Beards, bellies and budgets
25 January 2012
Sean Russo
A NEW year is upon us and that means new year’s resolutions. I imagined mine would be the same as it has been for the last 10 years at least. I make it, I don’t achieve it, so it’s there to make all over again the next year – a very economical approach. Of course its real economy is that by being pre-set it removes any need for greater introspection or reflection that might occur without such a pre-set and well-worn resolution so close at hand.
Perhaps 10 years ago setting myself the goal of having a washboard stomach (that’s a six-pack for the younger reader) by Christmas wasn’t too outrageous because back then 40 was racing up at me and I had gone into hype-drive losing much of the weight I had accumulated over 20 years of largely sedentary employment. However, with each subsequent year that passed and it wasn’t achieved it became a bit of a family joke. This year my teenage sons decided Christmas Eve (perhaps noticing I was running out of time) was close enough to enquire as to my 2012 resolution and heap derision on my ongoing commitment to my economical approach to the subject.
In the early days I had announced my resolution broadly thinking that the shame of not achieving it after so widely announcing it would be enough. Of course the problems with that approach is no-one else thought it achievable and I felt no shame and the consequences of not achieving it were of no great import, other than the fact my collection of size 32 (now vintage) board shorts didn’t see the light of day for another year. I believe they qualify as “hope couture”.
The scorn of my sons set me to thinking about what was wrong with my process. With minimal consideration it became clear there was little right with the process.
Timing. There is so much time between setting the goal and the measurement date that it’s easy to find reasons why you don’t need to start straight away. To be effective I needed a much nearer and lesser target with further increments to the ultimate goal. “Chunking down” is what I believe the experts call that! Essentially I had to live the goal every day and make its attainment part of my routine, not have it exist in some parallel universe.
Visibility. It had to be clearly understood by my family and colleagues and I needed to get their buy-in to supporting me so we were all working towards a goal that they not only believed to be achievable but beneficial to them as well.
Realism. It had to be achievable, though not without effort for it to be rewarding.
Consequences. If shame wasn’t an appropriate driver I needed something stronger. If I was serious about my goal I needed negative consequences of inaction.
To obtain a washboard stomach one needs a body fat level of about 5%. So the first goal had to be to shed fat. But how much and how quickly and with what consequences? In the end I settled on a target to get my weight down 10% to 85 kilos with a time frame that I would not shave until it was achieved and for added incentive neither could I drink coffee until it was reached. (Why no ban on alcohol you ask? See Realism, above). Simple, but highly effective. Particularly for a single man who feels about as comfortable with a beard as most mining CEOs feel about admitting to having hedged.
Twenty four days into the new year I am exercising harder than I have in a decade. My diet is the best it has been in years. Life’s good as long as I don’t look in a mirror. While the odd early comparison to Sean Connery and Ernest Hemmingway seemed to be detracting from the believed negative consequences of growing a beard I soon realised these were comparisons with those gents when they were in their seventies. Even my family and colleagues who are either highly embarrassed or are taking pity on me are supporting me in my goal. So far so good. Once I get to 84.99 kilos the beard will go and I will recalibrate, set a new target and a new timeframe. Until this is achieved setting any longer term goal that requires more is meaningless.
New year’s resolutions for individuals aren’t that far away from budgets and business plans for corporations. As your company turns to its planning cycle and starts to set budgets for 2012/2013 if you feel that you are just going through the motions one more time I suggest you find your own beard.
On the revenue side don’t budget metal prices based on somebody’s forecast regardless of how much they charge you for the privilege and remember forecasts you got for nothing are worth exactly what you paid for them. Do remember the adage “it’s better to be approximately right than precisely wrong” and focus on the big picture, what the recent range been, is the market trending, and where we are in relation to the cost curve. Set a range and then set a plan on how you might do no worse than the low, your corporate “point of pain”; and, how you might, with a fair wind, outperform the high. Remember that simply picking a number higher than current levels or higher than last year’s high and calling it a “stretch target” is doing no more than taking the first step in setting yourself up to fail. Also please don’t simply divided the money you need for your plans by the amount of metal you believe you will produce; the market gods care not of your needs. After all, if it is not realistic, and your staff believe it not to be, you can give all the stirring speeches to the troops you like (dressed in safety gear on the back of a truck if you so choose) but you won’t get buy in.
Once you have determined that it’s realistic make it visible to all and then chunk it down. Set monthly targets, quarterly targets use rising prices to forward sell a bit more than you are currently producing to store a bit of surplus cash so that the price that reflects your point of pain later in the year is pushed lower.
Also very importantly if the market moves considerably in either direction, recalibrate. Don’t sit and do nothing with projected revenues at twice budget. At the very least bring up your point of pain and then having done that re-cast your plans to defend that new minimum. More sensibly lock a modest amount of those windfall gains in. Hedging 15 to 20% of future revenues won’t raise an eyebrow with analysts or punters but it can make a meaningful difference to your survivability.
When contemplating this approach remember that seeking certainty by securing future revenue is not about predicting markets but increasing your chances of staying in business in all circumstances. After all, the consequences of failure when all around you are failing may feel relatively less painful but you will still be dead.
Of course if you don’t intend to hedge and you don’t manage QP then ask yourself or your boss or board why you bother budgeting revenue at all because what you get for your metal will be what you get.
Happy new year.