By Adriano Allegrini

It is rare to see a strategic plan that assumes “a recession will hit during the planning horizon and impact our business”. This is interesting, since most planning horizons span 5 years and recessions are cyclical events that have happened in every decade from the 1920s to the 2000s, making it a reasonable assumption that a recession will happen during the planning horizon.

This avoidance behavior can be traced to two main factors: our tendency for planning for the future using the past as a roadmap, and our human trait of avoiding unpleasant topics during “good times”.

This is the same reason why most people tend to avoid some activities in our personal life like preparing our will or making funeral arrangements: while we know it needs to be done, we do not know when it will be needed. The bad outcome is in some nebulous “in the future” time frame.

The best argument against including a provision for a recession in the planning is a logical and valid argument: it is not possible to precisely predict when a recessive cycle will start, therefore we should plan for business as usual and deal with an eventual recession as an adjustment if and when it happens.

I would suggest a variation on this. Since we know that having to deal with a recession is at least equally likely to that of our chances of avoiding one, I suggest putting in place a contingency plan, as part of the strategic plan. For example: document the short- and medium-term actions we will need to take and estimate how a slowdown in the economy will affect our main product lines, our revenues, and bottom line.

By not having these answers ready, it is common to see organizations scramble when a slowdown cycle happens, resorting in knee-jerk reactions like hiring freezes or drastic reductions in force. These scrambles can have lasting undesired effects – from hindering future ability to grow to reducing the team’s confidence in their leaders. Finally, there is little time to plan once you are in the middle of dealing with missed revenue and profit targets.

Based on that, how about we take the age-old advice of preparing for bad times during good? Put together a contingency plan. Even if it is incomplete and not perfect, it will likely be a good place to start if – when – bad news hits.

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