You\u2019ll find this phrase appearing in almost every section of the business plan, so let\u2019s dissect it to aid in the planning process.<\/p>\n
Approach is the term I use to describe the direction or strategy you will take for a particular component of your business.\u00a0 For example, my partners and I define the approach for the Technology component of our business plan as follows:<\/p>\n
We will use the PC-Intel platform, with widely used business software to ensure broad compatibility with potential clients\u2019 and business partners\u2019 technology.\u00a0 We will purchase and maintain our own systems, and outsource any technology functions that are beyond our current or easily acquired expertise.<\/em><\/p><\/blockquote>\n
This approach allows us to purchase or build our own PCs, purchase group licenses for MS Office and other software, and choose from a wide range of free-ware or share-ware for special purposes such as screen sharing, conferencing, and content management. \u00a0We outsourced the development and hosting of our proprietary expectation alignment software since we do not have or wish to acquire the expertise to do that work ourselves.\u00a0 The result is that we keep our technology investment low, easily \u201con-board\u201d new business partners, and transfer the risks of product development to the experts.<\/p>\n
That leads us to the idea of Risk.\u00a0 Risks, if allowed to materialize, result in loss of resources, failure of processes to remain on track, and\/or failure to attain your goals.\u00a0 Any approach you choose will be subject to some kind of risk.\u00a0 For example, with our technology approach we know that the PC platform and software are the most common targets for virus, worm, Trojan horse and other kinds of security breaches.\u00a0 A Mac platform would be less risky, but less commonplace in the business and consulting worlds, and more expensive in general.<\/p>\n
The virus and security risks are risks we are willing to accept within limits, so we pay for certain internal controls like antivirus software, router-based firewalls, encryption, and backup that will further reduce our risk to a level we are willing to accept.\u00a0 Define your risks, determine what level of risk you are willing to accept, and pay for the necessary internal controls to reduce your risk to that acceptable level.\u00a0 If you can\u2019t reduce the risk enough, then transfer it through insurance with a deductable amount you believe you can afford should the risk materialize.<\/p>\n
The last term in our title phrase for this post is Measures, also known as key performance indicators or KPIs.\u00a0 What we want to decide, right up front, is how we will measure success for this part of our plan; how do we know things are working right and we are meeting our goals, and how would we know it if they stopped working right and we were falling short of our goals.<\/p>\n
There are two big challenges with measures.\u00a0 The first is reducing the activity to something that is measurable.\u00a0 Many activities, like successful vendor or customer relationship management can be very subjective.\u00a0 How do you measure the quality of the relationship?\u00a0 You may need to resort to carefully crafted surveys with numeric responses such as \u201cExceeds Expectations (4), Meets Expectations (3), Comes Close (2), or Falls Short (1).\u201d\u00a0 Think carefully about what to measure and how to measure it.<\/p>\n
The second big challenge with measures is useful timing.\u00a0 Measures fall into two groups, leading indicators and lagging indicators.\u00a0 Leading indicators tell you in advance of reaching a critical situation or result; they tell you that something is about to happen.\u00a0 Lagging indicators tell you that something has already happened. Lagging measures are generally OK for reporting financial results to owners and shareholders, but not too helpful when you just produced a whole run of molded plastic parts that do not meet the customer\u2019s specifications.\u00a0 Processes generally need leading indicators so people know if they\u2019re drifting off track or outside of acceptable boundaries.\u00a0 In other words, we need to stop molding plastic parts immediately if measures indicate they are drifting too close to the limits of tolerance.<\/p>\n
The lesson is this: within each component of your business plan define your approach, identify risks and the levels of risk you are willing to accept, and define carefully the measures that will indicate you are following your business plan and achieving your goals.<\/p>\n
Next up, the long range plan.<\/p>\n","protected":false},"excerpt":{"rendered":"
You\u2019ll find this phrase appearing in almost every section of the business plan, so let\u2019s dissect it to aid in the planning process. Approach is the term I use to describe the direction or strategy you will take for a particular component of your business.\u00a0 For example, my partners and I define the approach for … Continue reading Business Plans: Approach, Risks and Measures<\/span>