PerformanceCartography™ / LeanBudgets™

Applying "lean" principles to budgeting and performance measurement.

Abandon all hope, ye who enter here…

Why have we abandoned the volume forecast?  Don’t we need to “plan” our resources?  How will I know how many new staff to hire?  Haven’t we invested a lot of resources in a forecast algorithm and departmental reviews?  Resistance to change is natural, but suddenly there seem to be quite a few stakeholders with a strong attachment to the forecast, most of whom never quite understood how the forecast was derived.

A key component of this model is a dramatically reduced emphasis on the volume basis by which the dollars are calculated.  We simply take recent averages and push them forward.

It comes down to this: What failure mode are you more comfortable with?  There will always be some degree to which the budget fails, so why would you introduce any appreciable forecast volume, an element guaranteed to be wrong?

How would you like the budget to influence your organization?  Let the budget drive the organization to profitable behaviors rather than having it serve as a crutch, documenting wishful thinking.  Any volume projection will invariably be wrong to some degree, but if profitable ratios can be maintained, or improved upon, the organization will thrive.

Additional volume at a profitable ratio will accelerate organizational margins.  Lackluster volume at profitable ratios holds the organization at profitability.  But a budget built on presumed volume often simply covers degrading ratio efficiencies.  I’ve seen far too many budgets stretched to meet a corporate goal not by incorporating improved performance assumptions, but simply by padding the volume.

Challenge your organization to increased profitability and efficiency, not wishful thinking and misguided optimism.

Business people

Updated: September 14, 2014 — 12:07 am
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