business intelligence

The 80/20 Rule for Business Planning and Decision Analysis!

For today’s business leaders, the old axiom “knowledge is power” should probably be amended to say “knowledge is power ONLY IF it reflects a strong understanding of real-time information, enables meaningful foresight, and results in prudent business decisions”. Okay, this is a mouthful but you get my point. More and more, companies are making significant investments in business intelligence systems and services to ensure that executives, line managers, and individual contributors alike have access to, can make sense of, and can act upon the most granular data relevant to their day-to-day operations. This data is analyzed and compiled in executive dashboards reflecting key performance indicators (KPIs) and used to update driver-based forecasts with the overall aim of providing proactive and precise support for critical business decisions.

Unfortunately, what often results is analysis paralysis…too many variables, not enough insight, and an inability to distinguish the forest from the trees.  No matter how sophisticated or crude a company’s analytical capabilities may be, knowing what to focus on and what not to, ultimately determines success or failure. In a sense, simplicity is always best.

There may be hundreds of variables impacting a business at any given time but effective business leaders typically focus on only a small handful of key drivers. As any decent golf instructor will tell you, the best players limit their thoughts to two or three basic mechanics before striking the ball and rely on muscle memory to do the rest. Similarly, most successful business leaders will tell you that 20 percent of the key drivers produce 80 percent of the results. Knowing how to eliminate the other 80 percent of variables with marginal impact is critical to robust business planning and strong decision making.

Is “Top Down” or “Bottoms Up” Financial Planning Best?


Many financial planning experts will tell you that this depends on where your company is in its business life cycle. If you’re a startup or early stage company, they would say you probably don’t have the resources or operational complexity to benefit from a “bottom up” approach. Conversely, they would say it’s imperative for large companies with substantially more resources, integrated processes, and information flow to invest in “bottom up” planning tools as accurate and timely business intelligence, and ultimately good strategic decision making, require a strong ground level perspective. Although neither of these arguments is faulty in and of itself, I would argue that best practices planning and analysis can only be achieved if both approaches are leveraged.

Having worked as a finance executive for technology startups as well as multibillion dollar global enterprises, I have experienced the pitfalls of over utilizing one approach at the expense of the other. In the case of a larger company that lacks meaningful “top down” target setting, management is not able to effectively convey its key growth and operating strategies to business owners and line level employees. Consequently, the “bottom up” plans will often be overinflated and disjointed as budget owners struggle to cover all their bases which often results in sales and expense forecasting that is not in alignment with overall objectives.

What really kills productivity is the seemingly endless iteration required to consolidate the “bottom up” view and resolve the back-and-forth negotiation that invariably takes place between business owners and management. On the flip side, a “top down” model might be better at explicitly communicating management’s objectives and business-level accountabilities, but it does not allow for the feedback loop required to establish meaningful business priorities and effectively course correct as business conditions change. A company that leverages both approaches is much more effective in communicating key corporate objectives and ensuring essential alignment and accountabilities while at the same time empowering business managers to provide the critical feedback and innovative problem solving that is so crucial in successfully navigating an ever-changing business landscape.  At a much smaller scale but no less important, an early stage company needs both approaches to ensure that management understands key business drivers (bottoms up) and is therefore able to establish overarching objectives (top down) that are substantive, achievable, and properly tensioned.

Although often overlooked or under resourced, strong planning can be even more critical at the early stage as there is much less margin for error. In any company at any stage in its business life cycle, strong financial planning, thought leadership, and decision analysis are predicated on 1) clear and consistent communication from the top, 2) strong alignment and business accountability, and 3) a healthy feedback loop that promotes innovative thinking and operational flexibility.