I was playing golf the other day and, of course, while I’m playing I’m thinking about work, which is a bad idea since I should be concentrating on my game. But I’m always thinking about ways to make planning more effective. My thoughts today were on variance analysis. Everyone uses variance analyses in their board reports to check progress against plan and it is certainly a good check. At board meetings we review our current position relative to last month, year-to-date and last year-to-date, etc.
Then there are all the “Ya-Buts” that are supposed to explain the variances. You know what these are, “Ya-But we didn’t get the weather we expected.” Or, “Ya-But the competition lowered the rate.” We also review the rate vs. volume relationships to explain interest variances as though we should be better at predicting these things. What is interesting to note is that we seldom review the actions that were supposed to yield the results like a new marketing program or a new product launch. These can all be factors that contribute to variance. Since most companies don’t really have a playbook, they don’t do a variance analysis for the initiatives that will cause the results.
This is where the relevance of my golf game comes in. It occurred to me that while standing in the fairway (or wherever I ended up) my thoughts are focused on how to get to the green. I don’t stop and review my last shot or my shots to this point or my shots on the last hole. I am trying to figure out where I want to be with my next shot, that is, what club to use and how hard to hit it. Then I have to remember all the things about my swing, which is my playbook. If I can put all this together, I will have good execution.
If you are not a golfer, let’s take a look at something we all experience more often, driving somewhere. Again, we are at one location trying to get to another probably within a timeframe. We determine a route, or let the GPS figure the route and we set out to follow it. As conditions change between where we are and our goal we make adjustments. Our GPS system not only figures the route but also the time it will take. Most GPS systems today even reroute us to take the fastest route around traffic to shorten the time while keeping us apprised of the ETA. In the absence of a good GPS, we may reroute ourselves if we are familiar with the area. The point is we are continually looking ahead and keeping our eye on the target and the time. We may think about where we are relative to where we thought we would be but it is not a detailed analysis. We are still focused on the goal and the time. So we are constantly adjusting our route.
Planning is constant and execution is about our next actions. Current variance is just checking our position relative to expectations. The challenge is to determine our next action to reach our objective, usually to reach our yearend goal. This is the basis of a rolling forecast approach where each period, monthly or quarterly, we make needed adjustments to our plans to hit our target. Certainly, we can review our recent history to see mistakes or bad assumptions but the real focus is to use this information to decide on our next initiatives. This was often done only at mid-year only but with the latest computer-based profit planning systems it is easy to do anytime. Along with this, we must clearly articulate and communicate our action plans so everyone knows what is required. In our company we use a Playbook that lays out and tracks all of our initiatives.
Try running a variance on your year-end forecast and see where you are relative to your target and then make your plan accordingly. The most important variance is not to where you are but where you are going. Decisions are ahead of us, not behind.
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