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Planning II – Planning to Win in 2021
Business consultant and MBA lecturer Ugur Ozmen, shares advice to entrepreneurs and production company owners about planning in 2021 and challenging our assumptions.

Forecast reports are generally based on historical data. Some business people say, “You should look back 90% and forward 10%.” I actually never agree with this view.

While I was studying Management Science, “forecasting” was one of the important lessons I learned. We used fancy methods like intensive statistics, trend measures, and divergence analysis. In these lessons, we also learned that managing a company with reports alone is like driving a car while looking in the rearview mirror.

As in, any good driver knows you should never spend too much time looking in the rearview mirror – otherwise, you’ll surely crash…

I think the way you should look at the past while managing your company is no more than looking at the rearview and side mirrors while driving your car – a quick glance here and there.

In summary, 10% should be the share of historical data in planning.

Now, almost everything has changed

Thanks to the COVID-19 pandemic.

Many things we thought we knew are now wrong. Therefore, I think the share of historical data is even less important now.

So how do you increase the share of the future when we only have historical data? Let’s start with the budget first.

Let’s say you didn’t want to do many calculations while preparing the production budget and decided to go for the lazy route. You thought “everything will be the same as before, the costs will not change from last year”…
By thinking this way, you make the following assumptions:

Regarding contractors or producers of materials used in the production process:
• No new and powerful company will enter the market
• One or more of the important companies in the market will not leave the market
• Existing suppliers will continue their current methods and will not engage in aggressive marketing

If we add the approaches regarding profitability to these assumptions …
• You will not have a competitor trying to get new customers by breaking prices in the market
• Everyone will apply a communication strategy as now
• Customers will not be fooled by the offers of inexperienced new entrepreneurs

With one sentence, you made many assumptions!
😊

Even if you take the lazy route and say “everything will be the same as before”, you have many assumptions (your prediction about the future). These assumptions aren’t necessarily in line with reality.

When making a budget, you need to examine all these assumptions and make sure they are correct. If any of these are different, then take a look at the historical data,
• In what direction is there a deviation, when is there a difference?
• What were the main factors affecting this deviation in the past periods?
• Would these factors apply in the same way now?
• Was there a difference that would affect us in dominant factors such as purchasing power, confidence index, urbanization, etc.?
• As customers become more stable, the cost of acquiring new customers increases. What kind of attitudes can this increase cause to competitors?
Hundreds of questions start to come to mind. Each of these is related to the future.

“We Plan, God Laughs”

Yes, this is also true.

But remember, planning is a tool to reduce uncertainty. At least you can make sure no one else will be laughing at you.

😉

About Ugur Ozmen

With over 3 decades of experience, Ozmen managed many "first time in Turkey" projects and has multiple international success stories. He is a business consultant and a part-time MBA lecturer.
November 3, 2020

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