Businesses allow for many risks, but the risks posed by time are often underestimated.
The clock is ticking for New Zealand businesses. Whether it is the ticking of a time-bomb or the chime of profitability depends on some specific, but little-appreciated skills in the management of each firm.
This article is not about your personal time management. It is about managing the "time" risk that affects everything you do in your business.
We have all heard "time is money", but how do we translate this pithy saying into a meaningful business strategy? It is not just about doing things faster; it is about being conscious of how time permeates our every success and failure.
Modern management understands legal, environmental, regulatory and operational risk management - but not much about "time" risk. Time moves on relentlessly and if you are not careful, your best-laid plans will be a casualty. Managers who can manage these risks are more likely to survive in the current economic climate.
The passing of time alters all your assumptions - all your planning and risk assessment - by varying degrees.
The risk is that, as time passes, your underlying business model and other factors change significantly - potentially to the point of failure. Most managers have seen what time has done to their budgets in a deteriorating market. As we marched into the recession, our forecasts, prepared earlier, were clearly too optimistic. During periods of economic downturn, time becomes an enigma. For companies looking for revenue, it seems to be like treacle. Invoices take longer to be paid, decisions are delayed, projects are put on hold and the sales process takes longer. If you are waiting for things to happen, this passing of time can be your undoing.
Yet, time is racing away for some businesses as they see money flying out the door, trying to cover their operational expenditure. The race against time is to stay afloat till better times emerge.
For example, if your normal sales lead times are three months and are now extended to five, this can have a devastating impact on revenue. With longer sales lead times, the cost per sale goes up significantly as it takes into account salaries, overhead and inventory-holding costs. A business model built on a good gross margin could become unprofitable with a slight increase in sales lead times.
Also, too many businesses underestimate how long it will take to bring products to market or how long it will take to start generating income. This stems from a lack of understanding of the buying patterns of consumers and the real time it takes, right up to collecting the money from product sales. You may be a fast-moving, nimble company, able to provide your services quickly and efficiently. But if you are dealing with big corporate customers that take a long time to make decisions, all your nimbleness is for naught.
Their lead-time becomes yours, like it or not. And sadly there may not be too much you can do about it, but wait. So what can we do to manage these time factors that have such a big bearing on our business activities?
* Use timelines for each project and monitor them on an ongoing basis
* Assess the time risk on each activity within a project and review frequently. Look out for knock-on or "butterfly" effects where the delay in one small part of the project can delay the entire project.
* Put in a time contingency for delays. The accounting world is familiar with putting money-based contingencies into budgets, but not into business timelines.
* Start asking your staff more questions such as "when will they pay?" or "when will they sign the contract?" or "when do you commit to have the new product ready for sale?"
* Start to build a barometer for certain staff as to the accuracy of their time predictions. Note when they said something would be done. If they fail to complete on time, review the project and find out where they went wrong in their time predictions. You can put your own timeframe on projects, over and above what you have been told by staff, but it is much better to train them to be accurate in the first place.
* Do a time sensitivity analysis. If the project were delayed by six months, what would the consequences be? List all the things that could delay the project and how long each would delay the project.
* Come up with strategies to minimise the risk of these things happening. For example, if you are worried about how long a contract may take from your legal team because of their workload - give it to an external team to perform in a guaranteed time. It may cost more but at least you will have time certainty.
* Promote a culture of honesty about timelines. All levels of management fear having to admit that a project will be late, however the implications, particularly in these times, can be dire. Delays in new revenue streams to replace dwindling old streams can mean cashflow problems and even business failure.
* Use cashflow type forecasts for projects or new sales campaigns capturing all direct and indirect costs. Cashflow forecasts are a time-based tool to help you see the rocks ahead.
Being more aware of the time risk and putting in place some disciplines will help you and your team see your way through. Right now, certainty is a rare commodity.
Employing good time risk strategies will help you say those magic words, not often spoken - "we did it on time and on budget!"
Craig McIvor is Managing Director of Corporate Management Advice Ltd which provides business advice
managementadvice.org
