Mind the Gap

The dreaded word that comes up at a business review, “Gap”.  However you wrap it up it is a trigger for management action.  Lost contracts and churn, ‘Sell more’, Cash Flow problems, ‘constraint and debtor days’ or simply that you don’t have the resources to deliver a contract.

OLYMPUS DIGITAL CAMERAThe usual crisis management that ensues creates changes to the plan, but companies can overlook some of the basics.  At the signing off of a Business Plan you intend to sell products to target markets and invest in your organisation and with Capital & Operational expenditure to make it all happen.  And, you have a resource plan aligned to meet the original product sales forecast profile.  You have a Balanced Plan.

“Gap!”.  So cracks and gaps in the plan start to unfold and sometimes the positive opposite, the good news of winning unexpected business.  For an area of a business to announce a gap, it also probably means that they have no contingency to stay ‘on plan’.  So the pressure on other areas starts to look for the shortfall.  All right and proper especially where you have Shareholders, who expect predictable business results.  The piece that gets overlook is the balance in the plan as you move forward.  If a Sales area is delivering less then some of its budgets need to change.  If another area is picking up the slack, are they expecting to invest more to make it happen.  Will there be a dilution of profits from one area to another…

Effective mitigation to the problems starts not at the point of problem acknowledgement, but in the detail of the business plan and the performance that you expect for the investment in each individual area at day 1 of the trading year.   This is true even if you hold a contingency for failure in the plan.  It is also possible to hold unallocated financial targets at a board level challenge at day 1, awaiting allocation that never happens, which we will discuss at another time.

In summary, if you want to manage the Gaps well, pay good attention to the alignment of resources and investments in the agreed Business Plan and take time to understand the subtle balances between Revenue, Profit and Costs.

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