Business Planning and Evaluation · Chapter 2 · 2.1.2

From assumption to decision

The architecture of a planning system: levels, cycle, co-ordination and integration.

Sales managergrowth
Production managerstability
Finance managerprofitability and cash flow
Supply managercosts

Rolandas Rakštys · Lecturer · Vytautas Magnus University, Agriculture Academy · Faculty of Bioeconomy Development, Department of Business and Rural Development · [email protected] · ORCID 0000-0003-0299-9930

Chapter 2 “The business planning and evaluation process”, section 2.1.2 · English translation of v1.0.11 (2026-10-15) · set v1.0.2 · 14 slides, ≈ 28 min

Rakštys, R. (2026). Chapter 2. The business planning and evaluation process (English translation of v1.0.11, 2026-10-15). Verslo planavimas ir vertinimas [Business planning and evaluation]. Vytautas Magnus University, Agriculture Academy. https://rakstys.eu/studijos/verslo-planavimas-ir-vertinimas/en/skyriai/ch02/ · CC BY-NC-ND 4.0

Hook

Four managers – four objectives

“Without the co-ordination provided by S&OP, each function naturally optimises its own area: sales pursues growth, production stability, finance profitability and cash flow, and supply costs.”Section 2.1.2

S&OP – sales and operations planning: a tactical process designed to balance demand and supply over a medium-term horizon. More on slide 11.

How can the objectives of four managers be aligned?

levels→plan ≠ forecast→cycle→business plan→co-ordination→integration
Levels of planning · Anthony (1965), Simon (1960)

Three levels

levels
LevelHorizon, yearsLevel of detailDecisions (Simon, 1960)

Strategic

Direction, competitive positioning, portfolio; decisions hard to reverse (Anthony, 1965; Johnson et al., 2017)

Tactical

The bridge between strategy and day-to-day activity; the critical point of integration

Operational

Execution: its effectiveness directly determines whether the strategic objectives are achieved

lowestaggregate categories: markets, product groups, strategic business units
highestproduction schedules, inventories, cash flows, labour, orders
non-programmednovel, ambiguous, strategically significant
programmedroutine, repetitive, clearly defined
Instruments of evaluation

What is evaluated at each level

levels
Click an instrument, then a level.
Figure 2.1 · Feedback loops

Vertical consistency

levels

Strategic objectives are cascaded consistently into tactical and operational plans.

Operational results, through feedback mechanisms, inform tactical and strategic decisions (Meal et al., 1987).

Tactical planning not formalised → functionally separate plans: “locally rational but globally uncoordinated” (Dreyer et al., 2018)

Without this two-way link the hierarchy remains a formal structure with no real content.

One of the commonest errors in planning

A plan is not a forecast

plan ≠ forecast

Forecastdescriptive

An estimate of a likely state: what will most probably happen if nothing changes. It can be right or wrong.

Responsible: analysis and data

Plannormative

A decision: what the organisation will pursue and what it will do to that end. Not right or wrong but met or not met, ambitious or cautious.

Responsible: people
When the two are merged into a single figure, one of two things happens. Click to see which.
A forecast updates a plan but does not replace it.
On receiving a new forecast, the organisation decides: whether the target is still attainablewhether to pursue it by other meanswhether to revise the target
Figure 2.2 · The planning process cycle

Five stages – one cycle

cycle
feedback 1Assumptions 2Forecasting 3Modelling 4Evaluation 5Decision

Cyclical and iterative, not a one-off linear sequence. Three reasons:

  1. Incomplete information – assumptions are set and tested later.
  2. The interdependence of plans:
sales forecasts→production plans→financial requirements→financial constraints→sales targets↺
  1. Change in the environment – plans must be updated continuously.
Stages 1 and 2

Assumptions and forecasts

cycle

Macroeconomic

growth of gross domestic product, inflation, interest rates

Sectoral

competitive dynamics, regulatory change

Firm-level

market share, pricing, efficiency improvements

Financial

discount rate, tax rates, working capital requirements

Planning is the modelling of the future, and the future is unknown. The quality of the assumptions – clarity, justification and regular review – is therefore the most important factor in the quality of planning.

