How Can We Plan Successfully in Today’s Difficult Times?
May 15, 2020
By William R. Kay, MBA
In today’s difficult and changing times one of the most important competencies for success is the ability to anticipate what is going to happen in the future.
This ability is essential for personal and business success. It is the new competency that every individual must address. If you are not anticipating what is going to happen in the future, you will be left behind.
Changing our future is based on the actions we take today. How we view the future shapes how we act in the present. And how we act in the present will shape our future. Our world in these difficult times has gotten so complex, and is changing so rapidly, that issues get clouded, and being able to use tools such as Strategic Planning, Forecasting, and Budgeting is critical to help us clear away the fog and plan for future success.
These tools give us insights into our businesses so we will be better able to adapt in today's difficult environment. We must study the trends that are shaping our future so we can develop a successful path forward. By being proactive and learning to use a set of tools, you can make your organization work better in today’s difficult times.
Here are the key tools to help us anticipate our successful future.
Using the Strategic Planning process, we assess our current state, identify priorities and develop a road map to help guide our progress toward our desired future.
Doing a Situation Analysis helps us analyze the current “state” of our organizations. We start by identifying the external macro trends that are shaping our landscape. Right now, we are asking, “How has COVID-19 changed our businesses?” and “What must we do differently to survive and prosper in the future?”
Strategy is seen as the means by which the environment is navigated, and the better the “fit” between organization and environment, the more successful the organization is likely to be.
Over time, the environment changes and organizations that recognize these changes and adapt to them tend to continue to be successful. Those that do not recognize the changes or are slow to adapt are likely to find themselves falling behind in performance and going out of business.
An analysis of the External Environment begins by studying our macro environment to identify both threats to our existing business and possible opportunities to create new business.
The environment is changing before our eyes—and we must adapt to changes if we want to continue to exist and be successful in the future.
The macro-environment is complicated, complex and confusing.
We can break down trends into what we call STEEP: Social trends, Technological trends, Economic trends, Ecological trends and Political trends.
Some of these trends might be so disruptive and radical that they prevent our businesses from continuing as usual. We might have to create new products or services, drop or change existing products and services, use new technology or change our business models for survival.
We need to consider the external macro-environmental factors that are generally not under the control of our organizations, but still have the power to affect the performance of our organizations. We must ask questions like:
- How are these external trends affecting our organization and our customers?
- What do these external trends mean for our specific strategy?
The coronavirus has made us adjust our forecasting for the next month, the next quarter and the next fiscal year. Insights from thinking strategically impact our forecasts in both the short term and long term. We learn that planning, forecasting and budgeting are both an art and a science. The more we learn and apply these key tools, the better our success in adjusting to possible future eventualities. Some strategies may include considering how we handled and survived during past events such as the market crash of 1987; the disaster of September 11, 2001; and the economic meltdown of 2008.
We must hypothesize and estimate macro events including government responses and health-care changes, such as vaccinations, testing readiness, social distancing, new required rules and regulations that our businesses must incorporate in order to continue to operate and new safety procedures for our employees and customers. We must try to answer questions such as: What will be the societal responses? How will our employees and our customers react? What things will our customers still buy? What new products and services will they want?
Right now, we do not know if the economy is going to bounce back in 6 months or if it will take years to recover. We all have different feelings, which will lead to different forecasts.
Budgeting for the future is never easy, but right now, it is especially difficult to predict our sales/revenue, cost/expenses, profit/loss and future cash flows. We must make our best-case assumptions and targets. We must develop budget strategies for meeting our targets. In addition, we need to create our best-guess operating budget (projected income statement) based on a set of assumptions. The operating budget always starts with the top section—sales/revenues.
What products/services are we going to sell to our customers? What will be the quantity sold? What prices will we charge? What will be the costs and expenses incurred to generate these sales? Are we going to be able to break even? Will we be able to generate a gross, operating and net profit? How quickly will we be able to turn our profits into cash?
Accrual profits are like food. We can go for a while without eating but sooner or later, we must eat to stay alive. However, cash flow is like oxygen. We can only survive a few minutes without it. That is why our cash-flow budget is so important in today’s difficult times. The old saying that “cash is king” has never been truer.
Learning to effectively use all of these tools is essential for survival in today’s crazy and uncertain times.