Creating an annual operating plan (AOP) can be an arduous task for CFOs to navigate. Finding the right balance between future innovation, scalability, and customer success can be especially tough. This article will discuss the biggest challenges you can expect to encounter in your planning process and give you some best practices that will help you avoid them.
Driving across the country without a map or GPS is a sure-shot way to get lost. Running a company without an annual operating plan is no different.
An AOP is more than just a list of goals. It’s your organization’s strategic blueprint that sets the vision, allocates resources, tracks progress, and guides decisions to achieve the yearly targets.
This article explores why an AOP is essential for financial planning and business growth. We’ll discuss how it not only sets clear objectives but also offers a structured way to monitor performance, keeping your business agile and focused all year long.
What is an annual operating plan (AOP)?
At a high level, the AOP serves as a strategic business and financial plan for meeting the company’s business growth objectives. It answers the 5Ws—who, what, when, where, and why as well as the question of how the company will do this, breaking down big-picture goals into actionable steps.
An AOP also incorporates financial planning, aligning resources to meet objectives efficiently and tracking KPIs. The AOP acts as a roadmap that bridges strategy and execution while providing a framework for monitoring progress and measuring yearly performance.
When is the AOP created and who drafts it?
As the name suggests, the AOP is developed annually by translating the high-level strategies in the company’s three- or five-year plan into actionable operational plans that will guide the company's activities for the next 12 months.
The AOP creation process typically aligns with the calendar year or the company's fiscal year, and planning usually begins about three months before the new fiscal year starts.
This involves understanding the vision and objectives from your leaders, translating them into KPIs, and defining operational metrics to track progress. Departments work closely to review their current performance, expenses, and strategies to ensure future goals are attainable.
Creating an AOP involves multiple stakeholders, including the CEO, CFO, and other CXOs (at times, involving key board members), department heads, finance teams, and operations managers. However, it is typically the finance leader’s responsibility to actually draft the plan.
AOP vs. budget
People often confuse annual operational planning with fixing sales targets or creating an operational budget. While both are important for businesses, the AOP and the budget are not the same.
- An AOP is a top-down strategic plan that outlines the company’s key milestones for the year. It sets the overall direction by establishing high-level goals, such as revenue targets, operational improvements, and strategic initiatives.
- A budget covers the financial aspects of the AOP, is more detailed, and developed from the bottom up. It details the financial resources needed to achieve the operational targets outlined in the AOP, as well as remain financially stable throughout the year.
As the name suggests, a new AOP is developed every year, while a budget could be developed on a quarterly basis and rolled up into an annual budget.
AOP vs. strategic plan
A lot of times, finance teams use annual planning and strategic planning synonymously. But when it comes to strategic planning components, it's neither a pure financial document nor is it a high-level, annual plan.
- An AOP focuses on the short term, outlining the operational and financial objectives for that year—informed by the strategic plan.
- A strategic plan is a long-term plan that takes into account the “big picture” goals for the company's growth and direction over a number of years.
The detailed table below highlights how the three are distinct yet valuable to any organization in order to achieve their goals and objectives, year after year.

Key components of an effective annual operating plan
While AOP formats vary from template to template, here’s what an AOP for a SaaS business should include:
1. Clear goals and objectives
The AOP should state key objectives to ensure that teams have focused, actionable targets that business leaders can track and measure throughout the year.
2. Key performance indicators
KPIs are the strategic metrics that measure progress toward achieving the company’s goals. They help track performance on critical aspects like revenue, customer satisfaction, or operational efficiency.
While AOPs are vital for startups, founders often struggle to define the right KPIs. Following structured frameworks and keeping a clear list of KPIs is key to ensuring the AOP's success for your SaaS business.
3. Resource allocation
Proper allocation of resources allows for efficient operations and helps avoid bottlenecks. This includes assigning financial and other critical resources including personnel, technology, and time.
Ensuring teams have the right budget, tools, technologies, and workforce to execute the plan effectively is essential to achieving your annual targets.
4. Execution timeline
Your AOP should include a detailed timeline broken down into weekly, monthly, and quarterly milestones. These help track progress in manageable increments, allowing teams to stay on course and adjust as needed to ensure the progress and outcomes remain aligned with the yearly goals.
5. Defined processes
A defined process for regularly monitoring and reviewing progress ensures the AOP remains on track. This may involve regular check-ins, performance reviews, or real-time reporting, helping teams identify any issues early and adjust forecasts/assumptions to meet the targets.
Benefits of annual operating plans
An annual operating plan has tangible benefits—-it shapes your organization's objectives and aligns everyone with the vision and strategy.
