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1、txho/G:Zxd453Ppt10101 ZXD453.PPT,CONFIDENTIAL,This report is solely for the use of client personnel.No part of it may be circulated,quoted,or reproduced for distribution outside the client organization without prior written approval from McKinsey it is not a complete record of the discussion.,Januar
2、y 2001,Creating New Planning Processes in a Large Petroleum Company,Andreas EngerTom MolnarTom GraceWarren StricklandHoward HarrisStefan WisbauerGreg Lalicker,PETROLEUM PRACTICE,txho/G:Zxd453Ppt10101 ZXD453.PPT,1,INTRODUCTION,Purpose of this document,To provide an overview of the shareable recommend
3、ationsfor redesigned planning processes for a large petroleumcompany who had not updated their processes since the1970s,Key functions addressed,Strategic planning Capital approval Performance management,Corresponding activities within the client,Business planOperating planCapital budgetExpenditure r
4、equest approvalAccountability reviews,txho/G:Zxd453Ppt10101 ZXD453.PPT,2,OVERVIEW,Current Process Issues New Processes Overview Strategic Business Planning Performance Management Organizational Implications Implementation Roadmap,txho/G:Zxd453Ppt10101 ZXD453.PPT,3,OVERVIEW,Current Process Issues New
5、 Processes Overview Strategic Business Planning Performance Management Organizational Implications Implementation Roadmap,txho/G:Zxd453Ppt10101 ZXD453.PPT,4,THE CURRENT PLANNING PROCESSES MEETS REQUIREMENTS BUT HAS AREAS OF POTENTIAL IMPROVEMENT,Strengths,Meets corporate obligationsProvides long ter
6、m financial forecastEnsures projects are reviewed prior to approvalProvides annual budgetsInvolves all parts of the organisationKeeps the business running,Weaknesses,Dispersed accountability due to lack of clear ownershipLittle time for in-depth strategic discussion at senior management levelOperati
7、onal and project detail burden top management agendaLarge part of planning is paper exercise done at staff level requiring significant time and resources Project execution dependent on business plan cycleNo tracking of project performance or systematic capturing of learning,txho/G:Zxd453Ppt10101 ZXD
8、453.PPT,5,SIGNIFICANT TIME&EFFORT IS INVESTED IN PLANNING YEAR-ROUND,Business plan and capital programme,Issue guidelinesManagement reviewSr.management reviewBoard reviewIssue guidelinesManagement reviewSr.management reviewBoard review,Operating plan,Issue instructionsManagement reviewSr.management
9、reviewBoard review,Accountability,Issue mid-year instructionSr.management reviewBoard reviewIssue YE instructionsSr.management reviewBoard review,Dec,Jan,Feb,Mar,Apr,May,Jun,Jul,Aug,Sep,Oct,Nov,Dec,Prior year,Dec 4,Jan 28,Feb 15,16,Apr 4,Jun 22,23,Jul 15,Jul 1,Oct 15,17,Nov 12,13,Dec 1,Nov 3,Sep 18,
10、19,Aug 29,Jun 27,May 3,4,Mar 24,25,26,Mar10,11,12,Dec 2,Spring,Fall update,Operating plan,Mid-year,Year-end,Capital budget,Project submittalProject submittalManagement reviewSr.management reviewBoard review,Nov 3,Sep 18,19,Aug 29,Aug 8,Capital budget,Aug 10,txho/G:Zxd453Ppt10101 ZXD453.PPT,6,Forecas
11、t payment to government,Be ready and prepared for demand,Ensure strategy implementation to achieve targets,Budgeting,Set clear&consistent direction,Sustainable revenue/profit growth,Make superior decisions,Facilitate resolution of conflicting objectives,Identify essential/strategic initiatives,Creat
12、e maximum value,Understand what competencies need to be developed,Cope with potential threats,Function of Planning Process,0,2,4,6,8,10,Success Rating*,YET CONSTITUENTS ARE ONLY PARTIALLY SATISFIED WITH THE RESULTSInternal perspective of planning process effectiveness,Perceivedweaknesses,Perceivedst
