Always Plan For The Worst
Back in the 90s, I was working for a large petroleum company selling bulk fuel and had just booked a large contract. My manager was extremely excited about the new business – primarily because the new business meant a potentially huge bonus.
When I was forecasting the new agreement’s volume and profit for the remainder of the year, I presented my manager with three scenarios:
- Best Case – we finish the year 10% above the new contract’s forecast
- Most Likely Case – we achieve about 80% of the forecast
- Worst case – we realize 60% or less of the forecast
After reviewing my numbers, he instructed me to “Book the whole thing”. “Steve” (not his real name), I said, “Don’t you think that’s a bit risky? We don’t know what is going to affect the remainder of the year.” “What could go wrong?” He responded. “We’ll be fine.”
Aware of the risk, I appealed to his better judgment: “Steve, we should at least put a contingency plan in place to ensure we have enough sales in the pipeline to hit our plan should something go wrong.”
“You worry too much,” He responded.
Anticipating a massive bonus, Steve then went out a bought himself a new Lexus.
Whatever Can Go Wrong Will Go Wrong
About four months after booking the deal, the price of oil crashed and bulk fuel went along with it. Although we hit our volume target for the new deal, we weren’t even close to our profit goal.
We missed so bad that Steve was let go, his Lexus got repossessed, he was booted from his home and he and his family ended up living under a bridge. Ok, so maybe not that bad, but he did have to get rid of the new Lexus.
Hope Is Not A Strategy
A few years later, I was working for my current company in the juice division and had just landed a big contract. Now, for anyone who knows anything about the OJ market, you know that it’s extremely volatile.
Like my Bulk Fuel days I had to complete a volume forecast for the remainder of the year, and like my previous life, I built out my “best”, “most likely” and “worst case” scenario.
However, unlike last time, my manager had me “book” the “most likely case”, but put a plan together to ensure we hit our number in the event something went wrong. As she put it:“Let’s make sure we have a safety margin – Hope is not a strategy.”
Later that year not one but FOUR major hurricanes blew into Florida and decimated the orange crop. Prices skyrocketed and volume tanked. However, because we planned for the worst, things turned out great.
Everyone Thinks Things Will Be Just Fine
It never ceases to amaze me that in business (and life for that matter), most people fail to plan for things to go wrong. I see this constantly in the annual business planning process. Teams set their plans, turn them in and walk away as if everything ’s going to be just fine.
Nothing could be farther from an “offensive” mindset. Sh$$ happens. If you leave things to chance you’ll constantly be in a “defensive” mode, ceding the initiative to whatever circumstances dictate.
Be A Pessimist
I’m a perpetual optimist; however, when it comes to building plans I totally shift gears and go into major pessimist mode. I don’t “think” things are going to go wrong, I “expect” them to go wrong.
Contingency Planning
An offensive mindset demands contingency planning. It’s standard practice for successful Fortune 500 companies, the military, sports teams and just about anyone else who wants to “dictate” their situation.
Three Key Questions Is All It Takes
The good news is that even if you’ve never done contingency planning before, it’s easy. All you have to do is become proficient at asking and responding to three questions:
Question 1: What can go wrong with my plan? After you build your plan (yes this means you have to build one), immediately rip it apart. List every possible thing that could go wrong from minor annoyances to major disasters.
In the case of my juice example above, I noted items as small as “production issues” which could delay deliveries a few days, to a major hurricane (yup I actually planned for it) which could impact the entire year’s supply.
Once you do that, move on to the second question which is…
Question 2: What’s The Mitigation Plan? In this phase, you build a plan to minimize the risks you outlined in Question 1.
In my case, I couldn’t prevent the hurricane, but I could make sure I had enough international business so a major storm in Florida didn’t disrupt my entire plan.
Question 3: What’s My Action Plan? For each thing that can go wrong build a detailed plan of what you’re going to do to offset the damage.
In my orange juice example, if a hurricane did indeed hit Florida my plan called for locking into raw material contracts for all of my international customers. Although I paid a price premium, it made sure I would be able to satisfy all of my international orders.
When the hurricane hit, having a plan in place that I could immediately put into action made the difference between salvaging 90% of my plan instead of 50%.
Hope Is Not A Plan
Do not leave your business to chance. Contingency planning will ensure you are always in control of your circumstances, and THAT is an Offensive Position.
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I’ve spent my entire life in the Fortune 500, and I want to share everything I wish I knew when I was younger in the hopes that you can find success far faster than I did.
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