2021 Resolutions, A Scorecard Last year I shared how I came up with resolutions to meet my business and personal needs in my blog post, New Year's Resolutions, Once More Unto the Breach. I broke my 2021 resolutions for 2021 into three areas and scored them as follows:...
What is the hidden risk in your company?
I was recently talking with a friend who was presenting on “Risks within Your Business” to company directors. This topic made me think of all the companies that I had worked with over the years and what was the most significant unrealized threat they faced within the organization. Upon reflection of all of 2 minutes, I concluded that it was Excel!
Yes, it is Excel! Excel has taken over our corporate environments where it is used by finance, marketing, sales, HR, etc. to do everything from planning, budgeting, forecasting, pricing, reconciliation, and analysis. While Excel is a marvelous tool, which undoubtedly made many of these tasks much more manageable, the problem is that anyone can use it and change a model without anyone else realizing it.
There are three areas of concern:
1. Incorrect models.
Many people within organizations develop Excel models to solve problems that they are currently facing. However, many of these models are built using the improper practices that I’ve highlighted in previous blogs. As a result of these practices, other users of the models are not always aware of the model’s shortcomings but still rely on the output to make significant decisions.
In one case, the model’s author had linked all but two of the assumptions to the assumptions page, thus changing the assumptions all but two of them change within the model. As a result, no one was aware that these two assumptions when “off-line” for the model and were making decisions based on incorrect conclusions. While appearing to be an insignificant problem, the lack of connection of these assumptions led to the approval of some projects because they had positive NPVs and good IRRs, but in reality, were terrible projects with negative returns.
2. Hard-Coded Models.
Many models are built using the corrupt practices I have mentioned before. While I have come across many of these, I cannot meet the example given by my friend Rob Brown in his blog post. To have an organization making decisions with an error in their spreadsheet of the order of magnitude of $200 million that no one was aware of is scary. Do you have one of these in your company? Before you answer “No,” are you sure!
3. “Fixed Models.”
More worrying are those models where there is a good model, but then hard-coded change is made to prevent a #N/A or #DIV/0! result. Unfortunately, no one tells anyone about this change, and it left unnoticed for ages. As a consequence, massive errors can arise.
Recently I was working with a company whose budgeting model had some hardcoded adjustments in formulas to adjust sales, compensation, and other budget items. When reviewing this model with the company’s finance department, there was no explanation of why they made these changes. When asked how good the design was for budgeting, the answer I received was, “Last year was a horrible surprise!” As a result, I wrote CEOs Beware: Problems with Financial Modeling. At last check, the company was still using the model!
Recently I was working with a Fortune 500 company that had a model to drive dashboards for the executive team. Somewhere the data had not all been supplied, and so there was a #DIV/0! result. Rather than fix this, someone had changed some formulae to exclude the offending cells and their related data. However, when entering proper results into the offending cells, the dashboard didn’t update to reflect this. The dashboard continued to exclude these outcomes in the actual and historical averages. Who knows how many ad campaigns and how much marketing spend resulted in improving the results when the results were probably already exceeded expectations.
So what to do?
Companies, departments, etc. should review all their models regularly. This review involves someone checking all the calculations, cell references, and links to ensure that the model is performing as expected. A painful task, but undoubtedly better than to keep walking off the cliff, hoping you can survive the landing.
© 2015 Marc Borrelli All Rights Reserved
Resolutions, Here We Go Again.
You need to take an extended vacation. No, seriously, you do.
COVID has taken a toll on all of us. If you have not taken an extended vacation in a while where you disconnect, you need to now. You and your business will benefit.
A small Scottish company shows how being famous for something works
I recently discussed how you must be famous for something. If you're famous for something it is easier to: focus on what you can be the best at, find your "tribe," tell people what you do, get referred, and define your core customer While we all know of companies...
Are you optimizing Your Cash Conversion Cycle for growth?
Companies need cash to grow. If your cash conversion cycle is too long, you may not be able to finance your growth. Here is how to reduce it.
You Have to be Famous For Something
In a meeting last week, one of my Vistage members discussed his expansion into a new business area and how to price his services. The way he described the new market was comprehensive. As usual in Vistage, this lead to a great discussion challenging his assumptions...
How do you price your products and services?
Many businesses do not take full advantage of the value they offer to price effectively. Many struggle to price at a point that makes them a great margin. Here is a way to look at it see where you can price to improve your business.
Do you know your Profit per X to drive dramatic growth?
I recently facilitated a workshop with several CEOs where we worked on the dramatic business growth model components. One of the questions that I had asked them beforehand was, "What is Your Profit/X?" The results showed that there this concept is not clear to many....
Five Ways to Attract Prospective Employees
There is a war for talent. How do you attract talent to your company and have them apply for jobs there? You have to show why they should consider you, who you want, what you offer, and how your current employees feel.
Are you killing your firm’s WFH productivity?
Productivity remained during WFH with COVID. However, further analysis found that hourly productivity fell and was compensated for by employees working more hours. What was the culprit – Meetings. Want to increase productivity, have fewer meetings.
EOS is just that, an Operating System
For those of you who are not aware of EOS, it is the Entrepreneurial Operating System. It seeks to improve businesses by getting six components aligned to enhance business operations. The six are: the vision the people the issues traction - meetings and goals...