A “How-to” for “What-if” Planning for Executives

24 Jul A “How-to” for “What-if” Planning for Executives

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WhatIfAnalysis canstockphoto24758803

Balanced Scorecards and Spreadsheets: The Right Starting Point?

A recent insight by Bain and Company discusses Balanced Scorecards as one kind of management tool. While balanced scorecards have been in use by organizations for years, one trend we see is organizations and executives using balanced scorecards to perform (or try to perform) what-if scenarios.

Bain and Company lists the following as what balanced scorecards do:

  1. Articulate the business’s vision and strategy
  2. Identify the performance categories that best link the business’s vision and strategy to its results (e.g., financial performance, operations, innovation, employee performance)
  3. Establish objectives that support the business’s vision and strategy
  4. Develop effective measures and meaningful standards, establishing both short-term milestones and long-term targets
  5. Ensure companywide acceptance of the measures
  6. Create appropriate budgeting, tracking, communication, and reward systems
  7. Collect and analyze performance data and compare actual results with desired performance
  8. Take action to close unfavorable gaps

Actually, Bain and Company does not number the steps, we did this to articulate what we view is a large gap between steps 6 and 7. Once we describe how to fill the gap between steps 6 and 7, the processes and tools we use can be leveraged in all the above steps.

Most balanced scorecards show what happened within the business and where the organization may need to take action.  Hence, the gap – what actions shall the organization take? The Good news is that a balanced scorecard is very metric or KPI focused, therefore, cause and actions in a balanced scorecard scenario can be KPI-based. When we can focus improvement efforts on KPIs and provide concrete goals for KPIs, we now have goal attainment, scenario analysis, or What-if analysis.

A challenge of goal attainment is that these what-if scenarios need to be performed by analysts using complicated spreadsheets.  This can take hours or days or even weeks to model with a spreadsheet, or multiple spreadsheets, and then adjust the various parameters to understand the effect of those parameters on your goals. To help organizations start the thinking process on transforming from “what happened” (balanced scorecard) to “what do I do” (goal attainment) Sage Clarity prescribes a very different approach.  First and foremost, the ability for executives in an organization to run their own scenarios is crucial.

Imagine the engagement from the employee base when executives are running goal attainment experiments from a meeting on their tablet or smartphone.

Fundamentally speaking, the concept of goal attainment is to adjust 1 or more KPIs to determine the affect on other KPIs.  Lets take inventory as an example: with inventory, different members of an organization have different perspectives. Some members of the team view and manage inventory by days (days of inventory), some by volume and some by inventory cost – days, dollars or cases.

The video below shows the impact of modifying the days of inventory and the impact those changes have on volume (cases) and dollars.

In this example, we can see that adjusting days of inventory in 1 location did not achieve the goals for the overall business in terms of dollars and volume, so we have to adjust days of inventory for other locations.

In summary, look to using more sophisticated tools to perform what-if scenarios vs. standard tools meant for balanced scorecards. Such tools can:

  • Compress the decision making cycle when trying to make quick assessments
  • Predict outcomes to understand whether goals or targets can be met
  • Include and embed executives in the decision making process – from their smartphone or tablet!
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1Comment
  • Three Questions to Ask your Supply Chain - Sage Clarity
    Posted at 07:17h, 15 December Reply

    […] Are we planning or are we executing? This can be a loaded question, since the answer should be both. However, we need to see a healthy dose of planning and execution and an optimal ratio of each. What is the difference? In manufacturing organizations, execution is the physical manufacturing or movement of your products. Planning is the work which happens up an to that point, whether it is the 1 day before, 1 week before, 1 month before or so on. While this distinction may sound simple, we are always surprised how many “execution-oriented” leaders feel they are doing planning. Why is this important? Usually when something is wrong – quality, customer service, inventory levels, we find that the plan was the culprit, not the execution. These issues can be acted upon in the days/weeks/months before the actual execution. One way to help assess a plan and the ramifications of changing the plan is performing “what-if” scenarios, which is discussed in more detail here. […]

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