The difference between the financial plan and the operational plan
Business plans are an essential part of managing any organization, whether it is a small company or a large institution. However, some people confuse the difference between the financial plan and the operational plan. Although they are closely related, each has a specific role in achieving the company's goals.
In this article, we review the difference between these two plans, highlighting their importance and how to link them.
1. Definition
The financial plan
The financial plan is the company's roadmap from the perspective of revenues, expenses, cash flows, and profitability.
It focuses on how to allocate financial resources to achieve profitability and growth objectives, manage financial risks, and ensure cash sustainability.
The operational plan
The operational plan focuses on the daily activities and internal processes of the company to ensure the strategy is implemented and goals are achieved.
It includes production, sales, marketing, supply, human resources, and customer service.
2. Main objective
Financial plan: Managing funds and achieving a balance between revenues and expenses, and achieving sustainable profits.
Operational plan: Ensuring that work flows efficiently and achieving daily and quarterly operational goals.
3. Key components
The financial plan includes:
The annual budget.
Cash flow forecasts.
Revenue and profit targets.
Financial risk analysis.
Financial performance indicators (KPIs) such as profit margin, net cash flow, and expense-to-revenue ratio.
The operational plan includes:
Production schedules and delivery plans.
Sales and marketing plans.
Human resources management and daily tasks.
Monitoring the operational performance of each department.
Operational performance indicators such as product quality, customer satisfaction, and operational efficiency.
4. Implementation period
The financial plan: It is often annual, with quarterly or semi-annual reviews as needed.
The operational plan: It is often short-term (monthly or quarterly) to ensure monitoring of daily and weekly performance.
5. The relationship between them
The operational plan supports the financial plan, and the financial plan defines the capabilities and constraints of the operational plan.
For example, if the financial plan sets a marketing budget of $100,000, the operational plan specifies the marketing activities that can be carried out within that amount.
Any overspending in operational expenses directly affects financial results.
6. The importance of alignment between the two plans
Misalignment between the financial and operational plans leads to:
Wasting financial resources.
Difficulties in achieving revenue and profitability targets.
Cash flow problems.
Slow or disrupted daily operations.
Therefore, the two plans must work together integrally to ensure that the company's financial strategy effectively supports the execution of operations, and that operations adhere to the defined financial limits.