Is your budget a plan with a hard cap, or more of a blank check? The mindset you embrace for spending can make all the difference in your success.
Originally found at Inc.
Like sports fans who love to evaluate various team decisions and outcomes, a friend loves to analyze other businesses: how they fare against their competition, what they appear to be doing right or wrong, what their margins might be -- not in a schadenfreude-y way, but out of genuine interest. (He loves the game of business.)
Which makes the upcoming Paris Olympics of particular interest, especially since an Oxford study published in Environment and Planning found that the 30 Summer and Winter Games held between 1960 and 2016 ran over budget by an average of 172 percent.
Yep: 172 percent. (If you're keeping score, the 1976 Montreal Games ran 720 percent over budget and it took 30 years to pay off the debt issued to build facilities; deficits from the 2004 Athens Games had a follow-on effect that helped cripple the Greek economy.)
...Unlike agreeing to host the Olympics, starting a business is a two-way door. You can always change your mind.
More importantly, you can look at many decisions along the way as two-way rather than one-way doors. Say you budget -- if only because that's all you can truly afford -- $10,000 for equipment and supplies. A few weeks in you realize the actual cost will be $12,000. Does your check have to be blank? No. You can modify your supply orders. You can scale back on equipment. You can make decisions that change your plans but don't change your budget.
That's the real lesson to be learned from Olympic cost overruns. Once the plan is in place, organizers tend to fulfill that plan, regardless of eventual cost. (That was the case in Montreal, where organizers spent 13 times the amount budgeted.)
Instead, see your budget as the plan to fulfill, and your plan (scale, timelines, etc.) as the check that is blank -- or that is infinitely modifiable. Do what you have to do to stay under budget.
See unchangeable constraints not as a problem, but as a competitive advantage: a 2017 study published in the Academy of Management Journal found that resource constraints tend to improve creativity, problem-solving, and overall performance.
Continue reading the original article at Inc.
Read the original research in Academy of Management Journal.
Read the Academy of Management Insights summary.
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