Management means not letting things and developments run their own way. Instead, you set the destination of the journey and act accordingly. You make a plan.

It is crucial for the potency of management actions to identify the effective drivers. Effective drivers are the set screws that you as a manager can use to make a difference in the first place and later determine the effect of your own actions retrospectively. In order to manage successfully, you need to know where you are. You need to have a goal in mind and expertise of the trade.

Target and actual amount

With regard to financial management, the financial figures of the past (actual amount) can be sufficient indicators for future-oriented possibilities of development and control (target). For instance, you can identify the cost drivers of a company based on the "old" figures and document that as your actual situation. Starting from there, you set a desired target state as an objective to be achieved.

Knowing the start and the target line

Only after the actual situation has been fixed and the desirable target formulated, one knows from where to start and where to go. In addition, you set the period of time (e.g., week, month, quarter or year) after which the degree of target achievement is to be checked. The road to success is clearly defined in the form of a clear strategy. Only now one should go ahead and begin to implement the strategy-building measures in order to achieve the desired target state (e.g., sales, revenue and profit maximization).

Reflect your own actions

After the predetermined period you compare the new actual figures with those set as a target, for instance by means of a controlling report. Probably you will notice differences between the target figures and the new actual figures. It’s because you’ve produced differences.

Since you have documented at the beginning of the target achievement period which drivers have been selected and used to achieve the objective, you can now assess and understand retrospectively the effectiveness of your actions. These immensely valuable learning effects are included iteratively in the new plan for the next period of target achievement.

At the end of the next target achievement period, you will quite likely find in a new comparison of target and new actual figures that the amount of differences produced has decreased. The planning has become more accurate and reliable due to the included learning effects. The reflection of our own actions becomes apparent.

Seeing planning weaknesses

The analysis and fixation of the past must never be only quantitative but also qualitative in nature, so that a reasonably reliable future-oriented planning is possible. For young companies without much history, the challenges are even greater in this case. They have no past figures, which they could draw conclusions from. Nevertheless, they need to make informed and at the same time realistic assumptions. Both together make the reliable planning difficult, which demands a lot of experience.

Limits of planning

However, even with a great deal of experience and conscientious planning the future is not predictable. A plan is only true if its plan events really do occur in quantitative and qualitative terms. Therefore planning reaches its limits if unexpected events occur. But this is not a weakness of the plan as such, but due to the real situation which one has to face eventually. With a new plan.

[October 2015]