“Failing to plan is planning to fail.” ~ Benjamin Franklin
Truer words have likely never been spoken. The entrepreneur or business owner who runs headlong into action without first considering the longer term ramifications of those actions may not fail, but success will be harder—much harder—to come by.
Your business IS in fact always telling you when there are problems, but you have to listen for those messages in order to act on them. Without performance based goals set out and planned for, you cannot possibly assess whether you are succeeding. Result? You might miss the messages your business is trying to tell you that could save it.
Look to the future by first reviewing the past
The first and easiest way to begin to develop a plan for the future is by looking back. What has been achieved in the past within your business is the essential baseline, or framework, for the future.
If your business has been operating for even a year, there are useful pieces of data that you can leverage to look at the fitness of your enterprise:
First, review the financial statements for the last several years. You’re looking for trends that can point you to how your business is progressing over time.
Second, look to Key Performance Indicators—KPIs—to gain intelligence on opportunities. Whether those are opportunities for improvement or to make changes that will stop a negative issue, they are all opportunities for growth. For example, look at your company’s sales numbers, over the long and short term. Look at your accounts receivable: are your customers paying you on time? You have to look beyond the numbers to discover what they are saying about your business.
Finally, review any available audit results; whether that’s an internal audit on a specific project or a tax audit that your enterprise was subjected to. There is value in the information gleaned in these processes, but only if you examine them.
The key to being effective in reviewing the past in aid of formulating the future depends on how you obtain this data, on a regular basis. Do you generate month end numbers AT the month end? Or does that data become available at the end of the following month? The usefulness of the data, and the impact the resulting insights can have, are more relevant if they are fresh and ongoing.
Look at what would/could occur in the future
After examining past performance, you need to look at elements that can help you predict future growth, opportunities or issues.
Key Risk Indicators—KRIs—can help you to model future scenarios more accurately. For example, if the price of oil, or bank interest rates, will affect your business directly, these are numbers that can be realistically predicted. You can hedge your bets and see what decisions you can make based on these predictions.
You should also be performing risk assessments on your business to examine the severity and frequency of possible risk events. Looking into the future, judging the impact/severity of the risk event or the frequency of the risk event, will help you to make better plans and decisions. Remember that risk can be positive. For example, if you were to engage in a social media campaign to increase sales to a certain objective and your results achieved are above the goal, you have a positive risk.
In performing a risk assessment, you need to ask these four questions about your business:
- What are the objectives/goals that are you trying to achieve?
- What are the internal and external circumstances that need to be considered that could impact the ability to achieve these goals?
- At what level are the risks to be considered: Strategic, Operational, Departmental, or Project? Risk assessments can be scaled to suit.
- What are the risk tolerances within the organization, and particularly, the C-suite?
Goals are essential to assessing risk
This is best demonstrated through an example. Let’s say you had two goals for your business: sales and customer satisfaction. Now imagine that you had $10K to spend on achieving those goals. Evaluating which goal is most at risk will dictate where you spend the money. If sales are at risk and you want to achieve a goal in sales, you would need to spend more of that money on sales.
In other words, risk and goals are inexorably intertwined: what your goals are determines your risk. Two near identical companies could have different risk because their goals are different.
Goals are therefore key to ensuring that risk is mitigated, even managed. And if you don’t set proper, specific goals, how can you possibly know if you are meeting them?
So what’s a proper, specific goal? It’s a S.M.A.R.T. goal:
You can evaluate each goal with two questions, before you decide that it is S.M.A.R.T.
- How will you know you’ve achieved your goal? (example, will you have accurate financial data to verify?)
- How will you prove that you’ve reached that goal? (example, will you use survey results to prove that customer service is being achieved?)
If you can’t answer the questions, you need to rephrase the goals until you can.
Establish what strategies will help achieve the goals
Once you have goals established, you need to decide what strategies you need to put in place to get you there. For example, a sales goal will requires that you implement networking / social / website strategies, in order to meet it.
- What do I have to do in each part of this strategy to make it happen?
- How much will it cost?
- How can I measure the results?
Risk management as a science and an art
Risk management has a cost to implement, but the cost of not managing risk could be so much higher, particularly with regard to your overall strategic plan for your company.
“For an added boost to the strategic plan you can employ the tools of Enterprise Risk Management by performing a Risk Assessment against the goals to identify how risk can affect your plan. A Risk Assessment can help you understand the structures and processes of your company and how they can impact the strategic goals. Unpleasant business surprises, or risk events, can be managed if a proactive approach is taken and mitigation plans are implemented.” (SOURCE)
Assessing the future with valid ‘what if’ scenarios but basing those scenarios on performance based goals, with feedback from the listening to your business, your KPIs and your customers—is the art of risk management.
Business intelligence is the science that allows you to accomplish this. It’s more than the numbers, but includes the nuanced insights that you derive from the numbers. This is in direct contrast to a pass or fail goal—otherwise known as a milestone goal. Such as? building a new office by a certain date is a pass / fail goal: you either achieve it or you don’t. There’s no nuance to examine in that situation.
A final piece of advice
Even if you don’t have a lot of historical data, you can do ‘what if’ scenario analysis. In fact, many well established companies will use this type of analysis in the development of new product ideas.
Regardless of how big or small your company is, the planning of goals requires you to, at minimum:
1. Identify risks;
2. Mitigate those risks;
3. Monitor risks, going forward.
Build out the risk assessment on the achievability of your goals to decide: what strategy will help you and where to put your resources to be most effective. A risk assessment will tell you what goals are at risk, what categories of your business are at risk and what your top risk events are. This gives you a basis for decisions on asset allocation. If you revisit your goals, strategies and risks on a regular basis, you can keep a handle on them and keep moving forward.
This article submitted by Guest Blogger and Kawartha Chamber Member