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Take your Selling Skills for a SPIN

The Management Pocketbooks Pocket Correspondence Course

“The best sales people have a 4:1 listen-to-talk ratio”

Neil Rackham of the Xerox Corporation discovered this astonishing statistic and, if you want to influence people to get more of what you want, you’ll do well to apply this knowledge.

Rackham is best known for the concept of SPIN Selling and the book of the same name. Here’s a quick run down of how it works.

S for Situation

Start by asking searching questions of your potential buyer – what are their needs? Use the funnel approach we looked at in the earlier blog, Questions, Questions, Questions, to establish the wider context, and then zoom in.

P for Problem

Listen very carefully to your potential buyer’s response and encourage information flow. People buy to meet a need. What difficulties are they having? What are they not satisfied with? You want to identify what their problem is so you can …

I for Implied need

Demonstrate your understanding of their needs and problems – show them you know what their pain is, so that you can …

N for Need-payoff

Show your potential buyer how you can meet their need, solve their problem and take away their pain.
When you have done this, they will want to buy. If you can quote a price that they can afford, you are ready to close the final sale. In the book, Rackham recounts that orginally, he wanted to use the term ‘value question’, but realised that this would make the acronym read: SPIV!

The Three 80-20 Rules of Selling

They say the world is governed by the 80-20 rule. There does indeed seem to be an 80-20 for nearly everything and sales is no exception. In fact, here are three that you ignore at your peril.

The 80-20 Rule for your First Meeting

This rule refers to how to spend your time, at the first meeting with a potential customer. Use your time with:

  • 80% Information Gathering
  • 20% Information Giving

So at the start of your meeting, establish how much time your prospect has, to ensure you can get the information you need. And since no rule is perfect, make sure you leave 10 minutes or so to close the sale if you can (always try) and agree next steps.

Note that this rule is another way of expressing Rackham’s rule, quoted at the top of this blog.

The 80-20 Rule for Junior Buyers

Junior and middle managers are intensely practical people. They have to be: their job is to get things done. So ensure you address their interests. When you gather information, listen for their concerns in this proportion. And when you give information, address their needs in the same ratio:

  • 80% The “How” of it
  • 20% The “Why” of it

All selling is about finding an itch and offering a scratch. Operational people’s itch is a process one. Not so their senior colleagues.

The 80-20 Rule for Senior Buyers

Senior Managers’ role is to think strategically. Reverse your pattern with them to focus on what they need:

  • 80% The “Why” of it
  • 20% The “How” of it

So how do you gather information? There is an art to it. Think funnel:

Start at the top with a wide open funnel, and ask wide open questions, like

“Tell me about …”

Listen for where their itch seems to be, then start to probe, with narrower questions like:

“Tell me some more about …”

Next, confirm your understanding by asking detailed questions like:

“So, what exactly …”

Finally, play back your diagnosis of the nature of their itch, to ensure you know what sort of scratch they need:

“From what I’ve understood, you …”

Don’t be afraid to ask for a Yes

In sales meetings, one of the hardest moments is when you have a strong rapport with your potential customer, you have offered a great solution, and you are convinced they want to buy from you. So how could you spoil this perfect moment? What if they reject you? Perhaps it’s best not to say anything more and wait for them to buy.

But what if they don’t? You know how it can be with that first kiss – maybe your potential buyer is waiting for you to make the first move. If you do have the rapport you think you have, asking respectfully if they are ready to buy is not only appropriate, it’s often the only way to close a sale. Here are five ways you can do it:

  • “We’ve discussed all the ways our product works for you – are you ready to place an order?”
  • “Is there anything else you need from me, before you discuss what booking you want to make?”
  • “If you are ready to order, shall we talk about delivery arrangements?”
  • “Would you like me to get some paperwork ready now?”
  • “Do you prefer to go for the XAKD model or the DXKA model?”


Further Reading 

You may like The Salesperson’s Pocketbook. Other helpful titles include:

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Event Management

The Management Pocketbooks Pocket Correspondence Course

Planning and staging a successful event can create a large and positive impact for your business. Managing it is not complicated – it simply takes attention to detail.

The first detail to get right is to create the right event. Start your planning with a very simple question:

‘When people are leaving my event, what do I want to hear them saying to each other?’

