Monthly Archives: March 2021

Planning II – Planning to Win

Posted on by Uğur Özmen

Forecast reports are generally based on historical data. Some business people say, “You should look back 90% and forward 10%.” I actually never agree with this view.

While I was studying Management Science, “forecasting” was one of the important lessons I learned. We used fancy methods like intensive statistics, trend measures, and divergence analysis. In these lessons, we also learned that managing a company with reports alone is like driving a car while looking in the rearview mirror.

As in, any good driver knows you should never spend too much time looking in the rearview mirror – otherwise, you’ll surely crash…

I think the way you should look at the past while managing your company is no more than looking at the rearview and side mirrors while driving your car – a quick glance here and there.

In summary, 10% should be the share of historical data in planning.

Now, almost everything has changed

Thanks to the COVID-19 pandemic.

Many things we thought we knew are now wrong. Therefore, I think the share of historical data is even less important now.

So how do you increase the share of the future when we only have historical data? Let’s start with the budget first.

Let’s say you didn’t want to do many calculations while preparing the production budget and decided to go for the lazy route. You thought “everything will be the same as before, the costs will not change from last year”… By thinking this way, you make the following assumptions:

Regarding contractors or producers of materials used in the production process:

  • No new and powerful company will enter the market
  • One or more of the important companies in the market will not leave the market
  • Existing suppliers will continue their current methods and will not engage in aggressive marketing

If we add the approaches regarding profitability to these assumptions …

  • You will not have a competitor trying to get new customers by breaking prices in the market
  • Everyone will apply a communication strategy as now
  • Customers will not be fooled by the offers of inexperienced new entrepreneurs

With one sentence, you made many assumptions!
😊

Even if you take the lazy route and say “everything will be the same as before”, you have many assumptions (your prediction about the future). These assumptions aren’t necessarily in line with reality.

When making a budget, you need to examine all these assumptions and make sure they are correct. If any of these are different, then take a look at the historical data,

  • In what direction is there a deviation, when is there a difference?
  • What were the main factors affecting this deviation in the past periods?
  • Would these factors apply in the same way now?
  • Was there a difference that would affect us in dominant factors such as purchasing power, confidence index, urbanization, etc.?
  • As customers become more stable, the cost of acquiring new customers increases. What kind of attitudes can this increase cause to competitors?
    Hundreds of questions start to come to mind. Each of these is related to the future.

“We Plan, God Laughs”

Yes, this is also true.

But remember, planning is a tool to reduce uncertainty. At least you can make sure no one else will be laughing at you.

😉

This article was originally posted on Wizardy Budgets

Planning I – Why You Should Always Plan Ahead

Posted on by Uğur Özmen

Before I begin, a quick storytime –

Immediately after I graduated from school, I started working as a junior consultant at Price Waterhouse (nowadays known as PwC). I was assigned to a World Bank project. One of the public institutions requested a loan from the World Bank. The bank put certain conditions in the deal to ensure the loan they gave would not be wasted. They wanted the consultancy firm to guide where the money would be spent on administrative and technical issues.

The team I worked for was responsible for structuring the organization and the accounting department. The public institution side was looking at this project from the perspective of “let them finish their job, just give the money and go”. In their eyes, we were in the position of “a process that must be endured before getting the money”.

I witnessed a particular moment between the Head of the Research, Planning & Coordination (RPC) Department, and the Expert Consultant.

The consultant managing the administrative part of the project team was a world-renowned “grandmaster”, or what we would today call a “guru” 🙂 . I was responsible for monitoring the interviews, translation, and publishing in Turkish and English.

I was constantly walking around with this guru, taking note of everything he said.

The guru wanted to learn the planning process of this public institution. The Head of the RPC Department immediately started to complain:

“The exchange rates are constantly changing … The inflation rate is uncertain … The prices of raw materials are variable … The public policies are unpredictable … Everything is so uncertain that we cannot plan.”

As a new graduate, these seemed to be true to me as well.

The guru said something that I never forgot years later.

“If everything is certain, there is no need to plan. Anyone who can flow with the stream doesn’t need to plan where to go. Planning is a tool to reduce uncertainty.”

I never forgot this, and neither should you!

Planning, if done right, is a tool to reduce uncertainty, not a process that must be endured once or twice a year.

He who fails to plan is planning to fail

I often remember two quotes from Winston Churchill

“Plans are of little importance, but planning is essential”

“He who fails to plan is planning to fail.”

I remember those phrases especially when I hear the phrase “We are a flexible company”. That is a sentence of those who constantly change their decisions due to a lack of planning.

Flexibility means examining market changes and making quick decisions to change strategy when necessary. If we have already set our goals correctly, we will not change them often, but we can use many tactics in the process.

Budget is not an end but a means. Do not confuse means with purpose. If there are new creative opportunities, don’t turn it down right away by saying “Not in the budget”.

When you are talking with your contractors, if you say “very urgent” or “asap” or “yesterday should have been over,” it is hard to say all, but you are probably guilty of most of it.

This article was originally posted on Wizardy Budgets