It’s October, which means somewhere in your organization a spreadsheet is being passed around with a number at the bottom that everyone has agreed to, possibly before anyone has agreed on how to get there.
Budget season has a way of blurring two very different questions. The first is what do we want to achieve next year? That’s a target. The second is what do we expect to do? That’s a plan. Both are necessary. The trouble starts when we pretend they’re the same thing.
What happens when the budget becomes the plan
When the demand plan is forced to match the target, three things tend to follow.
First, the demand plan stops being useful. Supply builds to a number no one believes, and inventory quietly piles up in the places where the optimism was greatest.
Second, the gap disappears from view. If the demand plan already says we’ll hit the target, there’s nothing to close, so no one is asked to find the additional volume. The gap hasn’t gone away; it has simply been moved to a place where no one is managing it.
Third, trust erodes. Planners learn that their job is to confirm the number, not to challenge it. Leaders learn that the plan doesn’t mean much. By mid-year, everyone is working off their own private version of reality.
I’ve lived this. I’ve had my boss lay out their view of reality in no uncertain terms: “If the demand plan doesn’t match the budget, then we’ll never have enough inventory to be able to achieve it”. The truth was that they were fooling themselves. Supply didn’t have a blank cheque to go and build inventory like that. When the orders didn’t materialize the finger pointing started. We eventually found a way to work together, but the demand plan didn’t get smarter. We just stopped asking it to be something it wasn’t.
Keep them separate, then manage the gap
The better approach is simple to describe and harder to practice:
- Build the demand plan on assumptions, not aspirations. What do we believe about the market, pricing, distribution, promotions and competition? Write those assumptions down. If you can’t explain the number, you can’t defend it.
- Set the target independently. Targets should challenge the organization and steer towards long-term strategic objectives. That’s their job.
- Make the gap visible. Show the difference between plan and target clearly, by business, by brand, by quarter.
- Assign gap-closing actions with owners. Each initiative (a new listing, a price move, an innovation) should come with its own assumptions. It moves into the demand plan only when the business commits to it.
This turns a budget conversation from “Is the plan right?” into “What are we going to do about the difference?” That’s a far more productive discussion to have with a leadership team.
A question for your next budget review
Before the number gets locked, ask one question: If we changed nothing about our plans, what would we expect to sell? The answer is your baseline. Everything above it is a promise that needs an owner. This is one of the core ideas in Trust the Plan: a plan earns trust when it tells leaders the truth, especially when the truth is inconvenient.
