Creating Your Mid-Year Review Blueprint
The midway point in any business cycle is a great time to evaluate, assess and adjust based on how things are going.
Figuring out how things are going, though, isn’t as straightforward as it may seem. Sure, there are financial measurements, budget comparisons and other black and white metrics. There are also nuances and interpretations and even rationalizations that help (and hinder) the understanding that can come from these reviews.
As we covered in the The Art and Science of Budgeting, calculations matter but focusing on those alone can mean your budget is doomed from the start. The same holds true in a mid-year review. There is an art and science here as well. Creating a blueprint that balances these and that is centered on finding the root cause of the results will give you and your client the most actionable information.
The Science: Identify the gaps
This the easiest part! Using standard financial analysis that fits your client, what are the biggest gaps or issues in the performance to date? Depending on the client, you might use:
Comparison to budget
Absolute $ changes from prior months or prior years
% of revenue changes for direct costs from prior months or years
Trend-line changes over the past 12 months (sometimes referred to as “trailing twelve months” or “TTM”)
From this determine where the biggest historical pain is AND where the biggest future opportunity or risk is. While understanding what has happened, the real value is determining what is coming next.
The Science: Choose the metrics
Data overwhelm is real. More information is usually not better. Actionable information is where the insights are gained. If you have metrics or other key drivers that were used for budgeting or for monthly analysis, start there. Make a list of the top 3 that are the most likely to help identify the root cause of the gap that the financial review is showing. Be sure that they are:
Reliable and consistent: they can be tracked at least each month using the same data
Provide information about different aspects of the business (e.g, they aren’t all sales metrics)
Not only financial in nature
Additional considerations for choosing what you focus on:
Anything that is fixed or statutory in nature likely doesn’t need to be considered. Examples include fixed overhead (rent, utilities), payroll taxes and insurance.
If you already know that revenue is missing expectations (higher or lower), using metrics that all consider revenue in same way will lead you in circles. For example, if revenue is lower than anticipated, including metrics that are a % of revenue can create false echoes because the first issue is likely revenue – not the cost driver.
Make it easy. Don’t create a set of metrics that amount to a weeklong data-mining project
The Art: Connect the dots
The metrics you choose will have a common theme because they are based on answering the underlying questions around the biggest gaps you identified. What else can you learn from those metrics? Here are some questions to ask:
Where are these metrics or drivers unrelated to each other?
If one component of the metric changed but another one didn’t, what happens?
Do all the measures move in unison if one key thing is changed?
How much impact is created by a change of 1% in any one metric?
Which metric improvement gets the client the most results for the smallest change?
You are looking for relationships, synergies and unintended consequences.
As an example, increasing revenue can have seemingly positive impacts on a host of metrics and on financial results. It can also result in lower margins, added headcount and less profit.
Where Art Meets Science: Choosing the action(s)
The next step is deciding what to do with the outcomes of the midyear review. Remember – you’ve been focused on conducting an actionable review. Now’s the time to choose the action.
Option #1 Do nothing (aka Wait and See). Best used if the reviews, analysis and client plans indicate that the issue is one of timing and not underlying operational or financial performance. Example: revenue lags due to signed contract delays.
Option #2 Pick one thing. Best used if the selected action either impacts multiple areas or will have a significant impact on your client. It should also be strongly considered if the company is small or has a lot of (unrelated) change. Examples: upselling customers on more profitable options, eliminating low margin offers, and/or revamping pricing on all products/services.
Option #3 Stack initiatives. Best used when metrics and actions are amplified by complimentary actions and have sufficient foundational support. Examples: upselling customers on more profitable options and creating pay incentives for salespeople related to those upsells.
A Few Reminders
This is not a budget overhaul or restart. The plan that comes out of this mid-year review should be focused on targeted progress using what you and your client have learned so far in this specific year. It should also be limited to what can be improved the most in 3 to 6 months.
Prioritize.
Get (and stay) focused.
Measure the progress.
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