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To Prepare for Future Challenges, Throw Away Your Hockey Stick Forecasts

Feb 29, 2008
Optimism about the future certainly has a positive place in the overall scheme of things, but it is frequently found to fuel wishful thinking. Consider the typical hockey-stick forecast of the future.

Let's say your operation has been doing poorly. In fact, results as measured by revenues and profits have been dropping.

You sit down and plan ways to overcome this negative trend. Because the solutions take time and money, you plan for things to get worse in the immediate near term, but you optimistically assume that all your new plans will work, causing the organization's results to turn up at some point in the future.

With this viewpoint, a graph of the operation's revenues and profits over time will look like a hockey stick with the past, present, and near-term future going down like the length of the stick, and the future turning up like its blade as the stick rest on the ice at the point where the length and the blade meet. After a few years of implementing this plan, you often find that the only part of the hockey stick you can see when you examine the results is a handle still going down.

In the 1980s, a leading business equipment company was faced with declining demand for its most profitable product line. Sales and earnings inched up a little based on service revenues for the previously sold and installed equipment base, but new equipment sales were dropping rapidly. Using a technique called "gap planning," the operation looked for ways to fill the "gap" between its current direction and what it wanted to accomplish.

After rejecting several alternatives, the business executives became excited about creating a new piece of equipment that would greatly reduce the cost for customers. Leading technical consultants from the East were brought in to this Mid-western business, and the consultants confirmed a rosy technology forecast and market for the product.

The company's chief financial officer was unconvinced, so he decided to monitor the situation closely. What he discovered was that compared to the original business plan on which the new product development investment was based, the cost of implementing the project and time to completion increased regularly every six months.

At the same time, the estimated future sales and profits from the new equipment kept dropping every six months. He drew a chart showing that if this changing forecast trend continued, the project would be a big money loser.

He got nowhere with his observations. Everyone else wanted to believe in the product's success, so the project continued. Sure enough, the project was a big loser in the end.

One way to have overcome this problem would have been to authorize the project based on the contingency of meeting interim targets for cost, product performance, on-time completion, profit and market outlook. Then when those factors weakened, the plug would have been pulled automatically and most of the costs could have been avoided. If the project had been going well, these interim targets would not have harmed the project's ultimate success in any way.
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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