Annual planning: 6 steps for a well-planned fiscal year

Even though we do it every year, annual planning often feels like a mountain to conquer. Without the right support and setup, you can spend a lot of time spinning your wheels and attending meetings about planning future meetings. Sound familiar? 

An effective annual plan can help. By reviewing how your team performed in the past year, you can identify which strategies worked—and which fell short. Equipped with those learnings, you can turn annual planning into something to look forward to, rather than something to dread.

What is annual planning?

Annual planning is the act of developing a strategy for the upcoming year based on the learnings from the current year’s performance. This provides an opportunity for your team to iterate on the strategy from the past year and incorporate those learnings into your upcoming plans. 

In essence, your annual plan should contain: 

• The goals you want your team to achieve

• A strategy for how your team will hit those goals

• Clear tactics for what your team will work on

• Any important milestones that benchmark progress

What’s the difference between annual planning and strategic planning? 

Strategic planning and annual planning are both important business planning methods that help set your team's strategy for the future. However, the scale of these planning strategies are different.

Strategic planning is the long-term strategy for your business. This encompasses a basic roadmap of how business should develop within three to five years. You will use your strategic plan to inform your annual plan. 

Annual planning represents all of the goals and strategies that you want your business to achieve, similar to a strategic goal. The main difference here is that an annual plan only encompasses one calendar year, instead of a few years. If you think of it like a pie, annual planning is just one slice of the larger strategic plan pie.

When should you start annual planning?

If possible, aim to begin your annual planning process before the year is out, to ensure you start the fiscal year on the right foot. We recommend starting annual planning during Q4, so you can begin day one of Q1 with your plan in hand. If that’s not an option, do your annual planning as close to the start of the new year as possible. 

There are two benefits to planning earlier. First off, you’ll beat the end-of-year crunch, and avoid the stress that traditionally comes with the end of the year. Additionally, if you run an efficient annual planning process with your leadership team, your project teams will still be free to execute on high-impact projects throughout Q4.

Why should teams use an annual plan?

Reflecting on your team’s performance from the previous year may sound like extraneous work, but it’s well worth the effort. Here’s why. 

Annual plans provide a sense of direction for work

Annual planning gives your team a roadmap for the upcoming year. Team members can start the year off with a strong understanding of the overall vision and how their work contributes to larger business goals. Without an overarching plan, it can be difficult to understand how a specific project or initiative moves the business forward. When team members can see the annual plan, they can more easily understand how their work makes that plan a reality. 

A clear annual plan also makes it easy for team members to prioritize new initiatives as they come up. As much as we’d like an annual strategy to be a one-and-done plan, you’ll likely encounter a handful of unexpected initiatives and pivots every year. If you have a shared annual plan, team members can compare these new initiatives against the plan to identify priorities and evaluate whether the initiatives need to be scheduled or deferred. 

Clear goals establish benchmarks for project progress

Your annual plan shouldn’t be a set-it-and-forget-it goal. Rather, periodically check project progress against your annual plan so you can see how your team is doing. Doing this throughout the year will not only give you a sense of how you’re tracking towards your overall goals—it can also help you understand if you’re ahead or behind schedule, and adjust accordingly. 

If you notice that a specific initiative is not on track to meet the strategic goals outlined in your annual plan, you can use this data to pivot and double down on—or divest from—specific initiatives. 

Establishes concrete goals for a specific time period

The more specific your goal, the more concrete your action plan. Providing detailed and specific goals gives team members a clear understanding of what work to prioritize and what deliverables they’re responsible for. 

Make sure your goals are measurable, as well. Clear KPIs and OKRs demonstrate how tangible work connects back to larger business goals. 

6 steps for annual business planning

The annual planning process often takes place near the end of the calendar year or at the end of your company’s fiscal year. As you get closer to annual planning time, consider these six steps of the annual planning process. 

1. Reflect on the previous year’s performance

Before you can start planning for next year, ask yourself—How did you perform against last year’s annual plan? 