Quantitative methods

Time series methods, regression, Monte Carlo simulation, machine learning. Suitable where numerical data about the past are available and it is reasonable to assume that some patterns will continue.usually shorter horizons

Qualitative methods

Expert judgement, the Delphi method, scenario planning. Structural breaks – technological, regulatory, demographic – become the principal source of uncertainty.more important over longer horizons

Hyndman & Athanasopoulos, 2021, §1.2, §1.4

Stages 3, 4 and 5

Modelling and evaluation

cycle

Deterministic

One value of the result for each combination of assumptions. Simpler and more widely used, but creates an illusion of spurious precision.

Stochastic

Variables are probability distributions, and the result is a distribution. More realistic, but requires more data and expertise.
A practical compromise: a deterministic model with sensitivity and scenario analysis – some account is taken of uncertainty without the full stochastic apparatus.

Evaluation is not a procedure “after” planning but an integral part of it – an instrument for modelling decisions.

before the decision
Ex ante

Comparing alternatives. Which investment creates the most value?

during implementation
In itinere

Monitoring assumptions. Is the growth of sales consistent with the assumptions?

after implementation
Ex post

Learning. Where were the assumptions wrong? Why?

The terms are taken from the practice of programme evaluation

5 · Decision

Clear decision governance – who decides, on what basis, through what escalation mechanism – is necessary so that the process does not turn into a bureaucratic exercise without real results.

The business plan

The business plan – an integrated document

business plan

Not merely a document of financial projections but a structured system for modelling decisions: it integrates strategic direction, tactical co-ordination, financial forecasts, an implementation plan and risk monitoring. The three layers correspond to the planning hierarchy.

Strategic3–10 years

Mission and vision, market positioning and competitive strategy, business portfolio decisions, major investment programmes, high-level financial objectives – revenue growth, profitability ranges, return on invested capital (ROIC) targets.

Tactical1–3 years

Functional strategies: the marketing, operations, personnel and finance plans. Departmental budgets, the project portfolio, the KPI system, an assessment of assumptions and risks.

Operationalmonths to a year

Detailed implementation schedules, the allocation of resources, process documentation, the measurement of performance, contingency plans.
Chapters 9–15: financial analysis and valuation – a cross-cutting function across all levels
Form and level of detail differ – a plan for the investors of a start-up is not the same as an application to Lithuania’s National Paying Agency (NMA) under the rural development support measures. The conceptual structure is the same.
Map of the textbook
Chapters 5–8 – functional plans at the tactical level: structure, operating processes, marketing, personnel.
Chapters 9–15 – financial analysis and valuation.
Mechanisms of co-ordination

S&OP and IBP

co-ordination

S&OP – a tactical process designed to balance demand and supply over a medium-term horizon.

1Demand review
2Supply and capacity review
3Financial reconciliation
4Management review
5Confirmation of decisions

IBP – a more advanced form of S&OP

Integrated business planning (IBP) adds financial management, strategic priorities and scenario thinking. It is a mechanism for executing strategy – a bridge between the formulation of strategy and everyday activity (Nyman et al., 2025).

Organisational alignment

Shared objectives, shared assumptions, clear decision channels, agreed evaluation criteria, disciplined iteration (Markin et al., 2021; Dreyer et al., 2018). It is suggested that the process be assessed by how far it reduces bias in decisions – debiasing (Koller et al., 2020).
Instruments of integration

BSC and OKR

integration

The Balanced Scorecard (BSC) – strategic objectives as KPIs across four perspectives (Kaplan & Norton, 1992, 1996).

Financialprofitability, growth, the creation of shareholder value
Customersatisfaction, loyalty, market share
Internal processoperational efficiency, quality, innovation
Learning and growthcompetencies, technological infrastructure, organisational culture

The chain learning → processes → customers → finance (Kaplan & Norton, 2001) is a hypothesis: the relationship between the perspectives is logical rather than causal (Nørreklit, 2003, pp. 615–616).

Objectives and Key Results (OKR) – an instrument of tactical and operational execution.

Drucker, 1954Management by Objectives (MBO)
→
Andy GroveIntel: simplified it and made it more operational
→
John Doerr, 1999brought it to Google (Doerr, 2018)
Objective
Key Result 1
Key Result 2
… 3–5 in all, quantitative
quartersstretch goalstransparent to allseparate from pay

The empirical grounding is still limited – more case studies than controlled studies (Niven & Lamorte, 2016).

