Overestimate short-term, underestimate long-term achievements
Bill Gates once said: “Most people overestimate what they can achieve in one year and underestimate what they can achieve in ten years.”. Our brains are wired for the short term, not the long term. Think of your pension, most people keep postponing the action to look into and calculate the financial impact of a pension, sometimes too late to be able to adjust. But the decision to how to spend the Saturday evening (dinner with friends, movie night) is made easily. We think short term, we act short term.
We see the same in planning process within the business. Most of the plans and budgets created have a one-year time span (short term). If any long-term planning is done, it is a strategic exercise done by the top layer of the organisation. And only high level, no detailed long-term plans. Given the uncertainty of the future, the volatility of our times and the unpredictability, it is not strange companies focus on the short term only.
But as Bill Gates mentioned, we tend to overestimate what we can achieve in the short term. Example: I used to work for a consulting firm where we used the zero-budgeting principle: each year the departmental plans were created from scratch, bottom up. Once all plans were done, the aggregate numbers were checked by management and after one or two iterations we had an agreed plan for the new year. And each year we did not hit our group target…and still, for each new year we were confident that we could do even 10% more compared to last year (overestimate the short term). And again, the next year, the group target was not hit.
How can we overcome this human tendency, how can we learn, adjust and get better at preparing for the future? We have an option to do so: extend the planning horizon from one year to 3 to 5 years out. For the short term (one year, preferably a rolling 12 to 18 months forecast) we plan, in more detail, for the period after high level. Let’s start with the long-term plan. This long-term plan should reflect the strategic plan of the company, where does it want to be in three to five years in numbers of revenue, employees, customers, markets, products/ services, you name it. The strategic direction translated into strategic KPI’s. This long-term plan is not set in stone, major events (think COVID-19) will force companies to rethink their strategic direction and ambition. But this long-term plan is a guidance for the short-term plan, a translation of the starting direction for the coming months. In most companies, there is a disconnect between the short and long-term planning, causing many companies to never hit their strategic goals.
Once we have a long-term plan, which needs to be looked at every year and revised where needed, a translation can be made for the short-term plan. This translation should be used as a guiding principle, to set the boundaries of next year’s plan. If that can be accomplished, we can overcome Bill Gates’ Law: overestimate what we can achieve in one year and underestimate what we can achieve in ten years. This forces us to think from a strategic level, translated into mid and short-term plans and actions. Levelling out the under- and overestimation, creating plans that are more accurate and belong to the long-term direction of the company.
If you are interested in how this can be implemented in your organisation, reach out to use to discuss. You can reach us at jan.veerman@planadigm.com or +31(06)-51884701.
