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Uli Hofer
Red Deer, AB...

 
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Posted By Uli Hofer

On LinkedIn I recently stumbled over a question along the line "In the context of planning, you can't do everything, should you do something?"

The answer is simple: "You bet!" You already have a business plan and a budget, what else can be done with the limited resources available? 

All plans are based on assumptions. The only thing you know for sure is that some of these assumptions will not materialize. Unfortunately, ahead of time you have no idea which ones are wrong and by how much they will be off. If you make a Sensitivity Analysis of your plans you will see that some of your assumptions are critical (the ones where a small deviation has a big impact on the end result) while others are less critical (even big deviations impact the bottom line only marginally). 

Start with taking a closer look at the critical assumptions. 'Disassemble' them into their elements (e.g. a manufacturer needs the orders plus the capacity to sell the assumed number of units). Then device a method to closely monitor them; you probably already have most of the data somewhere in your organization (e.g. accounting, payroll, etc.) so all you have to do is find a way to collect and display them in the new context. 

But what is the benefit of going through all that hassle? The answer is quite simple: It allows you to recognize problems before they become emergencies and you know more clearly where the problem comes from; and therefore where to start with the remedy (in the case of above manufacturer, it doesn't help to hire more people to increase the capacity if there are not enough orders in the pipeline). 

Now here is the good news. The critical assumptions of your organization's plan do normally not change from year to year unless you revamp the way you do business. So you can invest your (planning) energies in expanding your monitoring to less critical assumptions.

 

 

And always remember, reality doesn't care about your plans (or have you ever seen the weather watching the Weather Channel to know what to do tomorrow?)