Five Common Pitfalls in Strategic Planning

I have a love/hate relationship with planning.

This is something of a confession for someone whose income depends in large part on helping nonprofit clients set financial and organizational goals. I have trouble eating my own cooking.

To be sure, in my personal life, I set goals, keep to-do lists, and do a reasonably good job of following through on the things I set out to accomplish.

At scale, however, planning is an entirely different beast.

A generation ago, the Cold War and Red Scare bred an instinctive and healthy skepticism of large-scale planning. Today that skepticism is mostly gone, and the concept of “central planning” has found new life under different names:

• Financial or tax “incentives” to drive the outcomes desired by government or corporate bureaucrats.
• Paternalistic “nudges” of the type popularized by Richard Thaler and Cass Sunstein and embraced by public health agencies (e.g.: portion-control packaging to limit overeating; soda taxes; default opt-in for employee retirement plans; etc.).
• Business fads like “management by objectives (MBO)” and “competing on analytics,” which exalt quantifiable and goal-oriented organizational behavior.

Just like the central planning of old, these things often start with high hopes and end badly:

• Well-meaning federal policies to increase home ownership (via tax incentives and quantifiable goals) blow up the housing market.
• Green energy tax credits disproportionately flow to the Tesla-driving elite, and the politically connected (e.g.: the Solyndra scandal).
• “Data-driven” financial risk models blow up hedge funds like Long Term Capital Management and imperil the global economy.
• Popular revolt against soda taxes and their proponents (e.g.: Michael Bloomberg).

In the face of planning failures like these, it’s easy to ditch planning altogether and live day-to-day, responding and adapting to circumstances as they change. At least one nonprofit CEO that I have worked with has told me that he does exactly this.

Of course, that’s no way to live.

We all need a vision and direction for the future—and in the nonprofit sector, this vision is a defining feature of our work. Soup kitchens envision a future without hunger. Schools envision the future success of their students. Public policy organizations envision their desired political outcomes and their corresponding benefits for the country. That ideal future is what sustains these organizations—and they need plausible ways of attaining it if they are to attract talented staff and financial support.

The way forward is not to ditch organizational planning, it’s to get better at it by recognizing some common pitfalls:

1. Bounded rationality and asymmetric information: Managers—especially those of large organizations—should bring a sense of humility to the planning process. How much do you really know about the frontline staff and constituents of your organization, and how much of the information you receive is being filtered through memos, spreadsheets, and multiple layers of management? Are there ways you can get better information, or at least compensate for this bias?

2. Over-reliance on historic data: It’s easy to assume that the future will be similar to the past—it is similar… until it isn’t. Discontinuities—both positive and negative—are the driving force. How would you respond if a major donor asked what you would do differently if you were to get a seven- or eight-figure gift? Conversely, how would you respond to the loss of a major donor like this? Don’t assume that tomorrow will look like today. Plan for both the best case and the worst.

3. Black Swans: On a related point, the most consequential things in life are often the things we never see coming: Pearl Harbor, 9/11, the 2008 financial panic, and so on. Good plans should be resilient in the face of these “black swan” upheavals—indeed, should draw strength from them if possible. How would your organization grow if we were faced with another financial panic or deep recession? How would you react to a bout of bad publicity? Or a mass exodus of staff? Preparing for these extreme scenarios is a form of insurance against them ever happening to you.

4. Law of Unintended Consequences: Do the organizational goals you’re pursuing have downsides that you’re overlooking?

For example, countless water charities have been praised for digging wells across Africa—while much less has been made of the wells that have fallen into disrepair and disuse because these charities have failed to raise funds for their basic maintenance and upkeep. The question of unintended consequences is worth asking not only of major organizational objectives, but also the smaller-level metrics that guide your daily work.

While maximizing organizational revenue is desirable on the surface, it can also mean taking on ill-advised projects that take you way off course. Increasing the number of donors you acquire is great, for example, until you consider that this usually corresponds with higher fundraising costs and a lower average gift from each donor. Former Intel CEO Andy Grove once said that “for every metric, there should be a ‘paired’ metric that addresses the adverse consequences of the first metric.” Plan accordingly.

5. Planning Fallacy: There’s a tendency to be massively overoptimistic in planning. But this overlooks a basic asymmetry—if everything goes well, you may save a small fraction of the expected time and cost of your project; if things don’t go according to plan, time and cost can swell to a multiple of their original size. Are there contingencies you can make if everything goes awry?

Organizational planning is inherently difficult because the future is unknowable, and it’s impossible to foresee every contingency. Take heart: you can do far better than most if you paint a compelling picture of the future, and take this careful and realistic approach toward achieving it.

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It’s my goal to help purpose-driven organizations achieve their fundraising goals, craft clear and compelling communications, and achieve greater influence. Please let me know if and how I can be of help to you, feel free to shoot me an email at srubush@americanphilanthropic.com, or check out our consulting services online at AmericanPhilanthropic.com and ongoing fundraising trainings and events throughout the year.

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