13、rengths,txho/G:Zxd453Ppt10101 ZXD453.PPT,7,Interviews with client management,QUOTES FROM INTERNAL INTERVIEWS CONFIRMS THIS DISSATISFACTION WITH THE PROCESSES,“We need to define more meaningful metrics to plan and evaluate what we do.”,“Petrochemicals?One day its on,theother its off,We have no clear
14、strategic direction.”,“The mother companies used to do that for us.They used a lot of business sense,now it is much more operationally driven.They left a vacuum of decision support.”,“We do not even have time to read all the material before the review.”,txho/G:Zxd453Ppt10101 ZXD453.PPT,8,Current pro
15、cessTop-down paper dissemination,guidelines prepared at 3 levelsActual planning done by planning staffLittle senior management involvement in content development,Departmentlevel,Admin.area level,Businessline level,Corporatelevel,Reviews,Business plan consolidation,Business plan prepa-ration,Guidelin
16、epreparation,Prepare Business plan,Issue&prepare guidelines,Consolidate,Issue&prepare guidelines,Consolidate,Issue&prepare guidelines,Board,Sr.Mngt.,Mngt,ONE AREA IDENTIFIED IS THE PAPER-HEAVY PROCESS,Changes,Changes,Current processTop-down paper dissemination,guidelines prepared at 3 levelsActual p
17、lanning done by planning staffLittle senior management involvement in content development,Departmentlevel,Admin.area level,Businessline level,Corporatelevel,Reviews,Business plan consolidation,Business plan prepa-ration,Guidelinepreparation,Prepare Business plan,Issue&prepare guidelines,Consolidate,
18、Issue&prepare guidelines,Consolidate,Issue&prepare guidelines,Board,Sr.Mngt.,Mngt,ONE AREA IDENTIFIED IS THE PAPER-HEAVY PROCESS,Changes,Changes,txho/G:Zxd453Ppt10101 ZXD453.PPT,9,ALONG WITH THE ASSOCIATED VERY TIGHT DEADLINES,Jan 29th Jan 31st Feb 5th Mar 10-12th Mar 14thMar 17th Mar 18thMar 24-26t
19、hMar 28th Mar 31st Apr 2nd May 3rd/4th,Capital appropriations submittedCapital expenditures submittedBusinesses submit draft business plansManagement review of business plan and capital program Changes submitted to senior managementBusinesses submit revisions to business planChanges to capital submi
20、ttedSenior management business plan and capital program,Changes submitted for Board ReviewChanges to capital submitted for Board ReviewBusinesses submit changes for Board ReviewBoard endorses business plan and capital program,2-6 days tosubmit changes before Mngt.review,2-8 days tosubmit changes bef
21、ore Board review,Short time windows to address issues identified in reviews Limited potential for value creating changes,Date,Event,txho/G:Zxd453Ppt10101 ZXD453.PPT,10,OTHER LEADING COMPANIES HAVE EVOLVED THEIR PLANNING PROCESSES WHILE THE CLIENT HAS NOT,Business plan time horizonNature of planning
22、targetsFlexibility to change/expand operating planTracking of actual investment returnsPlanning ProcessLast re-engineered process in,Features,1-3 yearsMainly financial KPIsMedium-HighYesHighly interactive1990s,3 yearsMainly financial KPIsMedium-HighYesInteractive1990s,3 yearsMainly financial KPIsHig
23、hYesHighly interactive1990s,5 yearsMainly operational and cost dataLowNoSome interaction,Paper-heavy1970s,Client,txho/G:Zxd453Ppt10101 ZXD453.PPT,11,OVERVIEW,Current Process Issues New Processes Overview Strategic Business Planning Performance Management Organizational Implications Implementation Ro
24、admap,txho/G:Zxd453Ppt10101 ZXD453.PPT,12,The primary focus of the planning processes should be on delivering value creation(outputs)not on projecting resource requirements(inputs)Strengthen linkage between strategy,objectives and resultsCreate accountability for results in the business linesFree up
25、 planning calendar to allow more time for in-depth discussions and input development Focus on developing required outputs through a more interactive approachStreamline the process where possibleAlign planning organization structure to support new model,KEY OBJECTIVES OF THE PLANNING PROCESS REDESIGN
