08. The Power of Assumptions
Most planning processes are obsessed with numbers—revenue projections, inventory levels, capacity utilisation. But what if I told you that the real magic of Integrated Business Planning happens in the spaces between those numbers? 🤔
In many IBP / S&OP forums I've participated in, we spend too much time debating the forecast figures and not nearly enough time on the underlying assumptions that created them. It's like arguing about the destination without discussing the route you'll take to get there.
What Are Assumptions, Really?
Let's get clear on what we're talking about:
Fact = Something known or proven to be true. Assumption = Something believed to be true or likely to happen, but without definitive proof.
While facts typically relate to the past, our plans—by definition—exist in the future. And the future, my friends, is built entirely on assumptions.
The Silent Language of Planning
Assumptions explain the how and why, whereas numbers merely tell us the what and how much. They're the narrative behind the spreadsheet, the context behind the chart. Without them, we're just passing numbers back and forth without understanding their foundation.
Think about it: When a sales director forecasts a 15% increase next quarter, what matters more—the percentage itself or the market conditions, competitive activities, and sales initiatives that make that number achievable?
Why Assumptions Matter More Than You Think
When we focus on assumptions rather than just numbers, several powerful things happen:
We create accountability - Ownership of assumptions means ownership of outcomes
We identify issues earlier - Flawed assumptions can be challenged before they become flawed results
We enable true scenario planning - By altering key assumptions, we can model different futures
We drive better cross-functional conversations - Debating assumptions feels less personal than debating someone's numbers
As the author Douglas Adams wisely noted, "The hardest assumption to challenge is the one you don't even know you are making." This speaks to the real danger in planning—not the assumptions we document and discuss, but the ones so deeply embedded in our thinking that we don't even recognise them as assumptions.
The beauty of well-documented assumptions is that they transform planning from a mechanical exercise into a strategic conversation.
Making Assumptions Work in Your IBP Process
To harness the power of assumptions in your IBP process:
Categorise systematically - Organize assumptions into relevant buckets: product portfolio, demand, supply, people, and financial plans. This structure creates clarity and ensures comprehensive coverage.
Document and quantify - Assumptions should be specific, measurable statements. "Market growth expected" is useless; "Q3 market growth of 4.2% driven by new government infrastructure spending" gives everyone something concrete to work with.
Time-phase appropriately - Map assumptions across your planning horizon so everyone knows when particular conditions are expected to materialize.
Assign clear ownership - Every key assumption needs an owner responsible for tracking its validity and accuracy over time.
Measure accuracy - This often-overlooked step is crucial. Track which assumptions proved correct and which didn't—this becomes your planning intelligence for future cycles.
Beyond Planning: Assumptions as Risk Management
Assumptions aren't just planning tools—they're your early warning system. By identifying and documenting key assumptions, you're essentially mapping your risk landscape.
When used for scenario planning, they allow you to play out multiple "what-if" futures, preparing your organisation for various outcomes rather than betting everything on a single projection. This isn't just good planning—it's good risk management.
Start with the critical few—the assumptions that, if wrong, would dramatically change your business outcomes. These are your risk levers.
The Reality Check
I've seen the quality of IBP meetings radically transform by shifting their focus from debating numbers to debating assumptions. When a forecast misses the mark (as they inevitably do), they conduct proper root cause analysis on which assumptions failed and why, creating institutional learning rather than assigning blame.
This cross-functional collaboration around assumptions becomes the common ground where different departments align their expectations and plans. Marketing isn't just throwing numbers over the wall to Supply Chain—they're sharing the thinking behind those numbers.
Remember: Plans built on explicit, well-considered assumptions create resilience; those built on unexamined ones create vulnerability.
Taking Action
In your next IBP cycle, try these practical approaches:
Front-load assumptions in your agenda - Review key assumptions at the start of each meeting before diving into the numbers. This frames the entire discussion in the proper context.
Document rigorously - Capture assumptions in writing where everyone can see and reference them. Verbal assumptions have a way of conveniently changing when results don't match expectations.
Use assumptions as a shield against arbitrary targets - When leadership pushes for stretch numbers without substantiation ("We need 10% growth, not 5%"), respond with: "What assumptions are you making that differ from ours? Let's discuss those specifically." This shifts the conversation from arbitrary targets to underlying business realities.
You'll find that when people understand and agree on assumptions, the numbers often take care of themselves. After all, assumptions aren't just the cornerstone of planning—they're the foundation upon which meaningful business conversations are built.
Want to discuss how to strengthen the role of assumptions in your IBP process? Find me at www.planninglab.co.nz
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