The exit conversation is a litmus test of a good conference or event. Every choice you make needs to be focused on creating the right conversations: conversations that pick up on the right themes, interpret them the way you intended, and carry your intended emotional and rational commentary.

Whether your event is a simple meeting, an exhibition, or a large conference, you must be rigorous in selecting the right content, and honing the timings and styles, to build up to your conversation test. This will mean being robust with the chief executive who wants to speak for an hour, but whose message merits 20 minutes. And it means being brutally frank about the dreadful Powerpoint that your Ops Director has produced and helping them to create slides that are memorable for the right reasons. It means making sure that exhibitors play by your rules and, of course, it means getting all of the front-of house details just right, from the welcome desk to the refreshments.

There are four phases to planning and managing an event that match the four stage project lifecycle we saw in an earlier blog.


Well in advance, start thinking about your exit conversation test, and design an event around that. Ask questions about why you are doing the event, what success will look and sound like, and what the commercial payback needs to be? From here, think about the right type of event, and the headline components that will carry the greatest burden of content or mood. This should allow you to sketch out approximate answers to:

  • Purpose
  • Type of event
  • Location
  • Timing (when and how long)
  • Headlines
  • Budget
  • Benefits

Budget and Benefits give you your business case, which you will use to gain approval to proceed.


Planning needs to answer the questions who, when, where, and how? By the end of the process, you need a minute by minute plan (with contingencies for over-runs – like 25 minute scheduled breaks that can vary from 10 to 30 minutes as needed) of the event itself and a step-by-step plan of the run-up to the event and the follow-up from it. Each task needs to be assigned to someone capable and available to do it. It is fine to build in time for informal, unscripted interactions, but plan for when and where they will happen, even if you don’t choose to anticipate what will take place. Build a team around you to make your event a success.


On the day, appoint one person to take care of all front-of-house, publicly visible arrangements. Their responsibility is for co-ordinating every aspect of participants’ experience. Another, back-of-house will be responsible for the resources for all of this, co-ordinating staff, equipment and preparations. These two need to be in constant contact. Also consider appointing a host, whose only role is to delight your guests, leaving the front-of-house manager to scamper around and sort things out if needed. Get the team there early (the night before is a good idea) and come prepared with a kit bag of every emergency item you can think of. My conference and event kit bag has:

  • Gaffer tape, masking tape, pvc tape
  • WD40
  • Common tools like screwdrivers, pliers, knives, scissors
  • Spares of common battery sizes
  • Spares of common electrical and electronic/computer/AV leads
  • Loads of pens, paper, glue, sellotape, sticky notes, and other stationery
  • Tissues and wipes, safety pins, hotel needle & thread mending kit and shoe shine
  • Ropes, string, clips and karibinas
  • Basic first aid (the venue will have a full set) for convenience: plasters, aspirins, throat lozenges.


Whatever follow-up you promised your attendees – do it well. Also follow up with the venue, speakers and exhibitors. And sit down with your team and review how you did, how each person performed, and what you can all learn for next time. Finally, clear all of your post-event admin: invoices, lost property, archiving, for example.

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Public Relations Primer

The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.

Not every manager will need to get involved in public relations, or PR, but, from time-to-time, many will. So it is worth knowing and understanding the basics of one of the most important aspects of marketing.

What is PR?

The definition differs from one expert to another and the emphasis is very different on the two sides of the Atlantic. I personally prefer the simplicity of the definition offered by the Public Relations Society of America (PRSA) on their website:

‘Public relations is a strategic communication process that builds mutually beneficial relationships between organizations and their publics.’

The UK’s Chartered Institute of Public Relations (CIPR) places its emphasis on reputation, and defines PR as:

‘Public Relations is about reputation – the result of what you do, what you say and what others say about you.

‘Public Relations is the discipline which looks after reputation, with the aim of earning understanding and support and influencing opinion and behaviour. It is the planned and sustained effort to establish and maintain goodwill and mutual understanding between an organisation and its publics.’

For me, PR is about engaging with your public, so the concept of PR is relevant not just at the corporate level, but also at the level of individuals who want to strengthen their careers. The principal approaches to PR are:

  • Writing
  • Collaborating
  • Engaging the press and professional media
  • Engaging through social media
  • Direct engagement

We will take a short look at each.


