An honest post-mortem is the prequel to planning.
It’s hard to believe that we have entered the fourth and final quarter of the year. There is no better time for a brief post-mortem of how the year has been, with an eye toward pulling together a solid business plan and operating budget for 2014.
Possibly because we live in a rapidly changing world, or possibly because of the entrepreneurial roots our industry has, many see planning and budgeting as a big waste of time. Still, for every yin there is a yang, and others in our industry take great pride in documenting their various dreams of the big “what if” that will propel them to exciting new places. The truth is that when not taken seriously, both could be right or wrong! For those who take to heart the middle ground, however, the effort instead results in a solid tool that becomes essential in running and measuring your business.
The first step, as is often the case, is the most difficult and demanding. Objectively looking at where you are and how you got there – by plan, accident or good luck – is the essential first step to any planning, especially business budgeting. No one wants to make the same mistakes over and over again. Equally, while optimistically we may want to assume the best will result, really understanding how and why good things happen takes due diligence. Was the company lucky or was good planning carefully executed? Did the employees rise to the occasion to make something happen, or was it truly a surprise? Can we learn anything from what happened – good or bad – so the bad will be less likely to happen and we can improve the probability of creating good results from sought-after opportunities? The answers to these questions require effort to understand what happened by whom, why and how.
Planning also takes time. First blushes will inevitably look either way too gloomy or far brighter than they actually are. “Flat” numbers on a spreadsheet have a way of moving exponentially in the wrong direction, while only arithmetically in the right direction. Only by taking the time to understand the dynamics that the numbers represent and working those dynamics repeatedly will the numbers begin to look and “feel” like the terra firma essential for committing the necessary time and resources to enable success.
Planning also requires – demands – input. Input from customers as to how they see their business in the next year. Input from suppliers as to what may be going on that could impact your costs. Input from the global pontiffs regarding how they are reading the big picture economic tea leaves. And input from employees, especially when a graying workforce subject to retirements could cause a highly disruptive impact on your planning.
Looking forward equally requires an honest, if not sobering, appraisal of how much capital need be invested and in what areas. Ours is an industry where most prudent companies need to think in terms of splitting those renegade capital investment dollars between the mundane maintenance and infrastructure replacement, with the exciting and sexy promise of new capability or capacity. I have never known of a manufacturing company, and especially a printed circuit board manufacturer, that has had enough capital investment dollars to do everything desired. However, I have known many who, through planning and managing, have been able to raise sufficient capital through operations or efficient borrowing to do what they needed to do. Equally, too many have foundered by spending too much or on the wrong things without doing any – or enough – planning! In a capital intense industry like ours, investment planning is more than important.
Once you have thought through your successes and failures from past years, thought about what you might do differently, gained insight by seeking input from the critical stakeholders, crunched the numbers over and over as well as you can and have factored into your plan the critical capital investment to ensure ongoing viability and success, you have your well-thought-out, coveted business plan for the next year. But before celebrating, there is one more step: committing a little more time to come up with a plan B, just in case.
Remember those numbers that go exponentially down and arithmetically up? Funny thing how a 10% sales drop can quickly lead to a 70% drop in profit – or worse, margin! Equally, when everything is hitting on all cylinders, a sales increase of 10% might result in an increase in profitability of just 12%. Rather than being caught flat-footed, having a plan of what you would do “if” things don’t go as well as anticipated may make the difference between a dreadful year and one that just missed the mark.
Possibly the most important part of any planning process comes when you are using it. A business plan should be a tool: one used frequently and continually. The format should reflect the way you operate your business, not the way your accountant prepares the annual audit or tax filing. Employees need to understand what numbers are drivers, and how they can impact change. If the final plan is too simple or too complex, no one will be able to use your hard work. The tool will be of no use. Equally, if the plan is used only as a punitive report card, besides causing a huge morale problem, no one will provide the input essential to building a solid plan for growing your business.
Enjoy the rest of the year, but do so with a careful eye toward how the next one could be even better. Ask those tough questions, do a little dreaming and begin planning for a bright new year!
Peter Bigelow is president and CEO of IMI (imipcb.com); This email address is being protected from spambots. You need JavaScript enabled to view it.. His column appears monthly.
