Procrastination and the 80/20 Rule

Sometimes it seems like there is more to do than is possible. Actually there may be, so what does that have to do with procrastination and the 80/20 rule?

No, You Can’t Do It All

Let me say first that there are things that have to get done. For example, in accounting it is imperative that customers are invoiced, receivables collected, accounts payable recorded and payed in a timely fashion, and payroll processed. Those are givens. But, we so often get sidetracked on some task that really produces very little benefit.

Like What You Say?

It is easy to get distracted on something like formatting a beautiful financial report. The problem is we often do something like that only to realize nobody is really concerned with what the report looks like and sometimes don’t even care about the report. For example, years ago I did some temp work for a fairly large company. Among the areas I was involved in was reconciling balance sheet accounts. Now, those accounts needed to be reconciled. But, here is where things went off track. The reconciliations were filed monthly in a binder, which incidentally to my knowledge nobody in management ever examined. But, that’s still not the issue. Rather, the issue had to do with what those reports looked like. The person I was helping was obsessive about the formatting of the reports as far as such things as borders, bolding, etc. Really, what value was added to the company by making sure the borders were just exactly how this person wanted them? After all, nobody outside the company was seeing these reports, and, as I said, I don’t recall anyone in management ever viewing them either. Couldn’t there have been a better use of my time?

But, here is the point. With the obsession on formatting reports we always seemed to be behind and not sure what to do next. This is where procrastination and the 80/20 rule come into play. Simply by looking at what needed to be done and the benefit(s) that would be derived from a task it would be easy to identify those 20% to 40% of tasks that would have rendered 60% to 80% of the benefit. However, this is really a small issue compared to what I’ll discuss next.

Big Impact

Here are a couple of situations that you may have seen. Perhaps you have a sales manager who is gung-ho on getting every possible sale so they can show steady growth. On the surface that seems completely logical. But is there something that can provide even more valuable results than maximum sales growth?

sales growth chart

How about quality sales growth? Perhaps if the focus is on identifying those existing and prospective customers that are known to be credit worthy and most likely to buy the more profitable products and services then perhaps merely 20% to 30% of the effort could produce more favorable results. If you spend 80% of your time just getting sales without any regard to such things as gross margin, collectability, and administrative and sales effort and cost required then this can be a recipe for creating problems.

Here is another example. Perhaps there are people in the company that always want to stock every conceivable product and on top of that want large quantities on hand. It is easy to get caught up in making sure everything is in stock and perhaps in large quantities. Pressure is put on purchasing to make sure this stuff happens and they often get so caught up in this that they have a hard time knowing what to order next. However, procrastination and the 80/20 rule would indicate that a little judicious use of analysis might dictate that not everything needs to be in stock and certainly not at the levels some people would like. Simply by using that 20% if your time to analyze inventory on-hand and sales history by product could offer the opportunity to dramatically reduce the cash tied-up in inventory. A couple of postings on just how this can benefit your company can be seen in 3 Low Cost Sources of Cash – Part 1 and Small Inventory – Big Benefits.

I harp on the two issues of quality sales and inventory control, but with good reason. Without adequately addressing these issues your company can easily find itself in a cash bind.

If you want to know more, contact AimCFO – Contact

Share

Leave a Reply

Enter your email address:

Delivered by FeedBurner