Maximizing Profitability the TOC Way #5
This is the fifth in the 9 part series of conversations.
Dr. Lisa: “Yes, in the big companies you and I used to work for, the budgeting process starts early and continue for weeks and weeks – almost interminably.”
Brad: “In many companies, including the small -medium job shops that we work with the budgeting process passes for ‘Strategic Planning’. I seem to remember Eli disdainfully calling that ‘Strategic Bull-(something)’.”
Dr Lisa: “My experience matches Eli’s assessment. A lot of BS and little that’s really clear and actionable.”
Brad: “For sure! Having a budget that shows sales increasing by 25% does not mean that the business owner has any idea of exactly HOW that increase will be realized.”
Dr Lisa: “Yes, and I guess that’s my challenge to our readers – how EXACTLY are you going to make the budget that you want to be reality – actually reality!”
Brad: “That’s a really good and necessary challenge – so what guidance or words of advice do you have?”
Dr Lisa: “OK, let’s start easy. “
Brad: “Soooooo, you’re not starting with the Theory of Constraints Strategy and Tactic Trees?”
Dr Lisa: “Correct. Let’s start by stating the objective. What do you want to achieve next year? Be specific and be careful.”
Brad: “What do you mean by be careful?”
Dr Lisa: “I’ll explain with an example. If you state that you want to increase sales by 25% realize that that could happen and you make less profit.”
Brad: “Good point. So what is an objective?”
Dr Lisa: “Objectives are states of being as opposed to actions. What particular desired effect do you want? And the top objective is called The Goal.”
Brad: “Okay, so a business owner states their top level objective, then what?”
DrLisa: “Answer this question: What’s keeping you from reaching this goal? These are obstacles. Once you have the list of obstacles, you can convert each one to an objective.
Here are a couple questions to help you do that 1) What objective, if met, would overcome the obstacle? 2) What state(s) or condition(s) will need to been in place to overcome the obstacle?
Now write your goal at the top of a blank sheet of paper. Then ask – in order to achieve this goal, I must first achieve …. Put the objective(s) at the top which are closest in time to achieving your goal and work your way down the page. After you have the first objective(s) listed then asked for each of those – In order to achieve that, I must first … And so on, until you have placed all the objectives (and probably discovered a few more). The objectives at the bottom would be the first ones you would start working on.
This process is creating a PRT (that’s Goldratt Theory of Constraints speak for Pre-Requisite Tree). This map of objectives becomes your compass, your implementation plan. You follow this compass, this path, until you have learned something that changes your direction or until an opportunity comes along that allows you to skip several levels or is just better that what your were planning.”
Brad: “And if job shop owners go deep enough in this process, they’ll eventually reach a point where they know exactly how to create that state of being or condition.”
Dr Lisa: “Exactly. But if they don’t, they now know what they don’t know.”
To be continued.
Dr Lisa and Brad Stillahn
By Dr Lisa Lang and Brad Stillahn
This article is copyrighted by Science of Business, Inc.