Getting your message out by writing articles, blogs (like this one) and books has a very simple effect: it says ‘we know what we are talking about’. By offering your public practical or insightful content, you are enhancing your reputation and strengthening your relationships with your readers. It has traditionally been largely one-way, but with the advent of social media and bookmarking, the ability for your public to comment on your writing and engage in a dialogue about it has grown mightily. This can only be a good thing for you, if you have something valuable to say, and you say it well. Please comment below!


If you can collaborate with other, non-competing, organisations, you can extend the reach of your PR activities to encompass their public as well as your own. If you engage them effectively, they can become your public too. So the relationship you need with the ideal potential collaborator is one of overlapping interests, but not conflict. This is not to say that there are not some valuable collaborations to be made between competitors too, but the risks (and rewards) are substantially higher.

Engaging the Press and Professional Media

For some people, PR and issuing press releases amount to pretty much the same thing. Without a doubt, the press is continually hungry for engaging stories that will interest their audiences, so if you do this correctly, this is nothing more than an example of a good collaboration. But what the media can do is get your message out, bundled in a package of objectivity and professionalism that amplifies its effectiveness considerably. But don’t blow it: if you are asked to comment on camera, on the radio, or even in print: prepare well, because if you don’t, and you perform poorly, the media can turn your reputation into an overnight shambles.

Engaging through Social Media

With so many forms of social media around, even the so-called experts are struggling to offer coherent advice as to which to focus on and how to do it well. The two tips that seem to surface again and again from the best of them, and which make greatest sense to me, are:

  1. Focus: choose one or two social media that your audience are most likely to engage with in numbers and in depth, and focus on using them well
  2. Social: the nature of social media is that they enable social connections, so you need to be listening to conversations and engaging with them as you would in a bar, cafe or restaurant. If you just use them for announcements, then you are losing most of their value.

Direct Engagement

From meeting customers in the street, to sending them information by newsletter, direct engagement has the capacity to be the most powerful form of PR of all – and therefore the ability to do your reputation most harm as well as good. The difference between a helpful advice email, with some good offers, and a piece of unwanted junk is subtle. As with writing, above, direct engagement has to have WAM factor: ‘what about me?’ says your public.

Further Reading 

You may like The Marketing Pocketbook. There are also some great resources on the PR profession websites:


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The Basics of Marketing

The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.

Marketing is not about selling. That may sound obvious, but too many people act as if the purpose of marketing is to sell: it is not. The purpose of marketing is to raise awareness of your product or services, so that people will be motivated to investigate further, or they will be aware of what you offer, if they need it in the future.

The challenges for marketing are:

  • Knowing who your potential customers are
  • Knowing what channels of information they most actively engage with
  • Knowing what messages will resonate most strongly with them

Using the answers to these, you can design a marketing campaign that answers the three questions that a prospective customer will have:

Question 1: What are you offering me?

If I am a customer of yours, then your product or service must meet a need or satisfy a desire in me. A strong marketing message sets up that need or desire, to prequalify readers, viewers or listeners and get the attention of those who are suitable targets. It then stimulates their interest by making a promise that the product or service can meet their needs. Finally, it amplifies desire, by showing the customer what they will get (beyond the product or service itself) by buying. This bit is about benefits and you must link them to strong positive emotional states. The favourite of many advertisers is, of course, the promise of love, romance or the three-letter alternative. Now they want it, you need to answer the next question…

Question 2: Is it good value?

They want it, but how much are they prepared to pay for it. Focus on value not cost. Done well, some customers won’t even care about cost (think of the people who queue to buy the latest hi-tech, hi-cost products that simply replace things they already have – desire; not need). But if they do care about cost, you must show how the benefits you are offering outweigh this – and the ratio is a measure of the customer’s perception of value. If you can satisfy them on this too, they don’t only want it, they want to go out and get it. So now answer…

Question 3: How can I get it?

Choose a delivery strategy that is consistent with the image you want to convey for your product or service and then (in most cases) make it easy for the customer to buy. Why ‘in most cases’? Because for certain products or services at the premium end of their market, you can add to the perceived cachet of the product by making it hard for the customer to buy. This increases its sense of exclusivity and therefore of its perceived value.

Getting your message out

Promoting your product means providing prospective customers with plentiful relevant information. It needs to answer their questions about your product or service, but also about you, and why they should buy from you. There are a near infinite number of media that you can use, in combination. Here is a selection.

