Practice Management

Developing A Goals-Based Strategic Plan With Financial Focus

By Brian J. Ritchey

Goals-based strategic planning takes a different tact than a "basic" strategic plan in that there is a singular focus by which the firm sets goals.  Focusing on financial goals is more manageable and attainable than the comprehensive strategic plan, but requires attention and accountability nonetheless.  Aspects of goals-based planning include:

1. Identifying key performance indicators that affect profitability
2. Developing goals for each indicator
3. Develop a budget based on the goals
4. Forecast earnings based on the budget
5. Measure and adjust

Identifying key performance indicators that affect profitability  - The key drivers to profit include leverage, rate, realization, productivity, margin and cash flow.  Firms may also want to include other indirect drivers such as client development (relationship building), "firm citizenship", etc. that may not have a direct impact on profitability, but are part of the core values that the firm holds.

Developing goals for each indicator - goals are particular to each fee earner but in total should reflect the financial targets for the equity partners.  Each goal should reflect the capabilities of the fee earner and the realities of the market.  For example, productivity targets may reasonably be set to 1,800 hours per year but setting the hourly billing rate at $350 may be unreasonable for a second year associate who works exclusively in insurance defense.  Set goals that are attainable.

Develop a budget based on the goals - Budgeting simply states your goals in a measurable way.  Fee earner budgets measure your productivity; client budgets measure your efficiency; expense budgets measure your spending.

Forecast earnings based on the budget - Forecasting models your budgets so that you can predict the results.  It isn't enough to just state goals. Forecasting allows you to see what the bottom line will be if you meet your goals.  If the bottom line isn't what you wanted, adjust the budgets until the forecast is agreeable.  Most businesses forecast annually with quarterly reviews.  During the quarterly review, the forecast can be adjusted based on the actuals.  If business is thriving, you can increase your forecast - if business is down, you can reduce the expectation set in your annual forecast.

Measure and adjust - like anything else you implement in the firm, you must measure performance and be willing to adjust if needed.

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Full post as published by More Partner Income on April 02, 2008 (boomark / email).