Using the previous year’s numbers as you attempt to frame the next budget is the easiest thing to do but might not yield the best results, says Harvard Business Review. “When developing a budget for the coming year, the previous year’s numbers loom large.
Even if you challenge every assumption and explore every figure, you’re likely to come up with numbers that only slightly vary from the last year. That’s because those numbers anchor you, unduly influencing you.
Instead of being tied to history and convention, come up with another anchor, one based on a different set of facts. Define a set of non-historical criteria. Look for objective competitor data, such as head count or other benchmarking. Then, build a model based on these criteria.
Ask: if we didn’t know how we performed this year, but only relied on these objective criteria, what targets would we set? Use that model’s output to challenge the status quo.”
Today’s management tip was adapted from Re-Anchor Your Next Budget Meeting by Dan Lovallo and Olivier Sibony.”
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