  • Advertising: newspapers, magazines, radio, television, online, billboards, posters, leaflets
  • Promotional: brochures, pens, apparel, stationery, bags, websites
  • Sponsorship: events, causes, awards, hospitality
  • Direct: mail, email, telemarketing, newsletters
  • Signage and branding: buildings, plant, vehicles, uniforms, products
  • Public Relations: articles, press releases, interviews
  • Events: conferences, exhibitions, hospitality and entertaining, trade fairs
  • Social media: Instagram,Twitter, blogging, Pinterest, Facebook, LinkedIn, YouTube, TikTok

Further Reading 

You may like The Marketing Pocketbook and a couple of earlier Pocketblogs:

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Staff Induction – A Point of View

The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.

Let me be frank: I hate the term ‘induction’. At best it sounds like something from my undergraduate electromagnetic field theory lectures: at worst, it sounds like an obstetric procedure. The term ‘onboarding’, meanwhile, sounds like something nautical. So why do we use these words to refer to the process of welcoming a new staff member or volunteer to our organisation, and giving them the preparation they need, so they can fit in, feel at home, and contribute as soon as possible?

How you welcome people into your organisation and into their team can have a big impact on their performance. Use the process to set expectations, but do it gently. Far better to demonstrate the behaviours and attitudes you expect, and involve real role models, with top performance, in welcoming new staff, than to inflict a heavy handed set of cosy chats and dreary PowerPoint presentations.

Trickier still is the task of bringing in new joiners who are new to the world of work, because they are school leavers, graduates, long-term unemployed, or returners. What can you do to smooth their transition to productive contribution and fitting in?

In preparing for their arrival and during their first months, here are three things you can do:

  1. Welcome them
    Shortly before arrival, write to them to welcome them and, when they arrive, have someone to welcome them and show them around. An “induction programme” sounds scary – a welcome programme is far more… welcoming.
  2. Give them a buddy
    Ask an established colleague to act as their buddy to show them the ropes and answer questions. Allow time for them to meet their buddy frequently in the first few weeks.
  3. Ensure they have the skills they need
    Sit down with them and identify what skills they need, to do their job well. Where their experience has left gaps, plan a response, combining on-the-job and off-line training, coaching and mentoring, regular feedback, and formal learning.

My preference for creating a really good welcome is to pair each new joiner with a recent joiner. To give them some time to go out for a good coffee, where they can discuss the most valuable programme of learning about the joiner’s new role. What they need to see, who they need to meet, and what they need to learn. Empower the transition buddy to arrange whatever is necessary, from enrolling the joiner on a training course, to letting them work-shadow people in other parts of the business, to meeting the CEO. This kind of tailored experience gives real responsibility to the new joiner to get started effectively, and will give the recent joiner a new set of insights into the organisation.

Further Reading 

If you want to take less of a risk and make sure you cover all of the bases, you will find the Induction Pocketbook helpful.

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The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.

The Pocketblog has covered one part of the recruitment process in great detail: Interviewing. In our three-part series: ‘The New Manager’s Guide to Interviewing’, we covered:

  1. Preparing the Ground
    Increase your chances of success well before the interview.
    It covers how to:

    1.  Think about the job requirements
    2. Handle the advertising and admin
    3. Review applications
    4. Prepare for the interview
  2. Getting it Right
    Hints and advice for conducting effective interviews.
    It looks at: 

    1. Questioning
    2. Social skills
    3. Responding to candidates’ answers
    4. Inviting questions
  3. Polishing your Process
    Tips and tricks of the trade, such as: 

    1. Fact checking
    2. The ‘horns and halo effect’
    3. Psychology
    4. Data protection

Lets now look at the whole process, as a series of questions.

Question 1: Do you have a vacancy?

Not as obvious as it may seem. In current times, it will serve you well to look at alternatives to just ‘filling a perceived gap’. And if there is a genuine gap, is it a full-time vacancy or should it be either joined with another or be seen as a part-time role? If there is a vacancy to fill…

Question 2: What shape is the hole?

What sort of skills, experience, personal traits do you require to make the very best appointment? Consult widely on this and consider a range of perspectives, before drawing up a job description and person specification, against which to recruit. Review your documents with some further people to confirm that your expectations are reasonable. If your person spec requires Wonderwoman or Superman, then think again: they may not be available at the moment.

Question 3: Do we need to recruit?

