In Bosnia and Herzegovina water utilities still approach the financial management and planning in a traditional manner, which implies that this function in the company is an activity imposed by the regulations, serving primarily as a support to other activities.

Planning in most public enterprises is performed on the principle of proportional increase of business results (by increasing the amount from previous years by a selected percentage), without any specific additional assessments of activities or forecasts of business performance. Due to the legal obligations, medium-term three-year plans are prepared, mainly by a default and on the above-mentioned principle. Budgeting on the basis of detailed analyses and plans is not done.

Annual business plans mostly represent reporting on the previous year’s performance, with the percentage increase for the upcoming year. One should certainly note that performance reports are often only excerpts from the balance sheet and profit-and-loss statement, thereby only the book values, without any specific analyses and real performance indicators.

Future business plans have to be prepared either directly by or in cooperation with the financial department, namely the person in charge of the budgeting. The budgeting process represents establishing and adopting the budget, and control and analysis of deviations during its realisation. Quantitative objectives within the budget should reflect the qualitative goals of the plan, with meaningful and formalized goals mutually aligned. By accepting the budget and releasing the money for its implementation, the budget itself becomes a target pursued, while its individual components become performance indicators for decision makers.

The main purpose for creating a business plan, in a way modern utilities in European union and across the world understand it, is to improve all aspects within a company. Business plan sets policies and goals while the operational plan is used as a monitoring tool in assessing the set financial targets reached.

The planning process should comprise 3 components:

• Strategic plan – which should answer the question what is the goal of the company and how to reach it; it defines long-term goals; analyses the environment in order to define activities; determines a set of activities to reach this goal; analyses the environment to adjust to changes; contains guidelines for formulating the operational plans.

• Annual operational plan is of short-term character and it relates to operational activities of a company (sales plan, production plan, etc.). It focuses on implementation of goals set in a company’s strategic plan, and represents a detailed elaborated strategic plan on an annual basis, and a tool for implementation of the strategic plan, as well as a guide for implementation and a clearly defined process.
• Capital investments plan is developed based on the needs and capacities assessments from the strategic plan; it identifies capital projects and activities, as well as possible sources of funding. The capital investments plan represents a long-term budget containing all the planned investments and their time schedule in the period of more than one year.

The Business plan, along with the financial goals, has to include all the aspects of utility plans for the upcoming period, including the operational objectives, human resources development, or relations with customers and other persons. The FBiH and RS Laws on Public Enterprises stipulate that public utility enterprises shall prepare the business plans, which, in deed, is the current practice. Currently applicable FBiH and RS Laws on Accounting do not prescribe, but also do not prohibit development of operational plans and/or capital investment plans. It is mainly not the practice of providers of these services in BiH to prepare operational plans or compare the planned and achieved results through the departments; a very small number of them prepare operational plans within their business plans. A developed procedure for development of operational plans or capital investment plans does not exist. Many companies do not have an established reporting procedure on business plan monitoring.

The business plan has to become a formal document showing the performance, and should present future courses of action. In addition to the company’s description, it should also capture an actual picture of problematic areas, challenges, risks and obstacles, as well as define the activities required to address the problems and future challenges. The business plan should set long-term and short-term individual (specific) goals, detailed descriptions of ways to achieve these goals in real situations, as well as explain how the expectations of external stakeholders can be fulfilled. The business plan should be developed for a given period of time, so as to divide it into annual budgets, which have to be updated with actual data after each year of implementation. It can be decided to choose a longer period, which would make more sense in development of strategic plans, but it would also involve more assumptions and thereby be less reliable.

Development and introduction of a business plan should be structured through phases. Each sector/ service of a utility should develop its own plan. These sector-based plans contain activities to be implemented during the following years in accordance with individual goals arising from the main objectives. The following is an example of a business plan meeting the stated criteria.

For more information please check the Report, section Business plan page 32.