It’s fall and the time of year when most business leaders head to the conference room for their annual planning process. For some it’ll involve new goals and strategies. For others it’ll just be a budget. However you approach it, the process of planning involves a lot of assumptions, many of which are taken for granted. We often give little thought to the assumptions that influence, sometimes in a big way, the direction and distance the business will go in the forthcoming year.
These assumptions are our truth and yet, they’re likely not the truth at all, they’re just assumptions that we’ve elevated to the level of hard facts and then taken for granted. We get locked onto our assumptions and to some extent that’s OK. Assumptions are how we make sense of what we hear and see around us. They provide a framework for our work and allow us to operate in a complex world with new information coming at us from every direction. However, nothing in our world remains constant and if we don’t closely examine the assumptions by which the company runs, we’ll soon find ourselves left behind.
The foundational building blocks of any business plan are the assumptions. They are the underpinning of every strategy, idea and budget. The Rand Corporation defines an assumption as “an assertion about some characteristic of the future that underlies the current operations or plans of an organization.” Certainly market research, competitive analysis, industry research and more are important. But those things are really just input into the conclusions and assumptions we draw from it. Like the report that’s been distributed throughout the office forever that no one seems to need, assumptions have a way of surviving long after their useful life is gone. It’s for these reasons that every planning process should involve some degree of assumption validation. Testing assumptions isn’t a difficult process, but it is a deliberate activity you should include in your planning calendar. There are several simple but important steps to follow.
The first step involves creating the environment where team members feel comfortable and are expected to challenge key assumptions in the business and the plan. Let them know that you’re no longer sure that everything you believe as factual about the company or marketplace is still accurate. This is easier said than done because by definition our assumptions are our truth and when a question is raised about one of them, it’s normal to defer to the subject matter expert in the room, the keeper of the assumption, who will reassure the team that it’s still the case and you can move on to the next question.
Ask yourself – What are the key assumptions that drive the plan, that if inaccurate, would take planning in another direction? These are the assumptions that are central to how the business interacts in the marketplace.
- What do you really know about customer attitude toward your company?
- Is there a continuing need for a product or service to remain in the portfolio (we all have some that should go but we hang on to them thinking we’ll suffer harm if we eliminate them)?
- What features or services do customers value most?
- Why do your customers buy from you?
- Is there a significant customer base?
Once you’ve considered the list of key assumptions, you have to get comfortable with the next question – How do we know? I have a friend who likes to say that in any conversation with an employee or customer, you’re always just two questions away from the truth. The truth is we stop asking too soon. Reflect on the history of each assumption – Where, when and who did it come from. Does it still serve your best interests? The answer to these questions can take some time to answer so it’s good to begin this process early or, better yet, make it a part of communication throughout the year. I’ve seen too many plans forge ahead with old assumptions because there just wasn’t enough time to dig into them further. Even when there was some doubt about their accuracy, pushing it off for another year conveniently took the team off the hook of dealing with the work that might have had to occur if the assumption was proven inaccurate.
Be honest with yourself. If you’re not sure the assumption is accurate but you don’t have the time or desire to dig deeper to find out, say so. At least you’ve got something to follow up on, maybe as a part of the annual plan. Guessing is acceptable so long as you’re willing to bear the risk and potential consequences of the decision.
In summary, don’t get carried away calling into question every assumption. Pick a few big ones that are long in the tooth and take the time to validate their accuracy. In another time you can look at a few others. The worst case would be, you’ve put in time to validate that you’re in touch with the key drivers of your business. That in itself is a pretty good outcome.