Before considering a recruitment process, think about the pros and cons of appointing from among ‘nearby’ staff. This can be quicker, less expensive, and lower risk. But it can also entrench biases and unproductive habits. This is a difficult decision and needs to be made in the context of internal policies and external regulation. If you do choose to recruit…

Question 4: How will we find the best applicants?

Will you do a search for the right people, or will you advertise and hope they find you? Will you search or advertise internally, externally, or both? What media will you use to advertise and what will your advert contain? How will you portray your organisation in general and the role in particular? Then you need to create the advert, or the search brief.

Question 5: What process will you put your applicants through?

The quality of your process will determine the quality of your decision at the end of it – and therefore the result. The process needs to give applicants every opportunity to show all of the assets they could bring to the role, so you can identify who offers the most. It also needs to ensure that the best applicant will want the role at the end of the process. Recruitment is sales. The process will doubtless have stages:

  •  a long list of good applications to be reviewed in depth
  • a shortlist of applicants to go through some form of interview or selection process
  • a small final list of excellent candidates to go through a last stage before decision-making

Question 6: How will you close the deal?

When you get the right candidate, you need to notify them, negotiate terms like salary and start date, and then notify other candidates. Do this well and unsuccessful applicants will still want to work for you. Get it wrong and they will be glad they failed and tell everyone they know.

Question 7: How will you welcome them on board?

This is where recruitment becomes employment – and we will look at the induction process next week.

Further Reading 

Three Pocketbooks you might like:

  1. The Listening Skills Pocketbook
  2. The Managing Assessment Centres Pocketbook
  3. The Interviewer’s Pocketbook
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Health & Safety

The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.

Health and safety is something we all love to hate. It takes up time, requires constant attention, and often feels like something designed to constrain us from doing what we want, serving our clients fully and generally getting on with enjoying our lives. The fact is, that it is important to prevent people from taking unconstrained risks. But if you get a bunch of your staff together and ask them to design a policy that will protect them and their customers, to ensure that they can all live long and happy lives, without getting hurt at work, most of the time, they will produce the same set of rules as any ‘health and safety expert’ would.

But don’t just think about the negative reasons for health and safety policies – reducing harm and reputational damage. Think about the positive benefits of wellbeing, productivity, and effectiveness.

Four Assets

You need to develop four assets:

  • A policy
  • A plan
  • A culture
  • A system

Let’s look at each.

H&S Policy

Start with an overarching goal that will set the framework for your policy, and then do a thorough risk assessment of all of your organisation’s activities. Involve staff from all areas and levels in this. Make sure you understand all of the relevant legislation in your jurisdiction and then write a principles based policy. Link it to other areas of your organisation’s strategy and show how it contributes to your wider mission, vision and values. Use this as the basis of applying for a sufficient budget to fund your planning process and, subsequently, implementation and ongoing maintenance and review.

H&S Plan

Once again, involve a broad cross section of your staff in documenting a plan that covers the whole scope of your activities. Make careful choices about how prescriptive the plan is in each area: balancing legal and regulatory requirements against people’s need for autonomy and their ability to make intelligent choices. Set clear standards and targets, identify all tasks, resource them and allocate responsibilities, and put time scales against each one. Are you going to offer incentives? What about whistleblowing procedures?

Areas that your plan could cover include:

  • Working conditions: heat, light, ergonomics, ventilation.
  • General accident prevention: manual handling, trip hazards, steps and archways.
  • Specific accident prevention: chemical, thermal, radiological, electrical, or mechanical hazards.
  • Hygiene: food handling, washroom, waste disposal.
  • General health: exercise, eating, general illness, alcohol, nicotine and other drugs.
  • Stress and overwhelm: working hours, breaks, counselling, shift work, bullying, and respite.
  • Crisis procedures: fire, security breach, equipment failure, industrial hazards.
  • Special needs: minors, disabilities, pregnancy.

H&S Culture

This is the biggest one of all – if you get this right, the others are simply a formalisation of your culture. If it is wrong, then no amount of planning and systems will keep everyone safe. Invite all employees to think about their safety and wellbeing, and make them a fundamental priority. Make it a conspicuous management priority, to role model good behaviour, and appoint employee representatives and champions to garner workplace support. Provide full training opportunities and actively monitor people’s attendance, performance, and need for new or refresher sessions.

