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What Are Operational Plans for a Business? - Definition, Types & Examples

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  • 0:02 Definition
  • 2:56 Example of Operational Plans
  • 5:55 Lesson Summary
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Lesson Transcript
Instructor: Rodney Michael

Rodney has taught university accounting classes and has a doctorate in accounting.

In this lesson, you will learn about the purposes and content of operational plans. We also will define their place within the overall management planning process.

Definition of Operational Plans for a Business

An operational plan can be defined as a plan prepared by a component of an organization that clearly defines actions it will take to support the strategic objectives and plans of upper management. However, to fully understand operational plans, we should first look at the overall planning process within a business.

This diagram shows three levels of planning:

Type of Plan Created By Scope Includes Level of Detail
Strategic plan Top management Entire organization Mission of the company, future goals and ambitions Very broad and general
Tactical plan Mid-level management Single area of the business as a whole (e.g. a division of the company) Specific actions to support or work towards the strategic plan Specific actions and ideas, but not very detailed
Operational plan Low-level management A unit within a single area of the business (e.g. a department within a division) Specific plans for low level and day-to-day activities and processes that will support and enable the tactical plan Extremely detailed (who, what, where and when)

Let's summarize the characteristics of an operational plan. First, it assumes that upper management has prepared both a strategic plan and a tactical plan. This means that lower management should have a clear sense of what they are trying to achieve. They just have to come up with a detailed plan to make it happen!

Second, the operational plan is limited to only one part of the organization. For example, a large corporation (strategic plan) has a manufacturing division (tactical plan) that produces products A, B and C. Each product is manufactured in a separate plant run by a plant manager who prepares a separate operational plan.

Operational plans can be subdivided into two categories:

  • Single-use plans address only the current period or a specific problem.
    • An example would be a plan to cut costs during the next year.
  • Ongoing plans carry forward to future periods and are changed as necessary.
    • An example would be a long-term plan to retain workers instead of layoffs.

Example of Operational Plans

Congratulations, you have just been appointed plant manager for product C! The division manager (your new boss) has just informed you that part of the corporate strategic plan is to increase the return to shareholders over the next five years. The division manager's tactical plan to support the corporate goal has three parts. First, he wants to cut costs by ten percent over the next year. Next, he also wants to avoid layoffs and to increase production by three percent. He asks you to prepare an operational plan for your plant that will show him what you will do to help him achieve these goals. He wants to know very specifically what actions you will take, when these actions will occur and who will perform them. He also wants to know if you will require any additional financial resources or manpower to implement your plan.

Let's get started by looking at the tactical plan items and trying to get some ideas about what you can do:

To Cut Costs Ten Percent Single-use or Ongoing Resources Required
Improve plant workflow Single-use Efficiency study, machine relocation costs, training costs
Acquire faster or more efficient machinery and equipment Single-use Purchase and installation cost
Reduce inventory levels Single-use Production study, supplier interaction, training costs
Reduce production waste Single-use Efficiency study, training costs
Improve materials handling procedures Single-use Efficiency study, training costs, new equipment

To Avoid Layoffs Single-use or Ongoing Resources Required
Do not replace workers who quit or retire Ongoing None - policy only
Retrain workers for other positions Ongoing Training costs
Increase or maintain sales and production levels Ongoing Marketing costs, quality control costs

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