26、 RELATES TO BOTH EFFICIENCY AND EFFECTIVENESS,Overall objectives,Process related objectives,txho/G:Zxd453Ppt10101 ZXD453.PPT,13,Strategic Planning,Business Plan,Issue analysis,Capital approval,Project reviews,Activity,THE NEW CALENDAR NEEDS TO PROVIDE TIME FOR PLANNING,Capital bud.&Operating Plan,On
27、going throughout the year,Ongoing throughout the year,Board meeting,Strategic Business Planning Process,Board meeting,Capital budget&Operating planning,Capital and Operating Plan done in parallel,11,1,2,3,4,5,6,7,9,10,12,8,Month,10,11,12,No fall update,txho/G:Zxd453Ppt10101 ZXD453.PPT,14,11,Performa
28、nce Management,Performance contracts and SLAs,Monthly performance reports,CEO/business line performance reviews,1,2,3,4,5,6,7,9,10,12,8,Activity,Define targets&service levels,Month,Finalize contracts&SLAs,AND FOR PERFORMANCE MANAGEMENT,10,11,12,Draft contracts&SLAs,Quarterly Reviews Focus on forward
29、-looking problem solving 1-2-page scorecard&issue report,Performance Contracts Contract between CEO and Business/Service Head Key performance indicators and specific additional goals,Monthly Report 1-page scorecard reportTrack progress against performance contract,txho/G:Zxd453Ppt10101 ZXD453.PPT,15
30、,THE NEW BUSINESS PLANNING PROCESS WILL FOCUS ON CREATING OUTPUTS IN WORKSHOPS,Interactive discussion of strategic issues and opportunitiesdriven byCEO,Each business line develops planAlso kicked off by workshop,Challenge/review by CEO separately with each business line,Sept 01,May 02,Multiple works
31、hops with in-depth strategy discussions,Separate discussions between CEO and individual business lines,WorkshopPreparation,Consolidated business plan development,Business line&services planning,Corporate Planning Economic&oil outlook Competitor activity Industry analysis Cut at capital allocation ra
32、ngeBusiness Line Planning Opportunity set for coming 5 years,Direction setting workshop,Consoli-dation workshop,Corporate Planningconsolidates businessline plans,Workshopends planning cycle,Business line workshops,Management-drivenvs.planner-drivenapproach,txho/G:Zxd453Ppt10101 ZXD453.PPT,16,THE KEY
33、 DIFFERENCES IN THE ANNUAL OPERATING/CAPITAL PLANNING PROCESS ARE MINIMAL,Benefit,From,To,Operating and capital plan developed and reviewedseparatelyCoordinated by different departments,Developed together,Reduced duplication of effort,Both coordinated by Finance,Streamlined process,txho/G:Zxd453Ppt1
34、0101 ZXD453.PPT,17,Operating planning,Workshop,Corporate planning,Compile business line submittals of business line operating planCheck fit with first year of five-year business plan,Business line planning,Prepare and submit business line operating plan draft,Attendants,CEOCorporate planning,finance
35、Business line(S)VPsBusiness line planning,Agenda,Key features of submitted business line operating plans(max.3 pages per business line),fit with business plan demandsPresent cumulated operating plan and fit with overall business plan targetsUnresolved issuesDiscuss overall plan,Format,12 daysInterac
36、tiveShort presentationsRelatively fixed format,yet flexible,Output,Agreed operating planand capital budgetFinal changes to be incorporated by Corporate Planning,Purpose:,THE OPERATING PLAN/CAPITAL BUDGET REVIEW WOULD ALSO BE CONDUCTED AS A WORKSHOP,Agree operating plan&capital budget,txho/G:Zxd453Pp
37、t10101 ZXD453.PPT,18,Ongoing throughout the year,Ongoing throughout the year,Strategic Planning,Business Plan,Issue analysis,Capital approval,Project reviews,Activity,Board meeting,THE CAPITAL APPROVAL PROCESS NEEDED TO BE REVISED AS PART OF THESE CHANGES,Capital and Operating Plan done in parallel,