H&S Systems

Put in place systems to measure performance and review policy and planning on a regular basis. Conduct inspections internally, using staff representatives, and also consider external reviews from time to time.  Evaluate everything you do, from record keeping, absence rate and incident reports to staff perceptions, tidiness and cleanliness, and management agendas.

Further Reading 

Three websites will help British readers and will also have a wealth of useful information for those of you from further afield. If you find a good website in another country, please do tell our readers about it using the comments.

  1. The Health & Safety Executive – HSE
  2. ROSPA – The Royal Society for Prevention of Accidents
  3. The British Safety Council

For US readers, there is the National Safety Council.

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Financial Analysis

The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.

No manager worth their salt can get away with a trite ‘I don’t do numbers’ – numbers are an integral part of every aspect of business. And while every business has finance experts on hand to manipulate and interpret the money, every manager needs to be able to understand financial analysis, so they can contribute to decision-making.

The three basic financial tools are:

  1. The Balance Sheet
  2. The Income & Expenditure (or Profit & Loss) statement
  3. Cash flow Statement

As a manager, you may never need to prepare one of these, but you should certainly be able to read and interpret each of them. What may be less familiar to you are the various measures used in performance and investment analysis.

Performance Ratios

Return on Equity
How much we make from shareholders’ investment. Higher returns suggest a more valuable business. Calculate by dividing net income by total assets.

Earnings Before Interest and Tax is a quick measure of the underlying profitability of the business.Some prefer…

Earnings Before Interest, Tax, Depreciation, and Amortisation

Gross Profit Margin
Tells us how much sales contribute to fixed costs. Calculate by dividing gross profit by sales revenue.

Net  Profit Margin
Calculates the total margin on sales revenue, after all costs. Calculate by dividing net income by sales revenue.

Operating profit margin
Excludes interest and taxation from the net profit margin calculation. Calculate by dividing EBIT by sales revenue – or use EBITDA.

Inventory turnover
Tells us how fast we sell and then replace inventory or, conversely, how badly we get stuck with inventory. Calculate by dividing the cost of all goods sold by the average value of your inventory over the same period. This fails to identify particular items of stagnant stock.

Investment Analysis

To understand the real value of an investment over a long-term, you need to create a discounted cash flow, where each receipt and payment is applied to the time slot in which it will occur, and then reduced by a discount factor (or Present Value factor) that represents the time value of money. So, a pound next year is worth less than a pound today, due to the impact of inflation.

The total of the present values of all of the payments and receipts is called the Net Present Value (NPV) and represents the value of the investment you would have to make in today’s money, to receive the total cash flows.

NPV calculations all depend on getting one crucial assumption right: the discount rate.  Higher inflation rates give higher discount factors. At the time of writing, the UK Treasury advises a discount rate of 3.5 per cent. The discount rate that a business would use is typically the rate they would pay to borrow money to fund the investment.

Discounted Cash Flow - Net Present Value


Click on the image to enlarge it

An alternative measure is the Internal Rate of Return (IRR). This is the discount rate that we would need to use to make the investment worthwhile. Higher IRRs are good and any IRR that is less than or just a little bigger than the the discount rate you would use (your cost of capital) will suggest that the investment will either be negative and lose money or, if just a little bigger, will be marginal and therefore very risky.

Discounted Cash Flow - Internal Rate of Return

Click on the image to enlarge it

Further Reading

From the Management Pocketbooks series:

  1. The Balance Sheet Pocketbook
  2. The Managing Cashflow Pocketbook
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A Tale of Two Budgets

The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.

There was a time when the now traditional budgeting process did not exist. It emerged in the early twentieth century as a mechanism to exert central control on increasing large corporations with more and more regions and divisions. It put the power at the centre and constrained senior management in the regions and divisions to comply.

We looked some time ago at the triptych of mission, vision and values. Once these are agreed, senior managers can develop a strategy for the business and, from that, plans for the coming year. When costs and revenues are allocated to those plans, the costs can be divided among the regions, divisions and functional groups, to create a budget.

Budgeting is therefore a process that reinforces a static hierarchy, centralised control, and a fixed plan for the coming year. It happens in the overwhelming majority* of businesses; including Barnstaple Corp, a fictional US headquartered global manufacturer.

Barnstaple Corp

This results in Barnstaple having a high level of control over how and where it spends its investment money – able to channel cash to the regions and operating divisions where HQ analysis can see the great growth potential. Down on the ground, however, individual managers who are responsible for distinct product lines feel frustrated. They have very little true decision-making capacity and are forced to manage their business with no more resources than they are given.

