March 4, 1993

Financial Strategy

Share With Friends

Finally, when it comes to test-driving your strategy, follow the money. Put the strategy through its economic paces with projections and analysis.
As you do so, be careful of the age-old blind spot of being too conservative with expenses (It will not cost us that much) and too liberal with revenues (It’s going to generate big numbers). Behavioral economists point out that people in business tend to be too optimistic. One article on the subject stated, “Other than professional pessimists such as financial regulators, we all tend to be optimistic, and our forecasts tend toward the rosier end of the spectrum.”2
The same article described how an investment bank in the early years of the twenty-first century tested its strategy against a pessimistic scenario—the market conditions of 1994, when a downturn lasted nine months. They accordingly built in some extra safety margin. But when the financial collapse of 2008–09 came along, they weren’t ready for the severity of what they faced and had to make dramatic cuts to their cost base.
Crunch the numbers now lest they crunch you later.

Ask yourself…
1. Can our existing budget support the strategy?
2. How will we fund the new strategy?
3. How long will it take to get momentum and a return?
4. What are the current cash position and the forecasted cash position for the next season?

Share With Friends