Ensures strategic alignment
An AOP ensures strategic alignment by turning high-level business objectives into actionable goals for departments and individuals. It not only enables business leaders to shape job roles and department goals, but also helps employees understand their roles clearly—-ensuring alignment with company priorities and allowing for cross-functional collaboration toward shared objectives.
Enables resource allocation
Annual operating plans allow leaders to allocate resources—staffing, finances, and otherwise—toward initiatives that directly support business goals. A comprehensive AOP allows organizations to set realistic financial targets based on revenue, expense, and cash flow forecasts.
Facilitates performance evaluation
An AOP facilitates employee and departmental performance evaluation by setting clear financial and non-financial KPIs that help benchmark progress throughout the year. This structured approach allows businesses to track operational metrics, identify improvement areas, and implement corrective actions—to ensure departments achieve their goals over the fiscal year.
Highlights funding requirements
A well-structured AOP can highlight how adjustments in spending could improve and enhance business performance, responding to evolving market trends throughout the year. This allows for strategic discussions between CXOs and key Board members on the impact of dynamic conditions on current cash flow and the need for additional funding to support growth and adapt to new challenges.
Common challenges in the annual planning process
Developing an annual operating plan (AOP) is often an arduous process wrought with many different challenges, such as the lack of accurate data, resource constraints, unrealistic goals/expectations, and difficulties in getting the cross-functional collaboration necessary to achieve strategic alignment on the final plan.
These challenges are not insurmountable, though, and in this article, we’ll help you understand them better so you can meet them head-on. But first, let's briefly look at some of the common challenges you may encounter when creating your annual operating plan.
Lack of accurate data + conflicting information
One of the biggest hurdles in creating an annual operating plan is the lack of accurate data. Different teams use varied data sources, financial models, and benchmarks, and sometimes even different ways of calculating the same metrics.
This leaves the CFO and finance team without a single “source of truth” for the data they need to build the plan, which results in a lot of conflicting information and a ton of back-and-forth communication with business units to resolve it.
Limited resources and financial constraints
CFOs are always battling the funding crunch and budget limitations. Very often, they have to make tough decisions around cost optimization and hiring plans to ensure that the high-impact initiatives that are necessary to drive growth have adequate budgets.
Setting achievable goals and managing expectations
To develop an annual operating plan, CFOs must strike a balance between what each team wants to achieve and the realities of the available resources. This can be especially difficult with limited resources and conflicting stakeholder expectations. And of course, there are also ever-evolving market conditions to consider.
Lack of cross-functional collaboration
Ensuring horizontal alignment between managers and top leaders and vertical alignment between different teams isn’t always easy, but it’s paramount for CFOs during planning. Failing to align in either or both directions can result in a plan with poorly informed decisions based on insufficient or incorrect data, misaligned business goals and objectives, and duplication of effort.
Collaboration is key because it fosters a sense of ownership and alignment across the organization. Ideally, this kind of a culture would already exist within the organization. As the business leader for the planning process, CFOs can help to build one by encouraging open communication with all teams to establish realistic objectives for each and avoid potential clashes.
Having a single source of truth when it comes to data can provide a starting point for the planning exercise and make cross-functional collaboration much easier.
Best practices for developing a solid annual operating plan
While there's plenty of challenges inherent in developing an annual operating plan, there are also a few best practices that, if followed, can make the process a whole lot easier.
1. Plan from the top down, budget from the bottom up
An annual operating plan must flow from the C-suite in order to be successful. This is because company leaders have a unique, high-level view of what the business needs to achieve in the coming year. An effective annual operating plan always begins by working with their fellow executives to establish the overarching goals the annual operating plan must support. The CFO can then work with individual teams to figure out the nitty-gritty details of the plan and how those goals can best be achieved.
When CFOs develop their budget for the AOP, it’s better to start from the bottom up. This is because allocating resources effectively depends on first having clarity on the activities each team is planning to help them meet their individual goals and the resources each will require.
Developing a budget invariably requires CFOs to make some tough decisions. However, to the extent that they’re able to bring data to the center of their decision making, it’s easier for everyone to accept the final budget.
2. Adopt a continuous improvement mindset
As a function of their role as leaders working with all the teams within the company to develop the annual operating plan, CFOs are in a good position to foster a continuous improvement mindset.
Rolling forecasts provide a great way to do this because they not only build agility into an otherwise rigid plan but also encourage teams to regularly review their performance, ideally on a quarterly basis, and make any adjustments they need to help them not only meet but beat their targets before the end of the year.
3. Solve for high-impact initiatives
CFOs that are able to identify the issues and initiatives impacting the business can prioritize resource allocations towards those activities that will drive the most growth and customer satisfaction.
