3-Year Business Planning (Basic Overview)

Your 3-Year Business Plan is the equivalent of a Short-Interval-Plan (SIP) on a construction project. It sets specific objectives and key results for the whole team. It allows you to plan your resources and know if you are on track or not.

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Contributors Sue Weiler-Doke

 

 

This article is just meant to cover the basics. It is not meant to get into every aspect of business planning and execution. 

The first things you must reasonably have in place is clarity around:

  1. The values that define how your team must think and behave. Keep in mind that the values you prioritize as well as the limits to what you will tolerate as a leader must change as your company grows.
  2. Your vision defining your aspirations for where you want the company to go.
  3. Your mission defining more specifically why the business exists - the purpose.
  4. Your strategic decisions about how you will achieve your vision and mission.

Remember that all of these change with growth, which is why leadership focus must also evolve. These must all be defined by the highest levels of leadership with input from others.

Progress is more important than perfection. Do your best with each iteration. Revisit regularly. Don't change in a reactive way but be comfortable knowing these will change with time and growth.


 

FUTURE-STATE OBJECTIVES & TARGETS

"Begin with the end in mind." - Stephen Covey, Chapter 2, The 7 Habits of Highly Effective People

 

There shouldn't be an "end" to your business. It should be played as an "Infinite Game" with things like ownership succession just being milestones. 

 

With that in mind, we have found that 3 years is a good business planning time horizon. For a contractor in the first few stages of growth, this will be a stretch to think that far out and that is great for the team. For a larger and rapidly growing contractor, this is also a stretch because so many things are changing so quickly. 

The first thing to do is define your high-level objectives and targets 3-years out. This is the work of the higher-level leaders who are looking at basic business models to make sure these are a stretch but realistic. Think about setting these targets the same way you would define the key milestones on a construction project. The whole process works very much like the Last Planner System (LPS) on a construction project:

  1. Should Do
  2. Can Do
  3. Will Do
  4. Did  

At earlier stages of growth, this is a task that often falls short the first few attempts. At later stages of growth, business planning and execution is a routine process just like building a project. 


 

CURRENT-STATE EVALUATION

The next most important thing to do is take an objective look at where you are at today.

  1. What capabilities do you currently have?
  2. What is your current capacity for each of those capabilities?
  3. Who are your best customers?
  4. What is your reputation in the market?
  5. What does succession readiness at all key levels look like if you are planning for growth?

These are just a few of the questions that must be answered to truly evaluate your current state. It is only important to understand where you are currently at so you can plan on how to close the gap between current and future state.

Expect to be both overly optimistic in some areas and overly pessimistic in other areas the first few times you evaluate your current state. Selectively used, a 3rd party can be invaluable for evaluating parts of your organization. For example, a cyber security audit. We've also seen contractors effectively involve their customers, subcontractors, and suppliers in this phase. 

Getting into all these details here is beyond the scope of this article but please contact us and we'll share anything we've learned that could help your situation. 


 

PULL PLANNING FUTURE-TO-CURRENT

An architect designs from the top down while a contractor builds from the ground up. This creates some inevitable conflicts along the way. The construction industry has pre-defined standards to work through those conflicts including the submittal, RFI, and change management process. That tension is what consistently delivers projects with an average of 10% changes. This is known and all good project owners, architects, and construction managers build in contingencies to their budgets and schedules for them.

A project that is a first of its kind for an experienced project owner (think Amazon’s first data center) or a first-time project owner building their first project will both have changes on the high side of average. An experienced project owner building their tenth-of-a-kind project (think Wal*Mart building stores) can expect changes on the low side of average. 

What does all this have to do with building your 3-year business plan?

First is the use of something like the pull-planning system used on some construction projects. The “First Planners” are the ones creating the master schedule and budget. This is at a lower level of detail and defines what should be done to meet the project owner’s requirements.

The reason it is called the Last Planner System is because Glenn Ballard and Greg Howell studied multiple projects and recognized the major problem with project performance was not due to ineffective project schedules or budgets. The problem was a breakdown in the execution of the schedule and budget, a gap between the “First Planners” and the “Last Planners” (Superintendents, Foremen, and Crew Leaders). This showed up as a low percentage of task completion on the weekly work plans. The business of construction is no different.

The second similarity between the business of construction and building projects is that the best project teams are those where:

  1. The project owner, architect, and engineers deeply understand the capabilities and capacity of the contractors along with the challenges they face during construction. They stay in close communication throughout the design process and that creates a better design, schedule, and budget.
  2. The contractor understands the design intent of the project owner, architect, and engineers. This helps the contractor both inform them of potentially better alternatives as well as make better decisions during construction. 

