Planning a Year You Cannot Forecast

Forecasting is not the useful skill

Four years of these reviews have shown that almost nothing forecast in December happened as expected.

So the practical response is not better forecasting; it is arranging next year so that being wrong costs less.

That means paying attention to how easily each decision can be undone rather than to how confident you are about it.

A business that mostly makes reversible decisions can be wrong repeatedly and survive comfortably.

Sort every decision into two piles

• Reversible: undone in a month, cheaply.
• Irreversible: committed for a year or more.

Hiring on a trial basis, trying a supplier, running a small campaign, or adding a service are reversible. A lease, a vehicle purchase, an annual contract, a rebrand, or a member of staff hired permanently are not.

Make the reversible ones fast

Which is where most small businesses lose time.

A decision you can undo in a month does not deserve three weeks of consideration, and getting it wrong costs a month.

So decide quickly, try it, and set a date to review it rather than analysing in advance.

The cost of deliberating is frequently larger than the cost of being wrong, and it is paid whether or not the decision turns out well.

Most of what a small business decides in a year falls into this pile, and treating it all with the same caution is why so little gets tried.

Speed on the reversible pile is what buys care on the other one.

Slow right down on the irreversible ones

Which is the other half.

A lease, a large purchase, or a permanent hire deserves the deliberation people currently spread across everything.

Take advice, sleep on it, run the numbers at a conservative volume, and ask what happens if the year is twenty per cent worse than expected.

Delay one of these by a month and you lose a month, and get one wrong and you carry it for years.

Most small businesses face two or three of these a year, which makes them individually worth days of attention.

The mistake is treating them the same as the reversible ones in either direction.

A worked example

A business faced eleven decisions in a year.

Nine were reversible: a new supplier, a listing upgrade, a different quoting approach, a small campaign, and five smaller things.

Two were not: a three-year lease on a larger unit, and a permanent hire.

They had historically given all eleven roughly equal deliberation, which meant the nine were slow and the two were not examined nearly hard enough.

Sorting them changed nothing about the decisions themselves and a great deal about where the thinking went.

The lease was renegotiated to two years with a break, which moved it toward the reversible pile.

Look for the reversible version

Which is the most useful move available.

Almost every irreversible decision has a reversible version at a slightly higher unit cost.

Rent rather than buy, hire temporarily rather than permanently, take a monthly plan rather than an annual one, subcontract rather than employ, or negotiate a break clause into a lease.

Each costs a little more and buys the ability to be wrong without carrying it.

In a year you cannot forecast, that premium is frequently worth paying, and in a predictable year it is not.

Ask the question on every large decision before accepting that it is irreversible.

Set review dates rather than targets

Which is how a plan survives an unforecastable year.

A single annual target is either met or missed and tells you nothing until December.

Three or four review points, with a decision attached to each, lets you adjust while it still matters.

At each one, ask what has changed, what should stop, and what should be tried.

That is a plan that responds rather than a plan that is wrong from February onwards.

Put the dates in the calendar now, since a review point without a date does not happen.

Decide the thresholds in advance

Which removes the hardest decisions from the moment they arrive.

Write down now what would make you stop something, hire somebody, or cut spending.

A threshold set calmly in December is a better decision than one made under pressure in a bad month.

Two lines are enough: if enquiries fall below this for two months, we do this, and if they exceed this, we do that.

The value is not the accuracy of the numbers; it is that the decision exists before the situation does.

Keep the fixed costs low while it is uncertain

Which is the financial version of the same principle.

Every fixed monthly commitment reduces how wrong the year can go before it becomes a problem, and every variable cost moves with the work.

So in a year you cannot forecast, prefer the subcontractor to the employee, the monthly plan to the annual one, and the smaller premises with room to expand over the larger one you might grow into.

Add up your fixed monthly outgoings once, since that figure is the number of months you could survive a quiet period, and very few small businesses know it.

It is also the figure that decides how bold you can afford to be on everything else.

The counter-case

Some things need commitment.

A business that only ever makes reversible decisions never builds anything, and the reversible version is sometimes materially worse rather than slightly more expensive.

Speed on small decisions can also become carelessness, particularly where several small reversible choices add up to one large irreversible one.

And a business in a genuinely stable market with predictable demand can forecast properly and should do so.

This method is for uncertainty rather than a replacement for planning.

Sort every decision by whether you can undo it, move fast on the reversible ones, take days over the others, and look for the reversible version first.

What to do

1. List next year's decisions.
2. Mark each reversible or not.
3. Decide the reversible ones quickly.
4. Take days over the others.
5. Look for the reversible version.
6. Set three review dates.
7. Write the thresholds down.

Step five is the move worth learning, since almost every irreversible decision has a version costing slightly more that buys you the ability to be wrong without carrying it for years.

The budgeting side is covered in budgeting for a year you cannot predict.

Frequently asked questions

West Coast Media Solutions Inc. provides web design, web development, hosting, digital marketing, and business consulting to organisations across Canada, drawing on more than twenty-five years in the field.