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May 2012

Are You Engaging in Rigorous Capital Planning or Shadowboxing?


Written by Maureen Carlson, Partner at Appleseed Partners

Maureen Carlson

In the last blog post, How Structured Is Your Capital Planning Process?, I wrote about my interview with Madison Laird, Executive-in-Residence at Planview. We discussed the extremes of highly structured processes and highly unstructured processes that exist in capital planning; inspired by the newly released report from The State of Capital Planning survey. We also highlighted the need for flexibility in structure, and discussed the key criteria required to ensure the financial planning structure has the requisite flexibility to meet the changing market demands. Here is a quick recap of the criteria Madison mentioned for a "flexible structure":

  • The process meets the strategic needs of the decision makers.
  • The process gathers both quantitative and strategic input from line of business stakeholders.
  • The process facilitates sharing of information as necessary to create alignment across lines of business.

Finally, we talked about the irony of structure -- that a highly structured process can be a more flexible one. Since highly structured process usually have all data-flows, meeting schedules, and roles and responsibilities defined, it is easier to make changes, then identify and adjust for downstream consequences and effects. A planning structure without as much structural definition is "flying blind" when it has to deal with unexpected changes. So, generally speaking, a highly structured planning process is desirable.

However, some organizations put a highly structured planning process in place, and then do not take advantage of its flexible nature. Madison calls this "shadowboxing" your way through the capital planning process and explains that a "somewhat structured" planning process can lull finance into a false sense of security. Usually this results in very dissatisfied planning constituents and a dysfunctional planning process. One of the most common enemies to a flexible process is shadowboxing your way through capital planning.

Shadowboxing Your Way Through Capital Planning

Shadowboxing is an exercise used in training for combat sports like boxing to maintain a fighter's rhythm and form. As part of their training, the fighter throws punches at no one in particular, sometimes even his own shadow. The purpose is to prepare for the actual boxing match. Much like boxing, capital planning requires some level of structure that is ideally flexible yet rigorous and defined. The actual planning process is somewhat similar to a multi-round prizefight, where the winner will be the person who adapts his strategy to defeat his opponent. The loser will be the one who refuses to adapt to the changing dynamics of the fight, treating the live event in the same way he was shadowboxing in preparation.

Most capital planning processes include a series of presentation templates, meetings, and financial spreadsheet templates. These tools represent the fighter's strategy and plan to defend his title. When Finance has these tools in place, it often feels like there is structure or a ”strategy for the fight", but often there is little room for discretion or flexibility.

Moreover, if the structured process is created to lead stakeholders through predefined paths, it is critical to ask if the three criteria for a flexible structure are really being met.

To extend the analogy further, stakeholders who are not absorbing the body blows are engaging in an activity that does not simulate real conditions. It is hard to have a business owner ready for next year's fight when they have not been in the planning ring.

Contrast this with a "flexible structure" where there is some hand-to-hand combat with the data. A flexibly structured planning process ensures data that can be relied on to play out scenarios and to optimize resource and opportunities. For example, those companies who responded that they were less structured than others were also reported a much higher risk of being unable to maximize opportunities, resources, and budgets (18% versus 45%).

Perhaps being somewhat structured versus truly structured is like the difference between hand-to-hand combat and shadowboxing. A company that is meeting the criteria for a truly flexible planning structure is able to rigorously review how to apply resources and budgets against the highest return opportunities.

Register for the 15 Pitfalls of Long-Range Planning where Madison defines the most common pitfalls that affect long-range planning, provides suggestions that help diagnose the issues, and suggests potential solutions. Is your organization engaging in effective capital planning or shadowboxing? Share your experiences by posting a comment below.

Related post: How Structured Is Your Capital Planning Process?, Planning Millions of Dollars of Capital Investments using a Spreadsheet, Is it Sustainable?