Planning in Times of Uncertainty

If you don’t know where you’re going, any road will take you there.” A good plan starts with a vision that is articulated into a good story. This vision is going to define your purpose and where you’re going. So, it’s important that you know where you want to go before you start defining how to get there.

After you’ve defined the strategic vision, the next step is translating what that means into financial language. It’s at this stage where you start peeling back the layers and determining whether the strategy is aspirational enough, achievable, and/ or believable. Many companies start this process with a long range plan, which can be a misnomer since some plans only span 3 to 5 years. Oftentimes, these plans kick off the process of developing the following year’s budget. In other instances, this process coincides with the annual budgeting process, so that the first year of your long-range plan starts with next year’s annual budget.

So, you’ve defined your strategy, translated that into a financial long-range plan, and published your next fiscal year budget. You get into the new year, and your actuals don’t match your plan because either your performance staggers or doesn’t drive the results you expected. There are a handful of recommendations I would give you for planning in times of uncertainty:

1. Stick to your timelines and processes

When things go awry, we sometimes have a knee-jerk reaction to completely change how we do things. My advice is to stick to your process. If you review your current quarter's outlook weekly, continue to do so. If you do a quarterly update to your plan, continue updating your plan quarterly. You may be tempted to forego the process to focus on “more important things” or because you’re “too busy." In these times of uncertainty, you should stick to your process of gathering information and assessing your trajectory.

You need a mechanism for giving the best estimate and telling the story of what is happening, so your executive committee can make the best decisions possible.

It’s also at these times that you and others may be hampered by indecision. There is always at least one group that just needs one more day, week, month, or quarter to gather more information and give you the “right” answer. The thought of giving a number that will be wrong and to which they’ll be held completely shuts them down. At the end of the day, we have to make the best decision with the information we have, put our pencils down, and move on. A boss of mine used to say, “I don’t know what the right number is, but I know it’s not that one.” Mike Tyson also said it eloquently, “Everyone has a plan until they get punched in the mouth.” No plan will be perfect, so that brings me to my next suggestion.

2. Update your plan when you have new information

When you have new information, you should update your plan. If you get into the new year and your actual performance differs drastically from your plan, you need to do an update (I know, "duh," right?). Many companies reforecast their plans at least quarterly. (If that’s the case at your company, see suggestion #1.) The most important thing here is that your company must have a culture of transparency where departments can be truthful about results. I worked for a company where we completed quarterly forecasts for the full year. We stopped doing a Q1 forecast because no one ever changed their full-year guidance. We could be missing sales by a mile, but somehow, we were going to claw our way out of that hole by the end of the year (normally, sales just got peanut butter spread over the remaining periods of the year). The expectation from our executive committee was that the business would cover any sales or SG&A miss in the plan, so there wasn’t that trust or transparency to give a factual, updated forecast. You need a mechanism for giving the best estimate and telling the story of what is happening so your executive committee can make the best decisions possible. How you get to those updates can take many different forms.

3. Technology is an enabler but it won’t solve your problems

I see a lot of comments and questions about how technology can change the way we plan. Don’t get me wrong, I’m a big advocate for having systems to help do the work. The distinction I would make here is that technology should be viewed as an enabler and not as a replacement for finance professionals doing great work. Having complex planning systems also may not be an option because of expense and infrastructure. I’m a fan of keeping it simple. There isn’t a company I know of that doesn’t utilize Excel in some form or fashion to do their planning. Implementing structured, repeatable processes, and having a culture of trust and transparency are way more important than the systems you use. Technology will absolutely make your work more efficient and can enable you to make richer, deeper analyses; however, I have yet to see a system that can spit out a perfect plan with the press of a button. You will still need finance partners embedded in your business actually talking to their business partners to glean insights to help craft the story on what the future may hold.

4. Every good planner has a contingency

My last recommendation is that every good planner needs to have a contingency. Despite your business partners’ and/or finance teams’ best efforts, you will get a final plan that doesn’t quite hit the target. They possibly turned in a sales plan with 15 percent growth in a mature market with established competitors that are only growing 2 percent. Or, you may find the plan calls for a 65 percent increase in hiring for very specialized positions in a tight labor market. The end product you get might not have enough stretch or be a bit too rosy. Depending on the disconnect and the timing, it may not make sense to go back to each group and parse out a target for them to build back into their budgets. The size and scale of your company will also determine the materiality of your contingency. This may be a $500k plug in Miscellaneous Expenses or a $100 million contingency in Capital Expenditures. In either situation, you need a contingency that gets you back to your expected target and can mitigate uncertainty.

In summary, planning in times of uncertainty can be stressful. To navigate your way through it, you should stick to your process, update your plan when new information arises, utilize technology as an enabler and not a substitute for human interaction, and always keep a contingency.