financial risk management

Extracted with a link to my article on Nonprofit Information

How to Avoid Managing to the Numbers Ruining a Holiday

Month end, quarter end, and fiscal year end personal activities can be taken hostage in this teeter-totter process of getting just enough income (but not too much) in the current period. This phenomenon can be likened to Goldilocks tasting the three bears’ porridge! (Having been part of year-end deal-closing crunches, I can assure you that inordinate amounts of time, money, and focus are required to to get deals closed in the desired period. Often those crunch times occur during holidays or when special family events had already been scheduled, inconveniencing and annoying the employees involved.)

When they have gone too far in covering shortfalls to reach arbitrary numbers, companies often hold “fire sales” to ensure they get the last few sales needed for target revenues. This practice can backfire and result in customers quickly learning to hold off on purchases until the regular desperate overture is made at period end. All of these complications result from a focus on hitting the sacred numerical targets. This ends up reducing margins as well as creating a spiraling impact as the company continues to try to make upcoming period results.

But fear not good fellows! For good news is at hand: Santa’s got 3 stocking gift ideas to help you reduce emotional cost and financial fallout. These three actions can help bring back the spirit of good cheer, and happier spouses, families and significant others in the form of restored holiday time:

• Consider targeting a numerical range, not an exact amount. Why not set a number goal of, plus or minus 2 to 5 percent? Think of this concept sort of like a flex budget.
• To encourage employees or volunteers to emphasize consistently reaching longer-term goals and objectives, change or adapt incentive programs. A balanced scorecard approach fits very well with tailored incentive plans. Plans that can be measured produce
• Change the tone from the top to emphasize doing things right, instead of focusing on managing income. A number of experts suggest that an emphasis on doing things right does a better job of building long term equity or fund balance. This tone fits better with the mission and vision for most nonprofits, anyway.

My  Boardsource presentation and Roadmap to Sustainable Mission is available at

http://www.boardsourceleadershipforum.org/session/boardroom-black-holes-and-taboos-2/