7 Tips for creating a better AOP planning process

Whether you're  a seasoned CFO or a SaaS startup founder, understanding how to develop an effective annual operating plan (AOP) is key to your company’s success.

An AOP is your company’s GPS, helping you successfully navigate business opportunities and challenges over the year, at times with alternative “routes”. Investing time in improving your AOP process now, will result in a more effective AOP that provides an actionable plan for aligning your resources, budgets, and activities with your business goals for the coming year.

This article discusses will help you do that, with an explanation of what goes into AOP planning, the role of the CFO in the process, and eight best practices you can implement now.

Key things you need to know about what an AOP means in finance

An annual operating plan (AOP), also known as an annual business plan, is a detailed document that outlines your businesses’ objectives and goals for the coming year, along with action plans and resource allocation to achieve those targets. The AOP, budget, and strategic plan are often used interchangeably but they are not quite as synonymous or simplistic as they may seem.

Pro Tip: You can realize the full benefits of an annual operating plan when it's comprehensively informed by your strategic plan and annual budget.

Creating an AOP for your SaaS business

In most cases, the AOP is visualized and drafted by the founder/business head and the finance head together. Informed by the vision and objectives given in the strategic plan, the business heads set the goals for the upcoming fiscal year, estimate the revenue and expenses, and consider the resources they have (capital, personnel, marketing, etc.). The AOP draft also includes potential risk mitigation strategies.

Once the overall objectives are set for the year, the CXOs share the AOP draft with different departments, where individual department/business unit heads brainstorm with their own teams to break down the goals, figure out team and employee KPIs and performance benchmarks, and estimate the resources required (team budget, headcount planning and hiring, etc.).

These departmental KPIs and budgets then inform the overall AOP, aligned with the CXOs and other key stakeholders (including board members/investors), and finally the AOP is finalized for the coming year.

Technologies that enables collaborative planning facilitate teamwork and streamline the planning process, ensuring alignment and transparency across different departments in the organization.

The role of the SaaS CFO in AOP planning

AOP planning is a tactical process, aligning a company's resources with the strategy to achieve the targets for the coming year, based on budget, people, capabilities, technology, and market trends. The process typically involves multiple stakeholders, including CXOs and senior management, department heads, and finance professionals (discussed above). The goal of the AOP planning process is to develop a comprehensive plan that serves as a guide for your SaaS business throughout the year.

As a SaaS CFO, you are responsible for guiding future projects based on the company's financial health and performance. Here are a few key ways in which a SaaS CFO can facilitate the AOP planning process:

• Provide strategic financial leadership: While CEOs and other stakeholders often focus on product growth and sales, they may not have the necessary experience in financial analysis. As a CFO, you must make informed decisions to balance ambitious growth plans and business goals with realistic financial targets and budgeting. Strong financial forecasting and analysis, cash-flow management, and scenario planning will add to the effectiveness of your SaaS businesses’ AOP.
• Inform long-term growth initiatives: Beyond the short-term operational goals, a CFO advises the CEO and board on more longer term initiatives in the strategic plan, such as mergers and acquisitions (M&A), IPO readiness, and capital budgeting. These, in turn, impact the objectives and activities outlined in the AOP for the coming year.  
• Enable data-driven decision-making: Advanced analytics software and forecasting tools enable your finance teams to convert raw data into detailed insights. These inform your strategic decisions in different situations, such as, when you consider ARR/MRR growth or model different market entry scenarios.

7 tips for more successful AOP planning 

Here are some practical tips and best practices to help you in planning and developing an effective AOP for your SaaS business:

1. Start with a clear vision

It is crucial to have a comprehensive understanding of your organization’s long-term vision and objectives, and then convert those into actionable goals for the upcoming year. What is your target for this year? Does it align with your long-term goals and strategic plan? These reflective questions will ensure the AOP is a suitable roadmap to achieve your company’s overall vision. 

2. Involve all stakeholders and departments 

Making the AOP a collaborative effort between the leadership (CEO, CFO, COO) and all team/department heads, instead of a standalone financial exercise, helps build a well-defined and achievable plan. Collaboration also helps gain employee buy-in and commitment to the plan.

