Determine What Really Matters

Are you so wrapped up in busywork that it’s hard to determine what really matters? There are of course several things you can do to help minimize the distraction of busywork as well as things like interruptions. Perhaps the most powerful one I have used personally is Pareto’s Law, commonly referred to as the 80/20 rule. I discussed one use of this principle previously in the blog 80/20 Rule for Receivables Management. To reiterate, the 80/20 rule is that approximately 80% of effects result from 20% of the causes. In the receivables example that meant that approximately 80% if past due receivables amount resulted from about 20% of the customers with past due balances. The benefit there is that it allows you to narrow your focus to the customers where your collections efforts may produce the greatest return for the time and money invested trying to collect.

Why This Matters and a Short Cut

Unless you want to be like the guy below who is going crazy trying to decide what to do next, it is essential that you be able to narrow your focus to the things that really matter.

Imagine you are a business owner or manager with lots of areas of responsibility. How do you decide what to do next? Again, using the 80/20 rule in a rather broad sense can help you identify those areas where you can have the biggest impact. As a Part-time Controller I have used this via financial analysis. A particular time stands out to me when some quick analysis of the expenses of a client showed that the primary reason losses had started to occur had to do with approximately three or four expense items, all of which were related. In this case there were probably around 30 major expense lines in the income statement, but 3 or 4, representing around 10% of the line items, were causing probably 80% to 90% of the increase in spending. When I showed this to the business’s owner he quickly made changes to correct this, and within about two months the company was once again profitable. A simple analysis using the concept of the 80/20 rule made it easier to determine what really matters.

As a closing note on using the 80/20 rule, remember that it is an approximation. Also, don’t stop at the first pass at applying this rule. For example, in the receivables example you may find something similar to this. Imagine you have 100 customer and analysis shows that 30 of them (30%) represent about 80% of the past due amounts. But, by now applying the 80/20 rule to that 30% of customer you may find that 6 of them (20% of the 30 or 6% of all customers) represent 90% of the amount owed by those 30 customers. So in this case, 6 customers out of 100 represent 64% of the past due receivables. So, that makes it easier to focus on a smaller group of customers and get bigger results than focusing on every customer you have.

Another Short Cut

Another short cut to help you determine what really matters is the 4 quadrant planning matrix. Below is an example I used in a prior blog.

4 quadrant planning example

In this case, Quadrant 2 (Important but not Urgent) is likely to contain 5% to 10% of the things that will have the most impact. These are the big picture items that cause you to think deeply. On the other hand, Quadrant 1 (Urgent and Important) may be 10% to 20% of the things that matter the most. So, what does that mean? Simply put, have in place processes to make sure that quadrant 1 is addressed but also set aside ample time to work on the big things in quadrant 2. As to Quadrant 3 (Urgent but not Important) I recommend two things. One is to delegate as much as possible. Two is to identify things in that quadrant that really are either not as important as first thought and move them to Quadrant 4 (Not Urgent and Not Important). So, what do you do with Quadrant 4? Avoid the items in here as much as possible.

How effective are you and your employees at deciding where to focus your efforts? Try these two tools, the 80/20 rule and the 4 quadrant planning matrix. They are amazingly effective at highlighting what matters. Oh, one more thing. As you try to make this kind of change you will undoubtedly get pushback from others as well as have a tendency to yourself revert to old ways. That’s okay. Just get back on track when you realize this is happenging and keep pushing forward.

As one who provides Part-time CFO and Controller services I have found it very helpful to use these and other techniques to maximize results for clients.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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