Mark McDonald

This blog has discussed various signs of weak management (see link to the core post).  Here is another one related to financial planning and goals.

Back when I prepared my first project estimate.  I do not remember the exact number but I do remember the precision of the estimate – down to the dollars and cents.

My boss immediately rounded it up the next ten thousand dollar level.  When I asked him why, he said it’s a good round number.  The lesson was carrying out estimates to the penny gave a sense of false precision.

Well the opposite it true.  Nice round numbers can also be a sign of weak management, particularly in terms of setting sales, operating budget and other financial goals.

We all saw this in 2009 when people were asked to cut their budgets.  How much?  Lets start with 10% — after all everyone can find 10% ‘savings/waste’ in any budget.  If that’s true then you do not have very good managers and a poor planning process.  Weak managers announce across the board cuts treating everyone the same.

Good managers define a goal in terms of the dollar amounts needed and the changes that can create those changes.

The same goes for revenue goals.

Think about your goals for next year.  If your goal is to increase revenue by 3.5% or to grow it 2% faster than the economy consider yourself lucky.  Chances are these goals are based on real thought and understanding of the marketplace.  It is more than likely that there is a plan attached to such a goal outlining which customers, markets, geographies you should go after.  All of this supporting material tells you that management knows what its thinking about.

Contrast this with the goal to grow the business by 10%.  A nice round number, but one that has little meaning, even less analysis and about as much forethought as standing in front of the refrigerator with the door open wondering what you will have for a snack.  This is what makes a round number a sign of weak management.

Now you might say, giving a team a goal without defining the means to achieve it is ‘empowerment’.  My simple reply is yeah right, its not.  This is blame storming which is another sign of weak management.  This is particularly the case when you ask if your operating/ investment budget is allowed to increase by a close to similar amount.  If the answer is no, then you know that senior management – the goal giver – has either no understanding of the goal, no faith in you as a manager, or does not care about sustained success.

Nice round numbers make sense when they combat the weakeness of false precision and remind people that we cannot know things with certainty.

Nice round numbers become a sign of management weakeness when they become targets to throughout without forethought or planning.  Their round so they are easy to grasp.  They are tempting for weak managers and weak management teams.

You can combat nice round numbers in several ways:

• Ask what the real target is in terms of dollars/euros and cents – what is the real goal you have to achieve not a round percentage?
• Ask which drivers need to change to achieve the goal.
• Ask about the logic behind the target, the resources that will be committed to making the goal?

These sound like simple things but often we are put in the position of ‘goal taking’ rather than plan and sense making.  One of the signs that you are taking a goal is that nice round number.

What is your experience?

How do you respond to when your given such a goal?

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Category: 2010 CFO CIO Personal Observation Signs of weak management budgets     Tags: 2010 planning, CFO, Signs of weak management

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