Why homebuilders need business plans that test scenarios

[In the fourth of seven excerpts from ‘Less Wrong, More Right,’ Scott Cox argues argues a 5-year business plan should be a thinking tool, not a control document. He shares two tests: keep key output to one page and use a single assumptions page for scenario changes.] Sometimes I think the most misunderstood part of our business is the business plan. The real purpose is to learn about your business and understand the consequences of the choices available to you. If we go in this direction, what does it mean for our capitalization and our risk? How many people will we need, and when? Is our subcontractor base capable of that volume? For this to pay off, how long does the market have to hold? A plan exists to force that thinking. Everything else it does — satisfying the bank, setting the bonus targets, giving the board something to approve — is a byproduct, and the byproducts have a way of eating the main course. I sat in a business plan meeting for the division of a multi-region builder. A number of organizational things were in flux, the market was slipping, and to be fair to the local team, they were being asked to work on too many initiatives at once. While everyone debated next y...