Article from:
The Stepping Stone
November 1999 – Issue No. 2
PAGE 6
THE STEPPING STONE NOVEMBER 1999
Top Ten Mistakes in Business Planning
by Michael J. Prager
ll companies engage in some a lesser extent, in larger ones. Those ignore alternative strategies and options.
A planning activity, but many
come up short on the bottom
line. When new product or service lines
vested with the responsibility for plan-
ning are experts in their industry, field,
product, or service, but they often miss
If results fail to meet expectations, a
scramble ensues to find solutions, and
companies get locked in crisis manage-
fail to meet expectations, the obituaries the mark on financial and management ment.
begin. In hindsight, companies often skills required for planning. For example, A company that anticipates unforeseen
rationalize the causes of failure, but are the owner of a fitness chain knows about events is a step ahead. If “Strategy A”
doomed to repeat it. Much is learned, but exercise equipment and the latest fads but fails, they have more options than a
little is changed. The cycle repeats itself lacks sufficient experience or training to company that ignores failure. Contingency
and another obituary is written. Here are develop a business plan and cash flow planning evaluates and sets strategies for
my top ten mistakes in business planning: models, to prepare strategic analysis, to potential outcomes and prepares to imple-
identify threats, and to plan for contin- ment them with little notice. It is
1) Back of the Envelope gencies. important to use a questioning style that
2) Close the Barn Door Planning for threats is essential for a quickly identifies risks, and a mentoring
3) S-U-C-C-E-S-S sound business plan. Threats can emerge or collaborative style that helps solve them
4) Option, Options, and More Options inside a company, through competitors, in a positive environment.
5) Enamored Visionary or from other industries. Companies may
6) Groupthink, Think Not not properly identify or evaluate threats Enamored
7) Find the Hidden Assumptions until they tangibly affect the bottom line. Visionary
8) Who’s Minding The Store By then, companies have few options, Visionaries are often
9) Know When to Fold ’Em and the goal becomes damage control. enamored with their ideas
10) Wave the White Flag and sometimes fail to see
faults or plan for contingencies. They
S-U-C-C-E-S-S would rather manage as they go, which
Back of the Envelope It is important to know if a company’s may lead to wasting money and frustrat-
The primary reason that past projects were successful. While ing those around them. Enamored
80% of new businesses fail most companies say “yes,” few can visionaries prefer people that agree with
within five years1 is the answer the question, “How do you them and weed out contrarians.
lack of a well-conceived, know?” Success requires a Solving this problem requires an inde-
documented business plan. common benchmark. pendent person who brings a fresh
A plan is an essential tool Otherwise, every person sets perspective and no pride of authorship to
that methodically thinks through the their own standard, which cloud the vision. By asking tough ques-
entire planning process. Planning and leads to different bench- tions and probing strategic details, this
analysis yield strategies and implementa- marks and either premature person can identify flaws, help solve
tion that are sound and completely abandon-ment of a great idea or the them, and turn a potential failure into a
“thought through.” The latter is rarely continuance of a bad one. success.
accomplished. Clear benchmarks ensure that a proj-
Organizations spend plenty of time on ect or business is viewed the same way Groupthink, Think Not
ideas, but do not explore the side-effects, by employees, owners, shareholders, and Related to the “enamored visionary”
validate assumptions, identify risks, third parties, and avoids the confusion problem, Groupthink2 is wider spread,
adequately plan for contingencies, or and ultimate confrontation of different but similarly resolved. It occurs when a
understand hidden assumptions. This yardsticks. Benchmarks must be reason- group of people involved
causes a parochial view of the business able and measurable. in the planning process are
and, consequently, a high failure rate. blinded by the objective.
Options, Options, and More They want an idea to
Close the Barn Door Options succeed or are told it must
The lack of analytical and Companies have confidence in their succeed, so they fail to recognize threats,
planning skills is prevalent products, services, and ideas. Failure is plan for them, or realistically evaluate
in smaller companies and, to not often considered and companies alternative strategies or goals.
NOVEMBER 1999
THE STEPPING STONE PAGE 7
Groupthinks also occur with stagnant Who’s Minding The Store budgets, or lack of knowledge, compa-
groups or cliques. Over time, independ- Great ideas do not implement themselves. nies avoid outside assistance or “asking
ence evaporates and the group begins to Poor implementation, rather than an inher- for directions.” Companies fail to realize
think alike. People with adverse opinions ent fault in the idea, usually causes that advisors or consultants can add
are either removed or learn to remain failures. Companies and executives move significant value by accomplishing the
silent. This process occurs quietly, with on to the next idea after the following tasks:
few people recognizing its existence. last one is loosely defined,
Groupthinks are very dangerous and can but forget to sweat the • Quickly completing the planning and
lead to disastrous decision making. details. Sayings like, “noth- analysis which can provide rapid
ing is impossible for those market entry or implementation and
Find the Hidden that don’t have to do it,” reduce opportunity costs.
Assumptions and “it’s good to be the king,” come to
Hidden assumptions lead to wrong deci- mind. • Identifying future problems and elimi-
sions. They usually come out of hiding A special person is needed to manage nating or managing them in advance.
after an idea or business fails. A hidden implementation: to create a detailed proj- Fewer emergencies mean reduced
assumption occurs when: ect plan, manage finite company costs and improved revenue. Without
resources, identify and resolve problems, proper planning, however, few options
• A statement or conclusion critical to and champion the cause. Success exist later on.
the planning process is not challenged. depends upon those with financial and
Nobody asks, “Why is that true?” analytical skills and the ability to organ- • Improving the skill set of company
ize, document, negotiate, and mentor. personnel. Learning the “how-to’s” of
• Employees make assumptions to Where the project manager is weak, addi- planning and analysis increase an em-
simplify their work or ease their work tional knowledgeable people are ployee’s value on other assignments.
load. essential.
Michael J. Prager, FSA, is president, Integral
• A project stops because information is Consulting LLC in Potomac, MD, and a
needed and a well-intentioned Know When to Fold ‘Em member of the Management and Personal
employee makes a “best guess” for the People prefer not to think about failure Development Section. He can be reached at
project to continue. and an exit strategy. When a plan fails, mprager@integralconsulting.com.
despite careful planning, it is time to exit.
“Hidden assumptions lead to wrong decisions.
They usually come out of hiding after an idea or
business fails to mak assumptions to simplify
their work or ease their work load.”
• A spreadsheet or model is being A deliberate exit strategy avoids a
developed, but certain information is prolonged and expensive emotional
not known. Rather than research the retreat. Moreover, it manages the impor-
answer or ask a question, an assump- tant litigation exposure.
tion is made.
Exit strategies are difficult to develop
Hidden assumptions are rarely because nobody wants to think about
disclosed. They are found by accident, defeat. An independent advisor is often
when someone unintentionally asks the needed to get the process started and can
right question [or] after sub-par perform- objectively evaluate exit strategies.
ance. A company needs an insightful and
technically savvy person to filter out
hidden assumptions and minimize the Wave the White Flag
damage. Pride can get in the way of many things,
including success. Whether it is ego, tight