38、Capital bud.&Operating Plan,Strategic Business Planning Process,Board meeting,Capital budget&Operating planning,11,1,2,3,4,5,6,7,9,10,12,8,Month,10,11,12,txho/G:Zxd453Ppt10101 ZXD453.PPT,19,THE CAPITAL DECISION-MAKING AUTHORITY IS VERY CENTRALIZED WHEN COMPARED TO OTHER LEADING COMPANIES,$50 million
39、 for business unit VPMost projects get discussed in peer groups,At business unit heads discretionProjects above$10 million get discussed with CEOFor projects above$50 million,business unit lead will ask CEO for sign-off,$50 million for business line Senior VP$20 million for business unit VPProjects
40、rarely get changed or rejected,Client$2 million for business unit Ex.VPProjects above$10 million go to the Board,Capital Approval Authority Levels(within budget),txho/G:Zxd453Ppt10101 ZXD453.PPT,20,YET CENTRALIZED REVIEW DOES NOT PREVENT SIGNIFICANT WASTAGE,Abandoned engineeringTotal spent,U.S.$mill
41、ions,Implementation ratioPercent of total projects,Project completed,Project canceled,Total 1996-2000,91,9,txho/G:Zxd453Ppt10101 ZXD453.PPT,21,OTHER SIGNIFICANT DIFFERENCES IN CAPITAL PROJECT PLANNING ARE PRESENT,Business planning and project approval schedule coupledFiltering of project ideasTracki
42、ng and discussion of actual project returnsMinimum project size within budget requiring additional corporate level approvalRole of support functionsTypical project planning cycle timeAvailability of extra funds for new opportunities,Features,NoPeer groups Yes$50MSupport only1 yearHigh,NoBusiness lin
43、e executive committeeYes$50MSupport only1 yearHigh,NoBusiness lineYesBusiness line discretionSupport only6 monthsVery high,extra funds can be secured within days,YesMultipleNoSupport and control/audit2 yearsLow,Client,txho/G:Zxd453Ppt10101 ZXD453.PPT,22,Projects approved both in business plan and as
44、 individual expenditure requestsLarge number of projects require corporate level approvalFixed schedule for approvalSame group approves all projects at corporate levelNo tracking of actual project performance,Expenditure request approvals within budget at business line levelOnly large projects go to
45、 corporate levelContinuous approvalCEO&specific othersPost project reviews,Avoids redundant reviewsFrees time for strategic thinking at corporate levelFaster approval timesMore relevant participantsClearer accountability for results,THE DESIGN PRINCIPLES FOR THE NEW PROJECT CAPITAL APPROVAL PROCESS
46、FOCUSES ON OVERCOMING THESE PROBLEMS,Benefit,From,To,txho/G:Zxd453Ppt10101 ZXD453.PPT,23,Project scope descriptionEconomic assessment,Project Proposal including economic case development,Detailed EngineeringProcurement strategyProcureImplement,Gate 1,Gate 2,Economic screeningFit with corporate/busin
47、ess line strategic direction,Final screeningExpenditure Request Approval,Project scope and business case,Initial project design,Detailed design and implementation,Project performance tracking,Accountability reviews for milestones,budget and economic returns,Completion,Proponent manages project throu
48、ghout lifecycle,BUSINESS LINE HAS INCREASED AUTHORITY FOR EXPENDITURE REQUEST APPROVAL WITHIN BUDGET,Idea,Proponenthas clear ownership,Proponentfully accountable for results,Business line has primaryresponsibility for allocatingfunds within its budget,txho/G:Zxd453Ppt10101 ZXD453.PPT,24,Project scop
49、e and business case,Initial project design,Detailed design and implementation,Project performance tracking,Proponent manages project throughout lifecycle,Engineering services,PurchasingContractingProject management,Engineering services,Support Services,THE PROJECT PROPONENT HAS OWNERSHIP THROUGHOUT
50、ITS LIFECYCLE BUT ACCESSES SPECIALIST SUPPORT AS NEEDED,Idea,Proponenthas clear ownership,Proponentfully accountable for results,CorporatePlanning,Assistanceprovided,Assist for specialist questions in scope development,Specialist input into detailed design,Recommend contracting/purchasing strategyPr
