Early in the first quarter, every CEO is optimistic. This is the honeymoon, when everyone waits to see whether the assumptions and initiatives made before January pan out as the executive team and the P&L owners proclaimed. Behind closed doors many CEOs wrestle with their confidence in the number, particularly if the company has the "we almost hit our budget" syndrome: the aggravating pattern of missing set targets monthly, quarterly and annually, with cloudy explanations that everyone seems to accept. A high-performance "but" culture. Usually with no root cause confirmed for the misses, or for the wins. Conjecture is no way to move to the next month, and seasonality, weather and elections are not causes; they hit your competitors too.
Outside to inside
Make sure the thinking behind the budget connected the market, competitor and customer data, to the internal decision. Too many budgets are built in a vacuum, top-down or bottom-up, on internal views alone. Test it: the people who built the numbers should be able to support them with external logic, or a range and a confidence level you can live with.
Specificity on actuals
Demand that consolidated results, sales, volume and profit, are stratified by product and market. A consolidated number hides the cell that missed behind the cell that beat. Without stratification there is nothing to find the cause in.
Root cause, every month
For every variance, up or down, ask what, where, when and how much, and test every proposed cause against the data until one explains the whole pattern. Then change something. A review that explains the number without changing anything will explain it again next month.
Where it lives
This is tool seven of the MOVE® system, the monthly review, and it is why the strategy page has a second page beside it. Better decisions plus monthly root cause are what move EBITDA, free cash flow and earnings. The "but" culture is what happens when only the first half exists.
Monday
Find the last three months in which your company missed a number. Beside each, write the cause that was accepted. Then write what changed because of it. If the third column is empty, you have the syndrome.