3. Take a data-driven approach

Rely on data to guide your projections and objectives. This helps prevent biased assumptions and results in realistic estimates. You can do this in two ways: 

• Analyze historical data: Use historical data as a baseline for forecasting. While past performance may not precisely predict future outcomes, it is more reliable than arbitrary assumptions. Relying on actual trends and past achievements helps to reduce bias and optimism in speculative forecasting. Base rates provide a realistic starting point for your AOP. 

• Evaluate last year's plan against current year variances: Compare the financial forecasts, assumptions, and objectives given in the previous year’s AOP with actual performance metrics and outcomes for the year. This will help identify variances and understand the reasons behind discrepancies. Knowing these variances will ensure that your current AOP planning process is better informed to tackle any sudden shifts in the market or other such exigencies (both good and bad).

4. Set SMART goals

Set SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals to prevent ambiguity and stay on track. Define KPIs, informed by the objectives in the strategic plan, to set benchmarks as you begin. This also allows better progress monitoring and enables quick action if things veer off course. Ensure each department understands and commits to these KPIs for effective collaboration leading to impactful outcomes.

5. Be realistic about resource allocation

It is important to prioritize high-impact projects, rather than spreading available resources (e.g., funds, personnel, time, etc.) too thin by juggling too many initiatives. Balance the allocation of resources by tracking headcount and infrastructure costs.

6. Review and revise regularly

An AOP isn’t a one-and-done document. Schedule quarterly reviews to assess performance, identify any issues early on, and revisit your financial forecasts accordingly. A rolling plan can help maintain a continuous planning horizon, aligned with the overall strategic plan, for the coming 12 months.

7. Communicate clearly and regularly 

Clear, consistent communication fosters a culture of transparency in the organization, ensuring that all employees, from the CEO to the intern, are aware of the objectives in the AOP along with their roles and KPIs to achieve those goals within the allocated timelines. 

Technology is key to successful planning

The AOP planning process starts early, typically in the last quarter of the previous year and can be a pretty intense process if you have to pull all your data together manually, and working with multiple stakeholders takes a lot of time.

Fortunately, SaaS CFOs often have a number of different financial management tools that can help facilitate the AOP planning process in different ways. For example, financial planning and analysis (FP&A) software help collate and analyze data in real time, create dashboards, and automate tasks, which further improve the accuracy of financial forecasts and allows their finance teams to focus more on strategic initiatives, rather than manual tasks.

Given the critical importance of budgeting in the the AOP planning process, budgeting and forecasting software is also extremely useful for making the AOP planning process more efficient with budgeting and reporting templates among other features, and it can significantly improve the accuracy of the AOP as well.

Drivetrain is a robust FP&A solution that combines several capabilities critical for effective planning into a single platform to empower founders, finance leaders, and team/department heads develop more realistic budgets and annual plans, track progress in real time, identify bottlenecks, and uncover opportunities. 

Drivetrain’s wide range of features makes it a tremendous value-add for business leaders caught up in the AOP planning process. These include: 

• Data integration and automation: With over 200 native integrations, Drivetrain can seamlessly integrate with ERP, CRM, HRIS, and billing systems to map and collate data (including custom fields). This enables you to consolidate and validate financial data from different departments and systems into a single platform, reducing the need for manual data entry and clunky spreadsheets, and making the data less prone to errors.
  
• Predictive forecasting: Forecasting is a critical part of financial planning and analysis. You can access historical data in real time and with the power of predictive analytics, you can make better data-driven decisions regarding budgets and current performance.
• Scenario planning and what-if analysis: CFOs need to consider different scenarios to ensure that the outcomes stay on track, while addressing any risks or opportunities along the way. Scenario planning and what-if analysis enable SaaS CFOs to continue to efficiently steer the business amid any uncertainties.
• Role-based access control: AOP planning involves collaborating with different departments, including sales, marketing, and operations, to set achievable targets for the year and inform KPIs for those targets. The role-based access feature allows for cross-functional collaboration and ensures that your forecasts and assumptions can be updated as needed, by the right departments and people, on the same dashboard, without accidentally changing the model. 

Learn more about how Drivetrain can help CFOs master AOP planning.