Managing a Business is Not a Mysterious Art
By Osama El-Kadi 2008
Managing a Business
Margaret Thatcher was not wrong when at the beginning of her tenure likened the running of the United Kingdom economy to running a household budget. In fact this simple wisdom is what sparked the economic recovery of the 90s for this great nation.
This simplicity in managing a business or a nation's economy, may have paradoxically hindered the understanding of this simple wisdom.
We are surrounded by experts, academics and consultants trying their best to make management in general and managing a business in particular such a mysterious and complicated art, when in fact it is not.
Theories after theories of management can only make us think that managing a business is a sacred and forbidden knowledge for the un-initiated, while the truth and reality are very different from this.
In my early “promising” days in business, I was fortunate enough to be mentored by the chief executive of the AA (Automobile Association) in the United Kingdom. A man of considerable intelligence and straightforward honest attitude to everything he undertakes.
In one of our sessions, I asked him the question I was longing to know the answer to for a long time.
“How do you manage this multi billion organisation? you must have extra abilities and know some secrets, so please tell me” I asked. He immediately laughed and started to answer me.
He said, leave the politics, managing people, making products and markets aside for a moment and let us talk about the mechanics of managing a business, regardless of its size.
He continued; the trick is in three words, the Business Plan, The Budget and The Forecast.
The Business Plan
The business plan not only contains our goals, objectives, mission, strategies and tactics and what we suppose to produce, it also contains important figures regarding our profits expectations and expenditure in the coming year for the group.
Part of this business plan was built top down by the top management board i.e. goals, targets and corporate strategies, and part came from the various directorates i.e. budgeting figures, expenditure, sales for each division.
These figures then go back and forth between top management and every directorate until it actually begins to fit together, we call this budget negotiation. The board will not approve the final figures until it shows that the company will make a profit and meet its objectives in the coming year.
Now that we demystify the planning cycle, let us look at the Budget.
When the board approve the business plane, we then translate it into figures to create the overall budget for the organisation as a whole, month by month. The budget is then broken into parts for the various divisions’ i.e. sales, marketing, productions, purchasing, HR and so on and so forth. These budgets are then given to the various directorates to repeat the process for each department within the division by the director.
The overall budget of the group simply contains all the expenditure and the revenues for each division within the company. This is of course the key tool for managing any enterprise.
The third part is the actual management of the process throughout the year. The forecast is the key to this process. Every month in advance, the various divisions within the organisation will produce its forecast based on the prevailing circumstances.
This forecast will give an indication and an early signal of how we are doing overall within our plan. Are we going to reach our monthly, quarterly, half-yearly targets or not.
Forecasting help me to determine what is going on within the business and allow me to take corrective actions instantly and before a major problem occur.
For example, if the sales forecast shows a down trend from the original envisaged business plan, we then roll our sleeves and get down to work on correcting the situation. Advertise more, reduce prices or cut cost, sometimes we even have to make the hard decision of letting some people go to simply steer the ship back on course.
The opposite is also true but of course with more positive actions that can be taken instead when we are exceeding our targets; bounces come to mind in this case.
You see now, it is not magic; this is simply what management is all about in its core. Of course there are other things management have to do to run a successful business, but today I gave you the essence of running a financially viable business of any size, shape or make. Indeed, it is exactly like running a sensible household budget.
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