Strategy Execution Module 5: Building a Profit Plan
This module reading describes how to build a profit plan to reflect the strategy of a business in economic terms. After introducing the profit wheel, cash wheel, and ROE wheel, the module illustrates how to use a profit plan to assess the viability of different strategies and evaluate whether sufficient resources will be available to implement the chosen strategy. The module examines in detail how to develop accurate estimates for sales, profit, cash flow, asset turnover, investment in new assets, and return on equity. The discussion then turns to how to gather and analyze data and the effects of sensitivity analysis on predictions. The module concludes by illustrating the critical role of a profit plan in setting goals, communicating expectations to the investment community, and evaluating the performance of individual managers and businesses. While this module is designed to be used alone, it is part of the Strategy Execution series. Taken together, the series forms a complete course that teaches the latest techniques for using performance measurement and control systems to implement strategy. Modules 1 - 4 set out the foundations for strategy implementation. Modules 5 - 10 teach quantitative tools for performance measurement and control. Modules 11 - 15 illustrate the use of these techniques by managers to achieve profit goals and strategies.
Keywords: Management Control Systems; Implementing strategy; Execution; profit planning; cash flow analysis; Asset utilization; return on equity; Business planning; Testing strategy; Analyzing strategic alternative; Strategy; Asset Management; Cash Flow; Investment Return; Management Systems; Profit;
Citation:
Simons, Robert. "Strategy Execution Module 5: Building a Profit Plan." Harvard Business School Module Note 117-105, October 2016. (Revised February 2019.) View Details