Options and opportunities are everywhere. But how do you weigh them? Some don’t require making a choice between them. Others are mutually exclusive and you’ve got to make hard choices. Whether between two good options, looking into something else, or doing nothing, decision making is just part of the job.
Both opportunities and crises continually demand our attention and it’s important to have a game plan for addressing them when they do come up. Stephen Covey’s quadrant helps us tag potential activities as either urgent or important, both, or neither and it remains a great way to way to help us focus on what matters. The business opportunities and decision making I’m referring to is a bit more complex than prioritizing your time though.
Get into the Details
Doing a quick cost-benefit analysis has its place but when there are a lot of variables involved, you need to have the right tools to work out the numbers and justifications for your decisions. If you’re considering opening another location, besides all the market-analysis that needs to be done, there are a half-dozen elements to consider.
Start by making a copy of your current business budgeting plan. You’ll want to isolate and tag the changes you’re considering to the specific scenario so labeling edits within the documentation helps to serve as your key. You can now easily review the changes against your current budget baseline.
The timing of implementing potential changes rarely falls neatly on the first day of your fiscal calendar so you need to be able to designate a start date. Backing into that date, if there are preparation costs for the project, materials purchases and such you’ll want to tag those to the project in your capital expense account.
Track Assumptions
Another large consideration I’d make that is missed all too often is taking the time during the planning stage to document and support any assumptions that are made and any pertinent information. How many of us have looked back at a budget or forecast and wondered how we or others came to a particular conclusion? I’d expect that if we’re honest, it’s every one of us.
Scenario Planning
Despite how innovative or unique the scenario is that you’re considering, reinventing the wheel isn’t necessary most of the time. Methodically using your project plan (or a sketch of it) can help tremendously in making sure that you’ve considered as much detail as possible. You don’t want to get to the end and look at the cash flow then later find that a critical equipment purchase was missing from your scenario planning.
Naturally you’ll look at personnel needs as part of your initial evaluation. Next I’d do a deep dive into the affect that your project will have on the drivers that you had already set up in your budget. If the expectation is that you’ll build 300 widgets per day in a new facility, populating that metric and the prices and costs associated with it can make planning a cinch. Enter the number and your budgeting program can backfill the inventory of parts needed, check the capacity of equipment, and project forward to determining your revenue and profit given the margins you’ve identified.
What Matters
Of course none of this matters if you don’t take a step back after the details are entered and evaluate the feasibility of executing your scenario plan. If the bottom line doesn’t pan out…or looks incredibly optimistic…you’ll probably either want to dig deeper into validating your assumptions or consider another potential iteration that might get you to where you to the profit you’re looking for.
While foreseeing the future may not yet be possible, we still have the power to simulate our expectations and projections as we go through the evaluation process. Taking the time to plan what-if scenario options can set you apart from the competition.
What two competing ideas have come up recently can you take an hour to flesh out the possibilities and determine which one warrants further investigation?
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