The strategy process defines where a business wants to go, and the people process defines who will get it there. The operating plan provides the path for those people, breaking long-term output into short-term targets.
An operating plan includes the programs (product launches, marketing plan, sales plan, etc.) you’re your business will complete within one year to reach the desired levels of such objectives as earnings, sales, margins, and cash flow. The assumptions on which the operating plan is based are linked to reality and are debated among the finance people and the line leaders who must execute. Indeed, while the leader must be intimately familiar with each of the processes involved in executing the strategy, he or she is not the only one who must be present and involved in operations planning; all of the people accountable for executing the plan must help construct it.
The starting point in creating an operating budget is a robust dialogue among all the relevant business leaders, who sit down together to understand the whole corporate picture, including all of the relationships among its parts. All leaders and their direct reports have been given the initial cut of the budget, as well as the assumptions for the external environment, competitor analyses, and targets for the year. 
The plan is then built roughly as follows:
● Those present focus on the roughly 20 budget lines that typically account for 80 percent of the impact on business outcomes, such as product mix, operating margins, manufacturing costs, and so forth. Each function represented presents its action plans for meeting the proposed budget.
● With each presentation, the leader questions the assumptions to test their validity and asks how each action plan will affect the other businesses.
● After every function has its say, the group breaks up into subteams. Each subteam discusses alternatives and the effects other plans will have on their operation.
● The groups reconvene and load all their information into a common spreadsheet program. They can then see a picture of the budget, what makes sense, and what doesn’t, as well as how each component synchronizes with all the others.
● The group repeats the process again, to reshape and refine information and alternatives, until the basic budget and operating plans are complete. Typically, it requires four such cycles to come up with a winner.
As you go through the process above, keep in mind two important issues:
● Synchronization. All the moving parts of the organization must have a common understanding of the external environment and other crucial factors — in other words, the left hand must know what the right hand is doing. Synchronizing includes matching the goals of the interdependent parts and linking their priorities with other parts of the organization. That way, when conditions change, synchronization realigns the multiple priorities and reallocates resources.
● Assumptions. An operating plan addresses the critical issues in execution by building the budget on realities. How well your business leaders understand these realities is a key factor in the success of your plan. Debate on underlying assumptions is one of the most critical parts of any operating review — you cannot set realistic goals until you have debated the assumptions behind them.
Once you’ve built an operating plan, you must then monitor its outcomes over the course of the year. One outcome of the operations process is identifying targets that clearly and specifically reflect not only what a business wants to achieve, but what it is likely to achieve — because they are based on the most realistic assumptions and on the hows of achieving them.
In addition to establishing clear targets, you can learn a lot from building an operating plan. When you participate in such a review, you debate the very guts of your business. All involved parties get to see the company, both as a whole and as a collection of independently moving parts. They also learn how to allocate and reassign resources when the environment changes. 

GM’s Synchronized Response To September 11
The events of September 11, 2001, created real concern in Detroit that demand for vehicles would significantly decrease. In response, Ron Zarella, General Motors’ vice president for North America, conceived of zero percent financing, and implementing it put demand into high gear. His timing was perfect — in November, the Federal Reserve reduced interest rates to a 40-year low of 1.75 percent. Consumers were able to refinance and gain cash for down payments, which sent demand skyrocketing.
The move required an operating plan to reprogram and reallocate resources to synchronize GM’s various moving parts, helping the company determine what kinds of vehicles to build, in which plants, and where to send them, how much advertising money the company should spend, where they should spend it, and on which products. Synchronizing production and advertising was crucial — with margins cut by the zero percent financing, an imbalance between production and advertising would both lose sales and raise costs.
As it turned out, the program opened up a big opportunity for GM. Though other automakers joined the financing bandwagon, GM’s swift execution and pinpoint synchronization gave the company an immediate boost in market share.

 By Larry Bossidy and Ram Charan
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