The 8 Steps And 4 Benefits Of PBO (plans/budgets/objectives)
by Miki SaxonYesterday we talked about the difference between SOP (seat of the pants) and PBO (plan, budget and objectives), so I assume that you’re the manager who wants to provide a plan that will win your people’s buy-in
What PBO offers
- buy-in from every manager in the company,
- a statement of objectives incorporating the commitments of them all, a budget which reflects the agreed spending level for every person with any kind of budget responsibility—and the further down you push budgetary responsibility the faster your people grow—and
- the ability to execute the operating plan intelligently and without further direction.
Although I’ve used a full executive team in the steps, feel free to use your common sense to modify them to fit the structure and size of your company
Steps to PBO
1. The CEO details the top-level financial and managerial targets for the upcoming year. Limit the number of goals to three, definitely no more than five, because these are major goals requiring the efforts of the entire company to accomplish and most executives will have additional goals for their own departments
2. The CFO then creates an income statement based on the CEO’s targets. These include both new financial objectives as well as revenues projections based on the previous year, economic projections, health and growth of target markets, etc.
3. Distribute both documents to the senior staff.
4. Each VP analyzes the part for which they’re responsible and decides what’s required to accomplish it, e.g., additional headcount, new equipment/software, cooperation from other departments, etc. They may also add departmental objectives, e.g., a new computerized software release tracking system in engineering.
5. The senior staff then negotiates their inter-related needs. This is rarely a calm discussion. Expect feelings to run high as your execs fight for the resources that they believe necessary to accomplish the objectives. It’s also a good idea to watch for covert empire building or efforts to undercut political opponents or support allies.
6. The negotiations result in separate departmental budgets. However, if the projected revenues won’t support the budgets then the CEO needs to modify the original objectives.
7. Repeat steps one through six until the projected revenues cover the budgets required to accomplish the adjusted objectives. The result is a trial operating plan and budget, not a final version
8. The VPs take the trial plan and budget to their own staff and repeat the negotiating process with their direct reports who then do it with theirs, etc. This is not a sales function meant to overcome objections from the lower staff. Rather, it’s an effort to uncover any difficulties that would surface later, but could be addressed now, as well as a way to achieve true buy-in at all levels.
Note
Any change in any part requires a revision of the plan and a repeat of the above steps—multiple revisions are not unusual nor are the passionate discourse and heated discussions that happen before a completely acceptable operating plan is produced
Benefits
- The smartest CEOs make the overall Operating Plan and Objectives available to all knowledge workers via the company intranet (it may give your legal department ulcers) because employees at all levels are happier (read: turned-on, productive and innovative) when they know that their company knows what it’s doing, where it’s going, and how it’s going to get there.
- It enables management to execute the plan without detailed day-to-day supervision because the trade-offs have already been negotiated and established.
- Lower levels of management are empowered and motivated by their inclusion in the process.
- Micro-managers and those who believe that workers are peons to be shoved around according to the manager’s whims will either change or go away—one of the most important side benefits of the PBO process.
I would love to hear any thoughts or questions you have. You may comment here or call me at 866.265.7267.
