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Death by Assumption: Why Great Planning Strategies Fail

Written by: Bryan Feller

Article Overview: To often, assumptions are not clearly identified or managed so that when a plan goes south, there is no way to go back and reevaluate or manage the original assumptions. The absence of "assumption management" is a common cause of the death of many strategic plans. Assumptions must be stated, debated, and continually reevaluated as the plan goes forward. We've provided three practical steps you can take to manage your planning assumption.

Death by Assumption: Why Great Planning Strategies Fail

A key to effective strategic planning in today’s hyper-competitive world is reducing "Time to Action", or gaining new knowledge and making it actionable so you can move ahead of the competition before market shifts put you behind the curve.

Whether you’re thinking about a vacation, a new house, or next year’s revenues, any plan for future action is based on assumptions. Some assumptions, such as "no one will get sick," "the building will be sound," or "this year’s revenues are the baseline," are so basic they don’t need to be recorded or discussed. Other assumptions, however, must be articulated and recorded so that the plan makes sense and can be evaluated as it is put into play. Too often, these assumptions are not clearly identified or managed so that when a plan goes south, there is no way to go back and reevaluate or manage the original assumptions.

The absence of "assumption management" is a common cause of the death of many strategic plans. One of the most common examples of this is the tendency for planning teams to debate forecasts but never the underlying drivers of performance. Senior managers expect growth rates to increase year after year by 5%, 10%, or some such random number, but the underlying mechanics of the business can only support this to a point. Without digging into the assumptions about these underlying mechanics, the company ends up hitting a wall or scaling back without ever knowing the real reasons why the plan didn’t work.

All planning is based on imperfect knowledge and involves assumptions about the future based on available data, combined with the experience of the planning team. Most strategic plans assume a certain future, which is a dangerous misconception. The future is always subject to change in crazy, chaotic ways no one could have ever anticipated. Add to this the competitive pace of change in your market and uncertainty increases even more. Unless the planning team has the willingness and flexibility to redefine the assumptions when more knowledge becomes available, its plan is not likely to deliver the expected results.

Assumptions must be stated, debated, and continually reevaluated as the plan goes forward. Here are three practical steps you can take to manage your planning assumption:

1. Understand What Kind of Assumptions You Are Making

Corporate planning teams have closely-held beliefs that are rarely verbalized in planning meetings where critical decisions are made. In order to manage these assumptions, it's important to clarify and categorize them. Generally, we find there are four general types of planning assumptions:

- Cause-effect relationships. If we increase sales training, our close rate will increase.
A sales equation is a cause-effect relationship. For example, sales are a function of leads
generated x close rate by the sales team x average order value. The more explicit you can be
about these relationships, the more you can test and validate them (or prove them wrong in
favor of another model).
- Performance expectations. We expect to get a 3% response on our direct-mail campaigns based
on what we know about similar situations. We expect to close 15% of the leads we generate at
a tradeshow, or we expect our average order value to be $600.
- Customer behavior theories. We believe that CFOs care more about reliability over cost in our
competitive market space. Most marketers have no clear theory of client behavior that can be
tested; they just have a gut feeling about why people buy or make buying decisions. It’s
absolutely critical for planners to have theories about buyers that can be tested in the real
world. Product launch failures have remained at 80% for nearly 30 years. Most of these have
their roots in flawed assumptions about customer behavior.
- Trends. We believe it will take 120 days to close a sale in this new market. Or, for example,
our marketing costs will spike at $100K for the first 6 months, then decrease to $50K per
month for the rest of the year.

2. Document Your Assumptions Explicitly

Once you categorize your assumptions, it is essential that you state them explicitly. Only when they are written down can the rest of the planning team wrestle with them and debate them. Here are some practical tips for documenting assumptions:

List all of your key assumptions in the appendix of the strategic plan. Rank the strength of each one and estimate how much of the plan is riding on each assumption. Make this list a part of your final planning document so it can be debriefed later.

Collect and review available metrics that will shed light on the validity of the assumptions. Debrief regularly to identify what went right, what went wrong, and why.