Using the previous year’s annual goals as a benchmark for the upcoming year can help you set realistic goals. If you’re consistently outperforming your goals, consider setting this year’s goals slightly higher than they were the previous year to help push your team to achieve more. Alternatively, if you’re frequently missing your goals, evaluate whether or not goals were too ambitious, or if there should be a shift in strategy.

2. Identify the goals you want to achieve in the upcoming year

Your annual plan doesn’t come from thin air. Rather, refer back to your three to five year strategic plan and identify what you need to focus on this year to make that happen. What initiatives or plans does your team need to focus on this year to achieve your strategic plan? 

Once you’ve identifies those initiatives, use a goal framework to transform them into an action-oriented plan. The exact goal framework you use will depend on your company, but a few good ones to consider are: 

• The Objectives and Key Results (OKR) method, which helps you set goals using the framework “I will [objective] as measured by [key result].”

• Key Performance Indicators (KPIs), which use leading and lagging indicators to track how you’re performing towards your goals. 

• The SMART goals framework, which helps ensure the goals you set are specific, measurable, achievable, realistic, and time-bound.

3. Create an action plan to achieve goals

The next step is to create an action plan to achieve the goals you outlined in step three. Your action plan should outline the list of steps you need to take to accomplish your goals. Think of an action plan like the map you’ll use to arrive at your final destination. 

From there, you can delegate the work laid out in the action plan to specific team members or dedicated departments. Connecting the work that your team completes to larger company goals makes it easier for team members to understand the impact their work has on the business.

4. Communicate the annual plan to all team members

Once you’ve established your annual plan—and how you’ll get there—you need to share it with the rest of the company. This step is critical in getting buy-in and generating excitement across your team. 

Remember, you don’t just need to tell your team members what the annual plan is—you want to bring them along for the journey and get them excited about what you’re working towards. Even if they weren’t involved in the planning process, consider doing a presentation or read out to share the company plan, why this plan matters, and how you’ll achieve your goals. 

5. Execute your strategy, monitor metrics, and adjust as needed

At this point, your annual plan is completed, but nothing is ever fully set in stone. As the year progresses, make sure you’re continually monitoring success metrics and watching your KPIs. If the results of your strategy are not behaving as you expected them to, it’s important to adjust your strategy so that your team will hit the goals you outlined in your annual plan. 

6. Repeat again for next year 

At the end of the year, it’s time to start the process over again. Align with your strategic plan, look back at the past year’s results, and create another plan to achieve those business goals. 

What does a good annual plan include?

Effective annual plans should contain components that are essential for completing the work outlined in the plan itself, and context for why this plan will be effective. Here are a few examples of components you would find in an annual plan:

• Reports of the previous year’s performance: Your annual plan for the upcoming year should be based on the data from the previous year’s performance. This provides those who are creating the strategy context for what your team is capable of doing within one calendar year.

• Budget estimations: A common KPI investors track is return on investment (ROI). Knowing how much money different teams are spending makes it easier for teams to calculate ROI and adjust strategies. Providing budget estimations also gives individual teams the context they need for the amount of resources they have at their disposal for the year.

• Clear and specific goals: Annual plans should use the SMART goal framework so that your team can easily measure progress and report back on it later. 

• Important milestones: Your team can accomplish a lot of work within one year—but to do that, they need to know how they're doing. Milestones operate like checkpoints, giving team members a sense of how they're pacing against yearly goals.

• Project buffers and contingency plans: Unexpected things happen all the time, and it’s better to be prepared than caught off guard. Develop a contingency plan for how your team will get back on track in the event of an unexpected roadblock. Also set aside some resource buffers, such as a small portion of your budget, to accommodate for unexpected expenses.

Gear up for next year

After a year of hard work, it’s time to reflect back and plan for more great things in the future. While annual planning takes time, collaboration, and thoughtful strategy, the efforts show in the form of your business success.