Archives for category: Finance

In the book, How to Measure Anything, it is discussed how ranges are more preferable to a target number. I have had this discussion around annual planning time and I get blank stares. What I found was a better way, at least from my organization, to sell this concept and work through it with a team.

When working with a team around annual planning, we look at what the plans were for this year and what has worked and what hasn’t. We look at the gap from plan and last year and discuss what could have been done differently. This gives us some context on what should be worked on. The goal may or may not be known but either way we are focused on misses from last year.

The next step is looking at other opportunities. These are items that have not been covered or based on next year’s products or innovation items and processes that will be changed over the budget time horizon. These are captured with the current gap for further discussion.

Now that all the items are captured, a three dimensional matrix is developed. It is easy to hard, and simple to complex. There can be complex items that are easy because the organization is behind the initiative just as there are simple and hard items because though it is a simple item to fix, the organization isn’t aligned. The image of the process is below.

 

3 Dim Matrix

 

From this exercise the team now has a range of possibilities from Do it’s to moderate projects to major initiatives. This now becomes the range of values that the plan can encompass. What becomes the discussion now, is where in the range does the target land.

Does the target land within the range of values? If not, what needs to change on the financial side to fit it into the range? This can be a creative writing exercise more that hard science but at this point the dollars are a jumping off point anyway.

Does the target in the range but on the side of major initiatives? If so, how can the team makes some of those more doable? Is it by breaking them up into smaller projects? Is there a way to increase the impact of other projects? Is the target not realistic? That is a funny one I put in.

This has been a useful way to get leadership to understand and start thinking about ranges from the historical target focus. This may also giving the team the ability to treat the annual budget process closer to what it really is, an annual guess.

 

 

2 people working clipart

John, we have a problem. Our usage variance is much higher than the Best in Class site.
What is our usage variance, Tony?
Zero.
What is the Best in Class site’s variance?
Positive $500K
Isn’t zero the best we can get? If the number is positive, it means they are just putting it into another account or some other shenanigans.

Business man thinking clipart

That gives me an idea…

Business man jumping for joy clipart

And for 3 straight quarters, Usage variance at the Good For Nuttin’ plant was the best in class.
Spending on toilet seats, on the other hand, has gone up 5 million percent.