The best-laid plans

Companies usually time their strategic or budget planning (for next year) around these months, between August and October. Trying to schedule the planning session in November or December would prove difficult, as you would be hard-pressed to find available seminar or conference rooms during the Christmas season. Most would also be scheduling their vacations during this period as well.

The question may seem obvious, but it is worth asking: Why do companies plan?

I remember a second-hand story about a local chief executive officer (CEO) in the 1990s asking the question during a financial planning session, noting that Magellan reached the Philippines without planning (it sounded funnier in Filipino). Whether it was to humor the team or was said seriously is unclear, but there is a point to be made about success and failure given the factors you control and those you cannot.

In the 1785 poem of Robert Burns, “To a Mouse,” a constructivist worldview is posited with the saying that the best-laid plans often go awry. For those who were preparing their budgets and strategic plans during the planning period in 2025, they would likely have assumed the peso at between P59-61 to the US dollar — it traded at P58 to P58.80 at the end of the third and fourth quarters of 2025. As of the end of last week, however, the peso stood at P62.75, with a higher probability of reaching P64 to the US dollar.

If companies were planning their wage increases on inflation back in the third quarter of 2025, there is a chance that they would have used the government forecast of 3.2 percent. Inflation back then was improving, which gave the Bangko Sentral ng Pilipinas (BSP) some confidence to cut its policy rate. Today, inflation is above 6.0 percent, a change that can quickly make planned wage adjustments inadequate and personnel budgets unrealistic.

During last year’s planning season, companies were likely planning their capex around an assumed lower discount rate because they were on the decline. Today, the BSP has hiked three times for a total of 75 basis points. There may be a couple of hikes left in 2026. Projects that once appeared attractive may therefore look far less compelling under today’s financing conditions.

Does this gap between expectation and reality make planning pointless? Quite the opposite. That gap is risk. Sometimes it is narrow, sometimes it is wide. These days, the gap is very wide.

The value of planning lies not in predicting the future perfectly but in preparing the organization to act when the future departs from its assumptions.

For planning to help decision-makers, it must account for risk. A financial plan should not rest on a single set of forecasts for GDP, inflation and interest rates. It should also show what happens when those forecasts are wrong — both negatively and positively—and identify the decisions each outcome would require. This is the idea I alluded to in last week’s article, “Monster Slaying: Managing the Extremes.”

What happens next if the plan you built is crumbling in the face of a change in the environment or your assumptions? In Discipline Equals Freedom: Field Manual, Jocko Willink cites a mantra from his US Navy SEAL training for underwater missions: “Plan the dive, dive the plan.”

In dark waters, if a member of the SEAL team deviates from the plan because of something unexpected, there is a risk of forced improvisation and decision-making on the fly. Should that happen, the probability of the mission failing increases.

I suppose, however, that a SEAL mission plan is dynamic. In other words, if-then statements are nested in the plan. For example, if the weather is bad, then abort. If the number of combatants for the first target exceeds five, then move on to the second target.

Plans can contain conditional elements, and this is where scenario analysis brings the same discipline to business planning by defining possible conditions and the actions each condition should trigger.

A good plan is not just about the projections and the projects for next year. A good plan is a collection of plans that are centered on the most likely scenario for the future. By incorporating different scenarios and mapping them into different actions and decisions, leaders can keep the organization moving even when assumptions fail. That is adaptive planning — and it is especially valuable in turbulent times.

The best-laid plans may still go awry. But that is not an argument against planning; it is an argument for planning that anticipates change. The measure of a plan is not whether reality follows the forecast. It is whether the organization knows what to do when reality significantly diverges from expectations.