Business and Marketing

When organizations encounter tough times, performance standards rise, resources are strictly rationed, and jobs become less secure. As a result, the working environment becomes more stressful, and burnout emerges as a serious performance problem. In addition, during tough times many managers make the mistake of reducing communication with their teams, leaving employees feeling isolated and fearful about the unknown. Given these work conditions, it’s easy to understand why employees experience higher levels of stress and anxiety during difficult times.

Stress is a sign that excessive wear and tear are being placed on a system. While a moderate amount of stress is necessary for good performance, excessive stress does not indicate that a team is performing at its best. It merely strips a team of energy that could be more productively directed elsewhere as team members seek ways to buffer themselves against the adverse effects of stress. Like the Starship Enterprise after it has been hit by a blast of photon torpedoes, stressed ¬out members tend to shut down everything but essential life-support systems.

To understand the relationship that exist between work stress and performance, picture someone racing a car across the Utah salt flats on the hottest day of the year, saying, “Look at the temperature climb in my engine! Now I’m really getting good performance!” Now picture that person intentionally puncturing his radiator to produce an even greater increase in the car’s engine temperature. Sounds pretty silly, doesn’t it? Equally silly is the manager who says, “I’m really getting performance out of my group now; just look at them sweat!” Once again, excessive stress is a sign of poorly displaced energy. Teams attempting to survive tough times need to apply their energy in the most effective way possible.

The manager who prepares budgets from logical assumptions and then carefully tracks variances and responds is directly involved in making goals happen. This leads directly to higher profits. The manager who is able to put the new budgeting idea into practice will budget more accurately, gain greater control and, to a large extent, will be able to actually control the future.

The idea of “control” in this context should be examined carefully. To some, the corporate version of control translates to procedures and approval; to others, it’s a political influence issue. We mean neither of these when discussing control of the future. The profit-centered manager understands that the future is uncertain; but that with proper budgeting, a range of outcomes can be made to happen. That range is desirable because it leads to corporate profits, healthy cash flow, and realization of goals-not only for the company, but for the staff of the department and the manager personally. Budgeting, when combined with informed leadership and fair treatment of employees, is a valuable tool for creating, maintaining, and even determining levels of profit.

Now consider the budget and the underlying process. This is one of the most internal controls in any company. The budget, in fact, is your primary financial control. The information that you get from variances can help you save money for the company in very direct and immediate ways. Ignoring variances is like failing to collect money that’s due from a customer, or leaving the electricity on day and night in large plant. These things cost money. So does failing to use the budget.

In those companies where budgets and variances are taken very seriously, how do people react differently than in other companies? Some of the major differences are listed below:
•    Variances are acted upon when found.
•    Negatives are reversed and positives are protected.
•    The process is reviewed month to month.
•    Budgeting itself is a lean and efficient process.
•    Revisions are not undertaken to hide errors, but to improve controls.
•    Everyone keeps sight of planning goals.

One primary goal for every manager should be saving money for the company. This is the ever-present task of all employees. That means adopting a concern for corporate profits. People in direct touch with customers tend to think of topline growth as the logical way to increase sales. And that belief is entirely valid.

Higher sales are essential to higher profits, assuming that costs and expenses are also held in check. But only a small number of departments are involved directly with sales and with customers. Without direct customer contact, how can you improve profits? The answer is by holding down expenses; and that is achieved in only one way: establishing and monitoring internal controls, one of the most important of which is budgeting itself. Internal controls are generally thought of as completely sepa¬rate from budgeting.

For most employees, “controls” means telephone logs, requisitioning systems, preapproval rules for expenses, and locking up of valuable inventory. All these are highly visible forms of control, but there are others: cash handling procedures, a departmental petty cash fund, a supervisor being required to initial check requests, or a anager’s daily meeting with staff.

Clone Your Superstars. When certain team members consistently outperform others, both the low performers and their managers sometimes begin to assume that these performance variations are natural, unchangeable, and the result of an innate characteristic of the superstars. Nothing could be farther from the truth. One of the most effective ways of challenging the performance limits that your team has set for itself is by grafting on to your team the skills and competencies of your team’s superstars. The following four steps can help you successfully clone your superstars:
1. Measure the gap between the performance of your superstars and your team’s average performance level.
2. Determine whether these performance differences are the result of nonskill-related factors such as:
• Unique conditions (whether your top sales person was given the most potentially lucrative sales territory)
• Specialized technical skills that require extensive training (the engineer who specialized in advanced metallurgical processes)
• The fact that the top performer has been rewarded differently from other members (receives more attention and coaching from you than do other members)
If you are able to eliminate these factors, you are safe in assuming that the performance gap is largely the result of skill differences between your top performers and the rest of your team.
3. Break down the performance area under review into discrete activities, and identify areas in which superstars consistently outperform other team members. If you are managing a sales team, you could ask yourself whether the superior performance of certain members results from their approach to cold calling or their method of qualifying sales prospects.

