November 19, 2020

Profit and Risk

I promised you I'd share how variable profit is under normal circumstances.

10% of the time profit will be below $2.0 million.

25% of the time profit will be below $2.3 million.

50% of the time profit will be around $2.8 million.

25% of the time profit will be above $3.2 million.

10% of the time profit will be above $3.6 million.

Our CFO ... she's not going to be pleased with profit numbers that could vary between $2.0 million and $3.6 million.

But this is what we're dealing with when we craft a plan. We do all of this work, hard work, to produce a certain outcome. But the outcome is not certain. The outcome is highly variable. I mean, half the time profit could be between $2.3 million and $3.2 million. And the other half of the time? It's an outcome more variable than that.

And that's under normal circumstances.

Every one of you is dealing with a business that has that kind of variability. Your estimates for what "will" happen next year are filled with risk, filled with variability.

Then you layer COVID on top of it.

It's going to be darn important to communicate risk to people. Unbelievers. Folks who think because a spreadsheet says you will generate $62,000,000 means you are promising to deliver $62,000,000. In a normal year you could not make that promise, though you've done so for a long time. In 2021? You are facing more risk than you've faced since 2020.

A flexible and adjustable plan, one where you clearly communicate a range of possible outcomes ... that's what is needed in 2021.

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