This is exactly the same as what's required to develop and execute a good business plan while also building your "Talent Value Stream" and improving your "Succession Readiness" for the future. 

The process of pull planning forces the Last Planners work from a milestone backwards rather than from today forward. The process forces communication about every execution detail including resources required, time to complete, and prerequisites that must be met before starting.

This is all done in a very visual format that forces the discussions to happen in a way that is far less costly and safer than working through the same issues in the field. Though there are a lot of great electronic tools for pull planning today, many of the best interactions still happen with a big wall and a bunch of sticky notes.

The same exact principles and many of the same tools apply when planning the business. Starting with your high-level objectives and targets, start breaking them down into more concrete tasks to be done. This is planning the “Can Do” phases just like in the Last Planner System (LPS).

  1. What must be true at the end of year 2 to be able to achieve the 3-year business plan objectives and targets?
  2. What must be true 18 months from now to set ourselves up for the end of year 2?
  3. Where do we have to be a year from now to set ourselves up for 18 months from now?

For each item, identify a single person in leadership who is accountable for the outcomes. Identify who will likely be involved knowing that these are a way off in the future and those individuals may change. 


 

SELECTING THE TEAM

Engage a large cross-section of the company that is deliberately selected based on factors that include:

  • Management span of control across the organization. There are likely 20% of your managers who are accountable for 80% of your total workforce just based on the nature of a construction business.
  • Management of all functions in your business model represented. One of the key differentiators between a good and great contractor is not how well any single function operates but rather about how effectively they all work together. 
  • Highly influential people within the organization who are great at aligning people around a common idea. These people may or may not be in management roles.
  • People who are "Crazy Creative" coming up with completely out-of-the-box ideas regularly. Even if these ideas don't work the first time, or at all, it is the exploration of these ideas that makes teams better at innovating. These may be operationally creative people great at internal improvement ideas or entrepreneurial creative people great at looking externally toward the market. 
  • People who are "Process Focused" that love to create boxes around everything. This is what allows a business the scale.
  • People who are "Producers" and hit their targets nearly every time, even if they break a few rules and ruffle a few feathers along the way. Not people who are crossing guardrails on operational limits or behavioral boundaries but those that are pushing things to the limit to achieve an outcome.
  • People who are great "People Developers" that many others go to for help on a wide range of topics. 
  • People who have a combination of aptitude and desire that puts them on a high-trajectory growth path for management and leadership roles. This is a great opportunity for them to observe and learn how decisions are made. 

Selecting the right people at the right time from all areas of the organizational chart is something we spend a lot of time with our clients on. Just getting the right people in the room gets you about 50% complete. 

With those people, get into the details and hard discussions about capabilities and capacity. Dig into the interactions required between teams and individuals including likely challenges that will arise.

There are a variety of facilitation techniques that can be used to avoid group think and bring out the best ideas. Those are beyond the scope of this article but please contact us and we'll share freely anything we've learned that could be helpful for your situation. 


 

THE ACTIONABLE LEVEL OF DETAIL

Now move to the next level of detail. This will be getting down to the task level including who is accountable, who is directly responsible for getting the work done, who is involved, prerequisites, and due dates. Organize these by quarter and working your way backwards Y1-Q3 then Y1-Q2. From a Level-of-Detail perspective, expect about 3-5X the quantity of tasks as compared to the 12, 18, and 24 month planning above. Think about all these in terms of both lagging measures. What it looks like when done as well as the leading activities that will let you measure progress.

Finally, get to the most granular level of detail for the next quarter (Y1-Q1). You will see another 3-5X as compared to Y1-Q2/Q3 from above. Move into the details of blocking out calendar time for key people to work through these at this point. Ninety days seems like a long time until you get into the daily whirlwind of building projects. These are in the “Will Do” category when comparing to the Last Planner System.

There is plenty of information about best practices for facilitating pull-planning sessions that you can borrow from. Remember that this is not about creating a good-looking plan but rather about aligning the team, prioritizing finite resources, and developing a plan that will be built. 

Lastly, as you are thinking about all the changes that come up on a project, think about your business.

  • Have you been hitting your business plans within 10%?
  • Think about your last big technology purchase. Did you achieve within 10% of the results you wanted including adoption, schedule, and cost?

If you did, pat yourself and your team on the back knowing you are exceptionally rare. 

The truth is that building a construction business is far more difficult than building a project. Most of the strategies, management systems, and structures put in place are first-of-a-kind for the leaders putting them in place. 


 

GUARDRAILS

While going through the planning process, be clear about the guardrails in place. The plan won’t be a perfectly straight line, and neither will execution. Like driving down a winding mountain road, the guardrails keep you safe throughout the drive while allowing you maneuverability on the road.

