Understanding the probability of meeting financial commitments is central to any organization’s planning process. But getting to an accurate assessment isn’t easy—the stakes are high and the path lined with potential pitfalls, from faulty perceptions to behavioral biases. These can undermine the best applications of critical thinking skills, leading even experienced business managers to overestimate the odds of success. And missed commitments have been the downfall of many a career.
TRI Corporation’s business simulations have addressed the issue of meeting commitments and managing risk throughout our decades in business. Here are 20 learnings* from our own experience, which we have applied at leading companies around the world, that can increase your odds of success:
1. Understand your value stream—especially the customer—and plan with a diverse team that asks tough questions (using the 5 Whys) while thinking about a wide range of outcomes as opposed to point estimates.
2. Have a process in place for coming to a consensus but get contrarian opinion (Devil’s Advocate).
3. Have a cross-functional team; planning is too critical to leave to any one function.
4. Determine accountability for failure to perform: who has ownership of a negative variance to plan?
5. Be prepared to say “no” when appropriate, but simultaneously ask for alternatives to get to “yes.”
6. Promote positive cognitive dissonance; the ability to hold multiple points of view simultaneously.
7. Encourage flexibility and an options culture. Know when to fold-em fast and redeploy. Be agile.
8. Recognize that you and others on your team have inherent biases and talk openly about them. Have and promote humility at all times and never be afraid to be wrong.
9. In project work, as a program manager, test and then test again.
10. In pre- and post-mortems, stay focused on the data and leave emotions at the door. Never skip the pre-mortem; post, while critical to learning failures, is exactly that—after the fact.
11. Understand your risk appetite, as part of ERM, and never let anyone tell you they have no risk; if they have no risk, they need no budget.
12. Give proper incentives and align rewards to the actions needed.
13. Adopt a mindset that all costs are variable, and balance what is controllable versus what is not controllable.
14. Accept failures as learnings; in fact, study worst practices—not best practices.
15. Promote simplicity at all levels of the organization.
16. Implement periodic checkpoints, allowing for quick updates and early “smoke alarms.”
17. Create a stretch, as well as a hedge or contingency, in your plan.
18. Link all business decisions to strategy, while balancing the short- and long-term.
19. Uncertainty is acceptable, surprise is not.
20. Communicate early, openly, and continuously. Transparency is crucial.
*These tips are excerpted from an article I authored in the Jan/Feb 2014 issue of Global Business and Organizational Excellence titled “Estimating the Probability of Meeting Financial Commitments: A Behavioral Finance Perspective Based on Business Simulations.”