BSC – “translating” strategy (long-term), OKR – execution by quarters (short-term). A common root – Drucker’s MBO: how to turn a strategic vision into everyday action.

Table 2.2 · Synthesis

Five dimensions of a planning system

DimensionContentPrincipal question
StructureThe hierarchy of plans and vertical consistencyHow are strategic objectives transformed into tactical and operational plans?
ProcessPlanning cycles, rhythm, reviews, iterationsHow often and in what order does planning take place?
GovernanceDecision rights, escalation, accountabilityWho decides, on what basis, through what escalation mechanism?
EvaluationThe ex ante, in itinere, ex post logicHow is evaluation integrated into each stage of the process?
InfrastructureData architecture, technology, competencies, cultureOn what data, tools and capabilities is planning based?
Managers’ objectives aligned → a single set of numbers

Five dimensions – an analytical model for assessing the maturity of a planning system. Each is made specific in what follows: operating processes (Ch. 6), marketing (7), personnel (8), financial analysis (9), valuation (13).

APA 7 · works cited in section 2.1.2

References

Anthony, R. N. (1965). Planning and Control Systems: A Framework for Analysis. Harvard Business School Press.

Doerr, J. (2018). Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs. Portfolio/Penguin.

Dreyer, H. C., Kiil, K., Dukovska-Popovska, I., & Kaipia, R. (2018). Proposals for enhancing tactical planning in grocery retailing with S&OP. International Journal of Physical Distribution & Logistics Management, 48(2), 114–138. https://doi.org/10.1108/IJPDLM-01-2017-0018

Drucker, P. F. (1954). The Practice of Management. Harper & Row.

Hyndman, R. J., & Athanasopoulos, G. (2021). Forecasting: Principles and Practice (3rd ed.). OTexts. https://otexts.com/fpp3/

Johnson, G., Whittington, R., Scholes, K., Angwin, D., & Regnér, P. (2017). Exploring Strategy: Text and Cases (11th ed.). Pearson.

Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard—measures that drive performance. Harvard Business Review, 70(1), 71–79.

Kaplan, R. S., & Norton, D. P. (1996). The Balanced Scorecard: Translating Strategy into Action. Harvard Business School Press.

Kaplan, R. S., & Norton, D. P. (2001). The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Harvard Business School Press.

Koller, T., Goedhart, M., & Wessels, D. (2020). Valuation: Measuring and Managing the Value of Companies (7th ed.). Wiley.

Markin, S., Sinha, A., Chandna, S., & Foster, J. (2021). SAP Integrated Business Planning: Functionality and Implementation (3rd, updated and revised ed.). Rheinwerk Publishing (SAP PRESS).

Meal, H. C., Wachter, M. H., & Whybark, D. C. (1987). Material requirements planning in hierarchical production planning systems. International Journal of Production Research, 25(7), 947–956. https://doi.org/10.1080/00207548708919887

Niven, P. R., & Lamorte, B. (2016). Objectives and Key Results: Driving Focus, Alignment, and Engagement with OKRs. Wiley.

Nyman, H., Tschirch, F., & Hongell, L. (2025). Linking strategy to tactical planning – using integrated business planning (IBP) as a strategy implementation process. International Journal of Physical Distribution & Logistics Management, 55(11), 213–239. https://doi.org/10.1108/IJPDLM-06-2024-0233

Nørreklit, H. (2003). The balanced scorecard: What is the score? A rhetorical analysis of the balanced scorecard. Accounting, Organizations and Society, 28(6), 591–619. https://doi.org/10.1016/S0361-3682(02)00028-0

Simon, H. A. (1960). The New Science of Management Decision. Harper & Row.

Rakštys, R. (2026). Chapter 2. The business planning and evaluation process (English translation of v1.0.11, 2026-10-15). Verslo planavimas ir vertinimas [Business planning and evaluation]. Vytautas Magnus University, Agriculture Academy. https://rakstys.eu/studijos/verslo-planavimas-ir-vertinimas/en/skyriai/ch02/ · CC BY-NC-ND 4.0

These slides are based on the textbook Verslo planavimas ir vertinimas [Business Planning and Evaluation]. The text was translated, structured and visually laid out with the help of artificial intelligence tools (Claude), following the protocol for working with AI and the verification procedures set by the author.

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