Planning and operating a construction business is no different. These guardrails include things like:

  • Strategic Alignment: For example, don’t achieve a revenue target by taking on projects or outside of your strategic choices. If you want your strategic choices implemented in the plan, be very clear about what aligned, and especially what not-aligned, looks like.
  • Operational Limits: For example, don’t take on work that doesn’t meet the margin requirements from your business model after weighting for risk. Don’t plan for improvement tasks and projects to meet your objectives that require cost and / or people beyond what you have budgeted. Either work to adjust the budget, which is part of the plan, reallocate resources, adjust the scope of the task or improvement project, or a combination. 
  • Behavioral Boundaries: Culture is defined by the worst behaviors knowingly tolerated by leadership. This includes those by employees, customers, subcontractors, and vendors. Some poor behaviors impact your ability to hire and retain great talent. Some, like “Normalization of Deviance” will lead to excessive risks and safety accidents. Others may cross legal and regulatory lines leading you to fines or worse.

As you are defining these guardrails, work through the "Edge Cases" as making the right decision is always easy when there is no conflict. For example:

  • What do you want the decision to be if a project has low strategic alignment but high operational alignment including being able to meet the financial outcomes for this year's plan? Is that reflected both in your opportunity evaluation process and actual actions?
  • What do you want the decision to be if business improvement project such as converting your estimating system over conflicts with the resources required to pursue an opportunity? One will help you achieve this year's plan. The other is absolutely critical for your 3-year plan.

 

OPERATING RHYTHM

  • Construction projects stay on track due to a series of interrelated meetings, including:
  • Pull-planning sessions (per schedule milestone or recovery planning)
  • Weekly work plan reviews
  • Weekly meetings with the project owner
  • Daily huddles for safety and to layout crews
  • Monthly project review meetings including financial projections

Those are just a small sample of the routine meetings occurring on every project to keep it on track. If a project gets behind schedule or over budget, it is a common practice to have daily meetings until a recovery schedule and budget are established. These meetings typically involve management one or two levels higher than the normal project team to ensure resources are allocated and constraints are removed.

All contractors build projects, that is their value-add to the customer. How well they do this differentiates them in the market. Building the business is no different, including the meeting rhythms required:

  • There are the routine meetings that ensure the business is operating well.
  • There are the temporary high-tempo, high-involvement meetings for when those routine things aren’t going routinely.
  • Part of those may be routine meetings for continuous improvement. Incremental change is important at every stage of growth and is very different from the 3-year business planning that we are focused on. (PDCA / 5S as examples)
  • There are the meetings focused on building the business into what you want it to be 3 years from now.
  • There are also those temporary recovery meetings if things aren’t going according to plan. 

As you look at your projects and business:

  1. On a scale of 0-10, how effective is your team managing the integrated group of project meetings? This will largely show up in your project outcomes as a relatively low variability between how your projects were estimated and how they turn out.
  2. On a scale of 0-10, how effective is your team at managing routine business operations from opportunity evaluation through collections and everything in between? This will largely show up in your company-level scoreboard outcomes being consistently above industry benchmarks. 
  3. If you have done a strategy or business-planning process in the past, what meetings and metrics did you use to keep it on track? On a scale of 0-10, how would you evaluate the results? What is the primary reason for your answer?

The answers to the questions above from you and your top team will help you define the best operating rhythms for keeping your projects and business on-track.

This is where you really narrow the focus on the "Will Do" items and check off the "Did" items. You see very clearly if things are progressing per plan and can make adjustments accordingly. 

Note that a construction business is significantly different than a project in that there is no clear "End," so you must continuously be evaluating whether your plan is still the best use of the finite resources you have. This is where the Agile method of project management has benefits over the Critical Path Method (CPM). 

We have not seen any single operating rhythm that is "best" and all operating rhythms evolve with growth. The one that works best is the one that you can stick to with discipline for at least 12 months. Sticking to it is not a passive thing. This is about showing up prepared and consistently delivering on expectations. 

 

A few great resources describing different approaches to operating rhythms are:

You will note that these all have overlapping principles. The basics of how to plan something and keep a team aligned have not changed much going back hundreds of years because the psychology of humans hasn't changed. Different terminology and technology doesn't change the underlying principles of how people work together and how they don't. 

How many textbooks and code books did you go through in your apprenticeship or college about how to build? Now it is time to educate yourself and your team on organizational development


 

As you develop your business planning process, an unbiased and experienced 3rd party facilitator can be invaluable. It is not the right fit for all companies and all situations and should be used sparingly. This is not a process you can outsource. 

Please contact us to confidentially discuss details about your business and team. We will freely share anything we’ve learned that can help you including whether an outsider would be valuable, and if so, what types of capabilities to look for. 

All relationships begin with a simple conversation. Let’s talk.

 



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