoretical speculation results + the proactive actions of the business department. So we can give reasonable speculations and let the business department make judgments.

When making inferences, we should pay attention to the white rhino problem first. For example, if the price of upstream raw materials increases:

• It is expected to rise moderately. This is a minor problem and can be directly included in the cost according to a certain proportion.
• Expectations have risen sharply, leading to a decline in profits. This is a big problem and needs to be mentioned and discussed separately.
• The expected surge directly led to negative gross profit for the main product. This is definitely a white rhino problem!

The business side has different ways of dealing with different problems. If the price of raw materials increases slightly, there may be no discussion at all. If it increases significantly, you may have to consider adjusting sales prices, replacing product materials, and stockpiling raw materials in advance. If it increases dramatically, you may directly discuss whether to keep this product line, replace the product line, or give up directly. The white rhino issue often becomes the core issue of the year. When doing business analysis, you must first grasp the key points and don't turn a blind eye.

There are also some common white rhino issues that should be prioritized:

• People: ToB business, downstream customers are no longer viable!
• People: ToC business, customer base declines, market shrinks
• Goods: The product life cycle is nearing the end, what new models to make!
• Goods: New technology has been released but the effect is not obvious. Do you want to use it?
• Market: The areas/channels that are easy to operate have been almost developed!
• Market: Traffic is so expensive that the loss from attracting new customers is huge. What to do?

When making inferences, you can combine the results of the first part: the review of business conditions. Directly mark the possible parameter changes for next year on the main growth points of this year, and then deduce: if nothing changes next year, what is expected. This makes it easier for leaders to compare the situation of the past two years and make judgments for next year.

V. Conclusion of Inspection Business

After giving the first version of the speculation, the leaders will have a long discussion. What they will do next is:

• Develop an overall plan
• Each department determines KPI
• Budget submission by departments
• Each department submits work plan
• Confirm business plan

Before the final draft is finalized, a lot of revisions will be involved. For example, the leader will first say: "According to the growth rate of 30%, we will estimate the parameters of next year's indicators", then another sentence: "According to the growth rate of 40%, we will estimate another version", and then another sentence: "According to the growth rate of 20%, we will estimate another version".

You can simply list all the indicators as formulas, and then tell your boss: "Boss, fill in whatever you want, and it will change later." You think this will free you up, right? No! The boss will say: "Come on, change the calculation logic again, this time with product as the main dimension..." So you have to redo the entire data table...

It is common to be furious at this time. But don't worry, just think: "50% of the salary of the business analysis position is for you to endure changes", so you should change it frequently. In this process, it is important to check whether the results of the leaders' brainstorming are obviously contrary to the data facts.

For example, a product line is obviously not doing well, but it is still expected to grow by 30%. In this case, you should:

1. Alerts for obvious violations of the trend
2. Record the reasons given by leaders

Of course, no matter how funny the reason sounds ("It will be fine when the time comes" or "It's fine if I say so!"), you have to record it truthfully, so that you can fulfill your responsibility of business analysis. Otherwise, in May or June next year, when everyone finds that the actual situation is far from the plan, there is a high probability that someone will come out and criticize you, "How did your strategic development department/business analysis department/data department calculate it? Don't you have eyes!!!!" At this time, you can just show the evidence.

The above is the main work. The most critical thing here is actually the first step: reviewing the business situation. If you can find the right growth point during the review, the subsequent key influencing factors, next year's speculation, and business problem inspection can also be done on point.

Author: Down-to-earth Teacher Chen

Source: WeChat public account "Down-to-earth Teacher Chen (ID: gh_abf29df6ada8)"