4. Identify areas of cost optimization
A few areas that CFOs can focus on include re-negotiating vendor contracts, finding cheaper but effective alternatives for money-guzzling IT tools, streamlining the company’s use of SaaS tools to avoid buying multiple tools for same/similar use cases. They can also evaluate the use of full-stack solutions that can cover multiple use-cases to replace multiple single use-case solutions.
5. Use benchmarking to set realistic targets
Comparing your company’s metrics and overall performance against peers and market leaders is a powerful way to not only to come up with numbers that are achievable but also to almost magically create alignment around the yearly operating plan.
6. Set SMART goals and track your progress
The best goals for any plan are SMART goals, meaning they are goals that are specific, measurable, achievable, relevant and time-bound.
Individual business units should have their own KPIs that connect well with the operational and financial KPIs the CFO uses to track performance of the business as a whole. Revisiting your AOP on a quarterly basis is a good practice as it allows you to update your forecasts as needed to stay aligned with strategic goals.
7. Develop multiple scenarios
CFOs should anticipate and analyze different scenarios to come up with best-case, most-likely, least-likely, and worst-case scenarios. Multi-scenario modeling and analysis takes into account potential risks and changes in market trends in the upcoming year that could impact the business and results in a more resilient plan.
Advanced technology makes planning easier
Data remains one of the biggest challenges associated with annual planning especially when finance teams have to manually integrate data from multiple sources. If that data resides in spreadsheets, this can take an enormous amount of time, not to mention all the back-and-forth with business units to resolve any discrepancy or questions. So, it’s not surprising that, as companies start to scale, they are increasingly adopting modern financial planning and analysis (FP&A) solutions to automate data consolidation into a single platform to provide a unified source of truth.
Any tool you choose to enable your annual planning should give you the ability to track your progress on the plan throughout the year, continuously monitoring performance so you can identify bottlenecks and resolve them quickly. The ability to stay agile while aligning with your company's strategic goals can make the difference between thriving and merely surviving.
CFOs can plan, monitor and course correct quickly if they have access to their actuals in real time. Using annual planning software with the ability to integrate the data from multiple sources within a company provides a single source of truth will make the planning process go much faster. Scenario planning software can make it easier for CFOs to create best-case, worst-case, base case, and what-if scenarios to inform the AOP.
Drivetrain is a good example of how the right technology can level up your annual planning process. Drivetrain is a comprehensive FP&A platform offering more than 800+ integrations to automate data consolidation from almost any system into a single platform. With role-based access controls and everyone working from the same data, CFOs can foster the kind of cross-functional collaboration necessary to build comprehensive, integrated plans everyone in the organization can buy into and work together to achieve.
The decision-making required to create an AOP is easier, too. As a comprehensive strategic FP&A solution, Drivetrain combines powerful multi-scenario planning features with robust financial modeling capabilities, allowing you to dig deeply into your data to reveal data-driven insights and the answers you need to build a reliable plan you can trust. And with the ability to monitor and track all the KPIs in the AOP in real time, you can implement the plan with agility, knowing immediately when you need to pivot.
By combining the best practices with good strategies and the right technology, CFOs can overcome most of the challenges associated with annual planning to develop an AOP that can drive the company’s forward momentum to help it reach its strategic goals.
Learn more about Drivetrain to see how the right technology can transform your planning process!
Frequently asked questions
The annual operational planning process often starts 4–6 months before the new fiscal year, typically kicking off mid-Q3.
The process usually starts with preliminary strategy conversations. Data gathering may also begin at this time because, absent the use of financial planning and analysis (FP&A) software, data consolidation and preparation is easily one of the most time-consuming steps in the process. During this phase, finance leaders solicit input and data from all the different business units and begin the work of preparing it for use in modeling and forecasting.
Then they’ll run iterative forecasts and build a draft plan for internal review. After some additional iteration and revision, they will send the finalized plan to the company leadership for review before finally sending it to the board for approval.
Most companies target final approval before the start of the new year. Many add a mid-year review to ensure they’re still on track to meet their goals and make adjustments if needed.
Successful AOPs clearly state the business and financial assumptions the plan is based on and connect the targets in the plan to operational activities and initiatives. AOPs should also include:
- Revenue and cash flow forecasts
- Departmental budgets
- A consolidated budget for the company
- Headcount plans
- Capital spending plans
- Operational and financial KPIs for tracking and measuring progress
Scenario analysis is key to ensuring the AOP is both realistic but also contains contingencies if economic conditions change in a way that could prevent them from meeting the company’s objectives for the year.
Building base-case, worst-case, and best-cast scenarios for key revenue and expense drivers can help ensure a more resilient plan. Using a rolling forecast is one of the best ways a company can stay agile and is quite easy to implement in a tool like Drivetrain.
Of course, it’s always important to explicitly document in your plan and communicate to your leadership the assumptions you used to create it and their associated uncertainties.