Chance are, you’ve seen this movie before. It’s the one where you or your team are on the hook for distilling the chaos and complexity of the market and the ambiguities and risks surrounding emerging opportunities, competitors and disruptive technologies, into a nice, neat multi-year forecast.
Sadly, for all of the effort that goes into cramming the complexities of the markets and human behavior into a few flipping cells on a spreadsheet, the output often isn’t worth a damn.
The future has an annoying habit of ignoring our efforts to corral it in the form of plans. Especially when it comes to financial forecasts.
My issue isn’t with the work of planning. It’s with the literal reliance on the output that so many managers and corporate bean-counters impose upon their teams.
The Positives-What the Act of Planning Does for Us:
- It forces us to look at ourselves and our offerings and ideas in the mirror. There’s something particularly shocking about the image of a naked plan in bright fluorescent lighting in front of a full-length mirror. You’ll see flaws that demand attention!
- It challenges us to ask and answer: “Why do we think we can succeed with this plan?” That’s a healthy discussion.
- Good planning is an exercise in not only predicting risks, but in preparing for the risks we can’t envision. Luck will happen…good and bad. It’s what we do with it that counts.
- Planning forces us to bring forth the assumptions and thus our biases that push us in one direction versus another.
- Planning sets the stage for future learning.
- Planning opens the door to innovation.
At Least 4 Reasons to Beware the False Pursuit of Precision in Planning:
1. The Crystal Ball is Notoriously Unreliable. In spite of all of the benefits of the work of planning, one of them is not a set of numbers that magically corrals the future and forces it to cooperate accordingly. The forecast output of planning serves as a guideline and a measuring stick, but not an absolute.
2. You Potentially Introduce Less Than Desirable Behaviors into Your Team’s Efforts. Unnatural reliance on the output of planning biases behaviors in pursuit of numbers or goals that weren’t predictable in the first place. I see it in sales forecasting and multi-year business plans. I love SAS founder Jim Goodnight’s response to the issue of public firms (SAS is private) predicting quarterly earnings during an interview aired on 60 Minutes a number of years ago: “There’s no possible way I can tell you what my earnings are going to be to the penny each quarter. There’s only one way to get there to the penny. You have to cook the books.”
3. We Lose Track of the Details and Assumptions Surrounding the Numbers. Too many senior managers base success…relative success or failure and all its’ attendant implications on the numbers output of planning, forgetting the assumptions, risks, expectations for learning and uncertainties that went into the numbers. That’s a superficial way to deal with your people and your firm.
4. Competitor and Customer Behaviors and Market Forces Defy Financial Smoothing. Human and group behavior in the face of changing circumstances is difficult to corral into a cell on a spreadsheet. Sorry, we’re complex and we don’t give a damn about your forecast.
The Bottom-Line for Now:
I’m not excusing us from the act of planning. Nor am I suggesting that we simply let the future unfold without forecasting. On the contrary, as a good manager, you must understand your costs, your revenue model and how you make money. And you’re on the hook for growing and strengthening over time.
However, instead of relying on what is most often an unnatural level of precision around an unpredictable set of numbers, build the systems and processes to incorporate learning, constantly refresh forecasts and push the planning forward.
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