The one constant in the financial services industry is change. Increased regulatory requirements and intense competition places extreme pressures on companies. To cope with threats and opportunities it is vital to develop sound strategies. The traditional tool of strategic planning is the business plan. Yet the projections in business plans usually turn out to be over optimistic and strategies founded in such plans often fail. Why is this so?
Traditional business planing makes unverifiable assumptions about future sales and prices. It focuses on projections of income and expenditure and gives little insight into the competitive factors of the market. If the plan produces a negative result it is very easy to increase sales, reduce expenses or increase prices to get the plan to come out ‘right’.
Our approach to business planning is very different: Sales, prices and expenses are not input as assumptions but are derived quantities. This makes the whole process harder to ‘fudge’ and less subject to wishful thinking. The method is outlined below.