Managing business trends, cycles, and phases is a major challenge for any organization. Depending on the type of service or product you are dealing with, there will inevitably be distribution variation of some sort. In retail it is often related to holiday spending. In education, it will be tied to an academic schedule—semesters, quarters, and breaks in the calendar, for instance. There will also be any number of smaller (or sometimes larger) influences to be dealt with, things like natural disasters, terrorist attacks, or major political events.
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While all of this seems patently obvious, it is surprising how often organizations do not take into account the vicissitudes of life that impinge on business. I once worked with a CFO who projected annual revenues and expenses in equal monthly amounts, even though there were obvious yearly cycles that affected these. Every year we had monthly meetings to review institutional performance. In some the CFO claimed we were exceeding expectations; in others he reported that we seemed to be significantly underperforming. Of course, he was just reporting on the performance of others, not his own inability to incorporate trends into his forecasts.
He repeated this behavior year after year, even though many of us explained to him repeatedly that he was ignoring reality. He didn’t see this as his problem. We needed to adjust our performance to his forecasts. Eventually one enterprising individual developed a “shadow budget” that predicted performance (and revenue and expenses) accurately. The information eventually made its way to our CEO and the board of directors. It was met with relief and gratitude. And the CFO? Well….
The point here is that sometimes leaders develop plans using tools like Excel, which are fine for projecting outcomes, but which are only as good as the person manipulating the spreadsheet. At its most basic, Excel will lay out expectations in equal increments across a set of rows and columns. But Excel also has an algorithm that allows modification of projections by applying a set of formulas. This is where business acumen and common sense (as well as good teamwork) come into play. Knowing how to build variation into uniformity is a part of the blueprint for success.
In short, the projections of Excel will tell you what you want them to tell you. The same is sometimes true of your team, as well. But ultimately you are responsible for the outcomes. Don’t run on autopilot.