One point you must address in setting budget variances report¬ing policy is frequency. Should you report monthly variances only, or year to date? The argument in favor of month variance reporting is that you won’t need to repeat explanation from previous periods. This is true. But year-to-date reporting still makes more sense. Under the monthly variance reporting method, only each month’s budget and actual are compared. The system is clean, as previous year-to-date variances will not be included. However, it is common for timing differences to pop up from one month to another, and year-to-date reporting takes care of this problem in many in¬stances.

A big problem with monthly reporting is that previous, unresolved variances fall between the cracks-unless there is some fol¬low-up procedure to investigate and correct a problem. Anyone who has been involved with budgets already knows how difficult it is to add this amount of bureaucracy to an already paper-intensive procedure. The important thing is to know why a variance exists and to take corrective action, if possible.

By the time you come to the end of a budget period, having to summarize a large number of variances belonging to past months may be quite irritating. But remember that the purpose of the budget is to set a measurable standard, and not to guess the future precisely. The problem of outstanding and uncorrected variances only emphasizes the point that no one can really predict the future. A best guess is acceptable; an informed best guess is extraordinary.

When you consider that budgeting is nothing more than the best possible informed guess about the future, you have to expect some variance to arise. It’s inevitable. But it is not a sign of failure. The variance itself is not the problem. Variances can be positives if used correctly-to discover and reverse unfavorable trends. When an unfavorable variance does come up (and it will), it is not necessarily cause for alarm. It’s simply a signal that the time has come to fix a problem.

Too often, the variance itself becomes the bad news. So instead of fixing what the budget reveals, we find ourselves covering up, writing acceptable explanations, or blaming outside influences. The only real consequences of this is to neutralize the budget and bypass its intended control features.

What Variances Are Significant?
In deciding to track down both positive and negative variances and analyze their causes, you must address another question: Will you explain every variance,  or only those that are significant? It doesn’t make sense to explain every account, when some will show variances of only a few dollars. Only the “significant” variance needs explanation. Too much unimportant detail is time consuming in preparation and review, and distracts from the value of a variance report.

How do you make the distinction? You need to set a policy (or, more precisely, ask top management to decide upon a policy and then impose it on each department) concerning the definition of a significant variance. This definition should apply to positive and negative variances, and should involve both the amount and the percentage of variance. For example, you could decide that a “signifi¬cant” variance is one that varies 10 percent or more from the budget, when the amount is $1,000 or more.

The amount and percentage should be modified up or down based on the volume of income, costs, and expenses, and on the outcome of the variance report. You should be able to spot a truly significant variance by simply looking at the amounts and percent¬ages as they fall.

• Budget revisions, if required, are more easily justified and executed. It might seem that, just as you complete the current year’s budget, worksheets archive for the six-month revision. While the policy of midyear revisions should be questioned most critically, many organizations continue to waste time developing detailed budgets that will never be put to good use. Without assumptions for each account, revisions may require as much work as the original budget. No one likes revisions because, like original budgets, there is never a “good” time to do them. But you can make revisions much more quickly by going through your original assumptions, modify ing them based on what the first six months have revealed, and recommending one of two changes in response: Either tighten controls on spending, or revise the budget for items overlooked in the original version.

• Once you establish the appropriate assumption base for each account, new budgets can be prepared very quickly. Perhaps the one reason budgets demand so much analysis time is that we don’t learn from past successes or failures. The past year’s budget should not be abandoned automatically, but it usually is. Once the year is ended, how often do you look back at last year’s worksheets?

If you have used assumption-based documentation to build the current year’s budget, the actual outcome-in comparison to your estimation work-is a very revealing document. You can improve your budgeting technique, your accuracy rate, and your sense of timing, by referring to the previous budget while preparing a new one.

what you’ve done right. When under stress, people often become overly sensitive to criticism and convince them¬selves that there is little they are doing effectively. To obtain a big picture view of criticism, ask the other party to share with you things she likes about your performance; then discuss the criticism within the context of your overall performance.

For example:
You: So if I understand you, you’re saying that you like the way I’m managing the bid process, that my documentation is complete and accurate, and that I could do even better if I worked on providing a more timely response to bids. Is that about it?

Inspire the Troops
So here you are, caught in a nutcracker. Your manager is screaming for your group to be more productive and you know that your team’s performance is being scrutinized. You recognize that to meet your organization’s rising performance expectations you will need to gain the full commitment of each of your team members.

In the process of gaining full commitment from your team you are likely to encounter three obstacles.
1. Current changes in the marketplace, including the loss of job security and increasingly stringent performance standards, are forcing a radical shift in how professionals view their jobs.
2. Team members feel that they are already pushing as hard as they can.
3. People are reluctant to move out of their comfort zones.

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Another article about stress management:

Experiencing Stress
Experiencing Stress And Playing With It
Stress Situations Guide -2
Create a Stress Managed Environment