Powerful Financial Modeling Tools to Validate Your Everyday Decisions

Welcome back to our series of blogs on Core Managment Principles.  We have already looked at ‘3W Accountability’ and this one discusses ‘Decision Validation’ or what we call the RealTimeCEO Crystal Ball.

“An expert is somebody who has managed to make decisions and judgements simpler by knowing what to pay attention to and what to ignore.”

– Edward de Bono.

Don’t you wish you had a Crystal Ball?

Making decisions is a vital part of a CEO’s job. By knowing how to separate the important impacts from the other impacts, you will make a better decision. But how can you possibly make a decision about the future using data from the past?  There may be other factors, for example, political or emotional considerations. Have you ever found yourself with a decision to make that has outdated, incomplete or inaccurate data, with political and/or emotional overtones? You probably relied on the thing which has got you where you are today – gut feel. We’re not saying gut feel isn’t important, but it does occasionally send you down the wrong path and it can be tough to get back from there. You need a Crystal Ball, right? Our process works with your instincts by helping you to test them.

For every decision, you need to ask two questions:

• Should we do this?
• Can we do this?

The Should We? question can be answered by looking at Return on Operations (ROO). If the result of your decision makes your ROO stronger, then your reason for being will be stronger and you should do it. If the decision will result in your ROO being diminished, then you shouldn’t. For more information about ROO see our blog, RealTime CEO / Fiscal Focus – Return.

The Can We? question depends on what it will do to your business’s cash flow. Do you have enough cash flow to fund this decision without jeopardizing your future cash flow? If the answer is yes, then you can. If the answer is no, then you can’t. For more information on cash flow refer to our blog, RealTime CEO / Fiscal Focus – Cash Flow.

Should we/Can we? brings clarity to decisions that may have been hazy in the past. In other words it gives you a Crystal Ball.

If you would like further clarity on this subject or any of our other tools, check out our app on our home page.