Imagine if I
made the statement that because I am good with numbers and numbers can be used
to predict probability, I could guarantee the Springboks would win all their
international matches in 2014 if they won 10 of their 12 matches in 2013 and 8
of the 12 in 2012 and you should bet on it. You would roll your eyes at my
complete lack of understanding of all the moving parts that make rugby a
beautiful game.
And yet, when
most businesses use their sales and marketing department to create their sales
revenue budgets by simply tagging on 10% or 20% to their revenue for this
year’s sales, it does not seem to elicit the same head shaking and eye-rolling
as the previous statement. Why not? To simplify your revenue budget in this way
is no different than blithely assuming that next year’s scores have to be an
increase on last year’s.
To return to our rugby analogy, there is no way you
can predict what will happen next year by what happened this year for a variety
of reasons – the team is unlikely to remain the same, the coach might change,
key players may be bought by other teams, including the opponents, or be
injured or retire, the strength of the competition could change with the
introduction of new players or strategies or management, the playing conditions
of a certain stadium might change dramatically due to weather or political
shifts; as an observant, but nonetheless, average fan I would have no
cognisance of any of this happening before the fact.
In business, your sales team might alter, your lead
salesman might be headhunted by your competitor or simply decide she needs a
change; 2013 may have experienced a massive rainstorm that saw the sales of
your umbrellas go up 500%, but it might have been a one-off that had never
happened before in that area; there may be a shift in fashion happening at this
very moment that sees raincoats as the new umbrella – as a financial manager
sitting in the head office in Cape Town, you would have no idea that any of
this was happening in a small branch of your business out in the Karoo.
Perhaps if, in my rush to predicting 2014s rugby
results, I had consulted the coach, the captain or a member of the team or I
had some kind of “in” with someone on the ground or an expert in the field, who
did have knowledge of all these potential variations, my predictions for 2014
might be worth substantially more than a hopeless gamble and we could all go
out and place our bets for the upcoming season and walk away a winner.
Surely, the
same should be true when setting the revenue budgets for your business? Why wouldn't you consult the manager of your branch or your sales team leader or
even the sales team that mans your shops and sells your umbrellas and lives in
that area? Surely, you would rather have a realistic idea of what to expect at
the beginning of the year than to make a blind prediction that sees your
revenue budget and in turn your expenditure budget become largely useless at the
end of the year?
Your revenue
budget is meant to be an informed forecast of the revenue that is likely
to come in, and the only way it can be seen as such would be if you received
relevant information from those in the know. You need to use the resources at
your disposal to ensure you aren't left with unattainable numbers, frustrated
staff and people shaking their heads or rolling their eyes at you.
