What’s the answer to a cash-flow projection?
That’s your Zen question for today. Does a cash-flow projection even have an intrinsic answer? Or does it depend on the question that was asked in creating the preparation? Or does it have multiple, different answers, depending on which reader is asking which question?
System dynamics works in at least five dimensions, which complicates things. Everyone gets three dimensions – “there it is” = placing objects in space. Adding time as a fourth dimension makes it harder, but nearly everyone can learn to drive a car, which means being able to place objects in space along a time continuum – “that guy is behind me on my left, but he’s about to be beside me; can’t change lanes right now”. Now add a fifth dimension, probability. This starts to get challenging.
In business this matters because we operate remotely now so often that you get only a few, or just one, chance to communicate your message. You’re often trying to communicate a five-dimensional answer on a two-dimensional page. Your audience usually wants a single-data-point answer, and it’s often different for each of them ☺
Cash flow projections are great examples because:
- Readers are unable to differentiate between the higher-probability estimates at the start of the projection and the lower-probability estimates at the end of the projection.
- Readers are unable to visualize what is not on the page – all those things that the preparer knows could go wrong, but aren’t shown.
- Readers’ questions change in real time.
One thing that’s super-helpful is to place visible markers on the probability landscape – like flags, or map points. For example, you can say, “Here are examples of what is not included and why.” Another is to explicitly (and hopefully politely) address the questions you know will be asked and that you know are the wrong questions: “You might be wondering why we’ve assumed ___. That’s because ___.” Or to say, “This projection is pretty good (explain) within ___ time frame, but it gets much more speculative beyond ___ , and beyond ___ it’s only good for directional modeling.”
Perhaps the best is to say what the projection should not be used for. For example, “This projection is useful for ____. But it’s explicitly not useful for _____, because it might lead you to the conclusion that ____, and that is not the assertion here at all.”
Now you’re describing an answer in five dimensions, including time and probability.
The last step is to decide if there is one message you want to leave them with – an action you want them to take. Not always the case, but if it is, it’s the perfect closer to a probability map. “And that’s why …”