Dynamic Business Plan

Scenario

A company’s potential future growth depends greatly on the clarity of its strategic business objectives, and its ability to transform these objectives into effective business plans. Traditional planning methods, such as accounting and spreadsheet models, tend to be costly, time-consuming, and error-prone. In addition, they often lack flexibility, provide a linear and static perspective, and disregard feedback loops. Nevertheless, they remain popular, particularly among small firms and start-ups, since they are often a pre-requisite for venture capital funding.

Small-firm managers often view business planning procedures as a pedantic bureaucracy; as a result, they tend to operate using mental plans as opposed to using formal business plans. Yet, understanding the importance of what a business plan offers can significantly accelerate a company potential growth. Usually, this evaluation includes: identifying all relevant variables (both internal and external) and the cause-and-effect relationships between them, identifying any external constraints, time delays between actions and related effects, non-linear relationships between variables, etc.

Use of Simulation Modelling

While acknowledging planning cannot remove uncertainty, we can transform our planning approach to adapt to the dynamic nature of our reality by using dynamic simulation models. These models take a double loop learning approach, which improves managers’ mental models through an “intelligent” analysis of business phenomena. These mental models are then observed according to the feedback view, through the use of accounting models, of entrepreneurial mental databases, as well as use of external sources of data.

Specific Benefits

Simulation modelling provides a digital environment where the structure of day-to-day problems can be better understood. Managers will find this solution beneficial in order to make their decision-making processes more explicit, as well as improving them over time. Problems are usually perceived differently by different managers due to the diversity of their respective mental models. Usage of common simulation models leads to the improvement of the managers' mental models and helps managers achieve a common shared view of reality, which facilitates in particular:

  • Long-term strategic planning
  • Annual budgeting
  • Flexible operational planning
  • Scenario planning over various time periods

Industry: All industries, SMEs included