Some can see huge local opportunities, which they are unable to exploit due to lack of central funding. It is not that budgets cannot be adjusted mid-year; but the effort, bureaucracy and politicking required to negotiate this with HQ leaves many of them with a fatalistic attitude. They know that if they were given more autonomy, they could make more money for their bosses, but they feel as if nobody really cares about the profits of their one product line.


Idlas works very differently. It is a fictional European headquartered retailer, that gives everyone of its employees in 24 countries a simple message: continually find and implement ways to serve our customers better. Anyone in the business can make a decision and primary levels of leadership are devolved to clusters of stores of no more than 50 to 60 branches. Headquarters serves as a resource pool for company-wide services, but individual senior managers at cluster level can opt out of those services if they can find alternatives that allow them to provide better service to their customers.

All decision-making at Idlas is governed by a few over-arching corporate values and promotions tend to be internal, locking those values into the company’s DNA. To support decision-making, HQ provides a constant stream of high quality information, that is openly available to any manager.

Similar and Different

Both Barnstaple and Idlas are highly admired companies making large profits for their shareholders. Both have very real equivalents in the world – each on both sides of the Atlantic, although the Idlas equivalents are far rarer than the Barnstaples. Both are extreme and idealised counterparts of their real-world equivalents – yet neither is very far from the reality of typical businesses of their type.

But both have a very different response to the VUCA** environment in which most large corporates are trading – and in which most small businesses trade too.

Barnstaple husbands its resources carefully, using centralised expert analysts to predict where they will be needed and a budgeting process that allocates them accordingly. Scrutiny of requests for budget variances happens centrally.

Idlas lets local managers read the local conditions and optimise as they go, drawing down on central resources, to invest what they judge necessary to maximise customer service and therefore profit.

Scrutiny takes place far more locally than at Barnstaple, among peers in the region.

* I am tempted to say 97.6 per cent of businesses, knowing that 98.3 percent of statistics are made up and that only 1.4 per cent of readers ever try to check a statistic and that only 21.2 per cent of them are ever persistent enough to get an answer. But I shan’t, for obvious reasons.

** VUCA: Volatile, Uncertain, Complex, Ambiguous

Further Reading

Barnstaple represents the archetype of command and control budgeting, whereas Idlas is emblematic of a devolved leadership model.

You can learn more about this from the Beyond Budgeting Institute.

You may also like The Managing Budgets Pocketbook.

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Risk Management

The Management Pocketbooks Pocket Correspondence Course

Pocketblog has gone back to basics. This is part of an extended management course.

We are now at the end of our series of blogs, looking at some of the essential models that a project manager will need. We have covered:

Project Management blogger Glen Alleman (at Herding Cats – a trenchant blog by a serious heavy-weight project manager) describes risk management as the way grown ups do project management. I thoroughly agree (and have written a book on it, ‘Risk Happens!’ to boot).

Why does he say this? I can’t speak for Glen (I wouldn’t dare) but my own feeling is that professional project managers have nailed the planning process as a fully developed skill set. So all the uncertainty in your project – and therefore the difference between success and failure – lies in the risk. This must take up a large part of your attention.

So let’s see how to do it…

The Risk Management Process

Risk Management is a simple process:

  1. Identify anything and everything that you think can go wrong
  2. Analyse each potential risk and prioritise them by assessing the impact of their consequences, and the likelihood of them happening. High likelihood, high impact risks are your top priority, and low impact, highly unlikely risks can be deliberately set to one side – you cannot ignore them, but you can choose to do nothing.
  3. For everything else, plan what you will do. Will you:
    • mitigate the risk by reducing its impact?
    • reduce the risk by making it less likely?
    • create a contingency plan in case it materialises?
    • find someone else to take the risk for you?
  4. Once you have your plans, put them into effect
  5. Review the outcomes of your interventions and, if necessary, plan and take further steps.

Risk Analysis

We analyse risks against their potential impact, their likelihood, and sometimes other factors like how soon they might affect us. The commonest tool is a chart of impact versus likelihood, onto which we plot our risks. The best approach is to keep it simple. Here is an example…

Risk Analysis


Further Reading

From the Management Pocketbooks series:

  1. Project Management Pocketbook
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