Develop real-world experiments for the biggest risks that can prove or disprove the key assumptions.

Get more intelligence about what you may not be seeing in your environment before you throw more resources at the problem.

3. Be Honest About What Your Team Doesn’t Know
Many planning teams have misconceptions about the nature of knowledge itself. The consequences can be dire. In this modified Johari window, each of the quadrants represents different states of knowledge.

- We are aware of what we know. This is the knowledge and experience everyone on the planning
team brings to the table. It’s this knowledge that gets our team on the playing field.
- We are aware of what we don't know. Our awareness of what we don’t know humbles us and drives
us to find answers and the subject matter expertise that will allow us to navigate our
planning problem. Through the planning process and through team rigor, we acquire the
critical information that we need to solve the planning problem.
- We are not aware of what we know. Knowledge gets lost and has to be rediscovered. We forget
things that have little relevance to us. However, when we find ourselves in a new situation
again, as individuals or as a company, knowledge we have stored away becomes useful, but we
must consciously look for it. Quite often technological innovation comes from taking
seemingly unrelated pieces of stored knowledge and creating new relationships among them.
- We are not aware of what we don't know: THE DEATH ZONE. This knowledge has to be discovered.
In strategic planning, most of this knowledge can only be acquired during execution. This is
what accounts for the majority of “learning curve costs” and is where most planners fail.

How does all of this relate to developing a business strategy and the planning process? When starting any kind of planning effort, we usually start with our capabilities and our environment.
What we see in this model is how little we actually know and where we need to put our efforts to acquire the knowledge needed.

During your next planning meeting, put this Johari model on butcher paper or a white board. Once you introduce the broad planning objectives, begin to take inventory of the knowledge you possess as a team, where the holes are, and what might be done to mitigate ignorance in key areas.

4. Maintain Flexibility in Planning

A fundamental mistake planners often make when dealing with time and uncertainty is forecasting events too far into the future. By definition, planning is future-oriented, and the future is uncertain. We can rarely expect to accurately foresee outcomes or precisely control developments in our environment, especially over long horizons of time.

There is a tendency among many planners to precisely script out a course of action and the expected results. Rather than putting our faith blindly in our planning assumptions and thinking we are more in control of our environment than we actually are, it is best to plan for contingencies. Here are some practical tips for contingency planning:

- Make your plan modular. If one part fails, the entire plan should not collapse like a deck of
cards.
- Identify the greatest threats to the plan or key assumptions that, if proven invalid, will
nullify the plan. Develop alternative strategies that address these risks and can be
implemented without going back to the drawing board. Do not attempt to plan for every
eventuality, only the most important. Planning for too many contingencies adds to the
planning burden and reduces focus on the objectives.
- Create triggers that will indicate the need to adapt or abandon the current plan. At a
minimum, identify triggers that require the planning team to convene on an emergency basis to
make key decisions. A trigger can be a specific event or a performance goal that is hit where
the planning team is required to reconvene and make decisions.
- Design courses of action that permit multiple options in execution. For example, you may
create specific planned alternatives or follow-on phases for likely contingencies.
- Always maintain the flexibility to pursue other options that are not planned.

There is a tendency among strategic planners to attempt to script out a course of action and the results of this with precision. The result is often linear growth projections based on assumptions that have no basis in reality. We all have the tendency to think we are more in control of our environment than we actually are. We may mistakenly come to believe that the objective of planning is to impose control over the events of our market environment.

It is best to think of your strategic plan as an open architecture that lets you consider and pursue multiple possibilities. Assumptions are the foundation of any strategic plan, and if they are flawed, the whole plan is flawed. A good plan will recognize the volatility of assumptions and will maximize freedom of action for the future by incorporating plans for contingencies.

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Article Tags: assumption, assumptions, baseline, competitive world, curve, dangerous misconception, flexibility, hitting a wall, imperfect knowledge, market shifts, mechanics, pace, planning team, random number, senior managers, strategic planning, strategic plans, tendency, uncertainty, willingness



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