Performance Assumptions
With the first quarter of 2025 behind us, we have some data on the economy, our industries, and our company's performance. The current economic situation is extremely disruptive/concerning, making forecasts unclear and risky. However, as leaders, we must manage risk using the information we have to predict future performance.
Each business has unique factors to consider. I support businesses in Financial Services, Manufacturing, and Technology. The best approach is to create specific plans for controllable aspects of your business and closely monitor external impacts. The bottom line — execute the plan internally but, stay active with your customers.
Three Key Takeaways:
#1. Context is Critical in Leadership
When the pendulum swings dramatically as we are seeing it is impossible for people to have a view for their future.
Action: Helping people see the impact in the current situation is critical as we navigate challenging times.
#2. The Relationship between Facts and Assumptions
Many leaders are searching for the facts right now as they are most often the foundation of any sound decision. When properly identified, they provide objective, verifiable information that helps us understand the current circumstance while building a point of view on future outcomes. The intent is to reduce the risk of errors and biases. Assumptions on the other hand are very prevalent right now as a way to fill in the gaps where facts are unavailable. They allow us to make educated guesses about unknowns, enabling us to move forward despite the depth of uncertainty. However, over-reliance on assumptions without verification can lead to flawed strategies.
Action: Carefully capture your assumptions on the next few quarters of performance and increase the frequency of review with your leadership team!
#3. The Plan
The majority of leaders have an operating plan that supports the strategic vision of the business. Often the plans are very P&L oriented, particularly if the cash position is strong. However, now I am seeing many organizations evaluate cash more aggressively as part of the health assessment of the business. A/R and A/P reviews are increasingly important during a period of extreme variability.
Action: Move the cash metrics conversations into the weekly Leadership Team meetings!
Connecting The Dots
The relationship between leadership context, data/facts vs. assumptions, and the operating plan is crucial for effective decision-making and organizational success.
Here's how they interconnect:
Leadership Context shapes the approach to gathering and interpreting data/facts and assumptions.
Data/Facts provide the foundation for making informed decisions within the leadership context.
Assumptions fill in gaps where data is incomplete, allowing leaders to move forward despite uncertainties.
Operating Plan translates the insights from data/facts and assumptions into actionable steps, guided by the leadership context.
By understanding and integrating these elements, leaders can better navigate the uncomfortable moments when the macro-environment creates a lack predictability.
My Challenge To You
Write down the core performance assumptions and share with your team.
