Using the SMART System for Setting Realistic Goals

I recently came across an excellent discussion on goal setting. The process is to set SMART goals —

Specific, Measurable, Attainable, Relevant, and Time-based.

Specific means each goal is precise in its definition. An example would be be increase monthly revenue by $10,000 and gross margins by 3%. A general goal like “improve cash flow” is not specific enough. When you are precise, it is much easier to determine exactly what steps are necessary to achieve the outcome.

Measurable - I call this “As evidenced by.” I want to know exactly how I will be measuring the improvements I’m shooting for. If you can’t define how to measure your progress, you won’t be able to achieve the goal.

Attainable is exactly what it means, you can reasonably achieve what you set out to do. One of the biggest problems I see with goal setting is putting objectives out that can’t reasonably be met. Here is an example. You best month in business was a big stretch for everyone. There was a bunch of overtime and some mistakes, but not too bad. You monthly sales were roughly twice what an average month is.

Now. using this information, you set a goal where the monthly volume is 10%- 15% higher than your very best month. This could very well be an unrealistic goal for many different reasons. The biggest of which is personnel. Your trained employees were stretched to the max and were beginning to make mistakes due to the shear volume and from being tired. This is an example of unsustainable business volume. In order to keep it going, and grow it, you would need more new people.

The introduction of new people will actually slow your production down before you can get it to ramp up. Then there is the impact on your cash flow. Increasing business too quickly is one of the main ways you can crash a company. You’ll run out of working capital before you run out of work. In other words, you’ll burn up before you collect the receivables you’re due.

A more realistic goal and attainable goal would be to use the trailing 13 month average as the basis for improvement. To get this number, you add up 13 months and divide by 13. This approach takes seasonality out of the equation as well as any really good or really bad months. Set a goal of increasing this number by 15% - 25% over the next year. To track your progress, add each new month’s sales to the previous 12 months sales and divide by 13. That will show you how your average is tracking on a volume adjusted basis.

Relevant - This is harder to dial in on. I see companies setting goals all the time that are not relevant. This means, attaining the goal won’t necessarily improve the business. A good example of a suspect relevant goal would be to purchase a specific piece of new equipment, like an auto press. This goal in and of itself is not relevant until you determine all the other changes that will take place when you have this new capacity. You will need more screens, more people, bigger orders, perhaps more space, and certainly more working capital when you invest in automation. Young companies don’t recognized this and are often shocked at the impact of achieving their goal. Often this shocking revelation is not a good thing.

An example of a relevant goal would be to focus on increasing gross margin and cash flow before increasing production capacity. If you do set a goal for purchasing new equipment, be sure to look at all the things that will change when you have this new capability.

Time-Based Give it a hard completion date. Without a deadline, it simply won’t happen. Here is how I set time based goals. I set my goal objective. I then break it down into specific steps, stages, or events to get there. I put the time I needed to accomplish each step next to the step. I add up all the times and that will give me the absolute bare bones minimum to achieve it.

I look at that time, and then I double it. So if the total process is going to take 4.5 months, I double it to 9 months. I then look at the time I have assigned for each step and I double those times as well. Each step now becomes a milestone I can chart on my calendar. I determine my start day and then add each milestone deadline to the calendar based on the amount of time it takes to accomplish it.

I use an electronic calendar that allows me to filter events so I can have a tone of things going on, but each view is unique to the kinds of activities I’m working on. I find I get a lot more done this way and my colleagues and associates are always commenting on how much I can achieve in the time I have.

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