Lean in life, experimenting with lean in life, fitness, music, work and more

Quote of the day

2011-03-11T16:44:00.001-08:00

Defeat is not the worst of failures. Not to have tried is the true failure.
George Edward Woodberry

Motivational Quote of the Day

2011-03-08T17:55:00.000-08:00

This words apply to every aspect of life!

The first step in the acquisition of wisdom is silence, the second listening, the third memory, the fourth practice, the fifth teaching others.
Solomon Ibn Gabriol

One of the best sites to learn to play the guitar

2011-03-06T14:01:00.000-08:00

This is an excellent site created by Justin.
You can truly learn theory while keeping things fun.

http://justinguitar.com/

My Passion for the Guitar

2011-03-06T13:31:00.000-08:00

Since I was a teenager I was always attracted to the guitar, when I was 15 years old I start learning, but then stop, I could do chords and stuff, but never very good. I did not play for 12 year, but when I move to Portland Oregon, and I started earning some money, I bought me a cheap guitar. I learned some more stuff but again I got to busy at work and let that aside. Not to mention that at that time I met my beautiful wife.

5 years after that something inside me keep telling me that I had to play again and that this time I had to learn for good. So it was, that in November of 2009 I started practicing almost everyday.

is this good or bad?

Depends, it is good for improving your skills with the instrument, but the problem is that if you have a family, someone you love, or friends and you are not able to balance your passion for the instrument, with the passion for the people you love, then you are going to be in trouble, or better say you will be like me at this time.

The whole purpose of doing something in life is for sharing it with others and enjoying it with others. If that simple equation can not be done, things in your life are going to go the wrong way.

I love music, I love my wife, but at this moment I feel that playing the instrument does not mean much, because the person I love is not with me.

For any activity or passion you have, please listen to me, keep balance between what you love and who you love, one does not go without the other and remember the meaning of life is on the moments you share with the people you love, that is the only thing that counts.

If you have any comments about this thought, please share your view with me.

Quote on Leadership

2010-09-29T17:29:00.000-07:00

If you want to build a ship, don't drum up people to collect wood and don't assign them tasks and work, but rather teach them to long for the endless immensity of the sea.

From the Little Prince by Antoine de Saint-Exupery

New to the boss's seat: The 7 elements of successful leadership transition

2010-09-27T18:12:00.000-07:00

1. Explore expectations offensively

"Just go ahead. I have complete faith in you." Behind this sentence are a number of unspoken expectations. Ignoring them can jeopardize your new position because they are the benchmark by which you will be measured. For this reason, it is important to follow a few simple steps:
Actively ask about expectations: ask your line managers, your colleagues, your staff
Scrutinize expectations closely and differentiate between them, as they are often contradictory: fact-based suggestions vs. emotional wishes.
Use discussions and meetings to work out specific and joint tasks. Important: not every expectation is a task! And: you can never meet every expectation.

2. Develop key relationships

To secure power and influence within a company, it is important to develop good relationships with those people who have influence and/or a right of veto on important decisions. These are primarily..
Your disappointed competitor: never ignore him or her, but show understanding and find a basis on which you can work constructively together.
Your predecessor: never voice criticism of his or her work - that's a boomerang!
Your staff: don't try and show off everything you know, and don't try and play the "savior".
Your colleagues: respect their performance and get them involved in your plans as early as possible.

Make time to network!! Concentrating exclusively on the job and not actively relating to your new 'stakeholders' is a big mistake. The result is resistance and reservation towards the ideas of the new manager.

3. Situation analysis

Five perspectives have proven useful in the analysis of the initial situation:

Perspective 1:
The rules and self-perceptions that guide people
The social architecture of the organization
Rules, things that are taken for granted and stories

Perspective 2: The issues that occupy the organization
Resolvable and unresolvable issues
Urgent and less urgent issues
Long--term issues

Perspective 3: The facts that determine actions
Results
Strategies
Costs
Breakdowns/complaints

Perspective 4: The innovation potential available
The willingness to change
The positive climate for change

Perspective 5: The resources one can build on
The strengths of the employees and the organization

4. Goals

The staff are waiting for a plan that will take the company forward and fill them with pride.
The staff are the manager's "customers", so you should create a customer-oriented set of goals for them. It is important in this respect to distinguish between stability goals and change goals (e.g. for creating a positive climate of change). The difference between task-based goals (e.g.: increased sales, higher earnings or improved quality), team-based goals and personal goals is also extremely important.

You should paint a picture of the future, i.e have a vision. Visions not only point the way forward, but also create a momentum of their own by offering the staff something they can identify with.
Relatively surefire ways of getting into difficulties include:
Pouncing on problems that need to be solved urgently
Demanding rapid change by pointing out problems
Launching yourself into the job before you have formed a picture of the overall situation

5. Climate of change

There are three things that are critical for creating a positive climate of change:

Asking appreciative questions
Reflexive questions: Questions which are asked not just to gather information, but to create new information
Resourceful questions: Ask about problems in the past which have been solved, etc.
Questions that point to the future

Dealing positively with skepticism
This can make many managers feel threatened, but skepticism shows that employees are interested in the subject. Otherwise they wouldn't get involved at all.
Important: Voiced skepticism is not the same as unvoiced skepticism!

Desire for something new

6. Initiation of change

Something is needed to start the ball rolling (e.g. a conference)
You also have to appeal to the staff on an emotional level.
The launch event needs a key theme that fits the strategy.
The launch must immediately be followed by specific action. Otherwise it will fizzle out into nothing.

The strategy of "small wins and large gains" is about finding initial steps that produce immediate success and therefore set important changes in motion. They are a way of creating trust in the change process relatively quickly.
The right timing is particularly critical. Change activities should not be started until the staff are agreed upon the imminent changes, the process of developing important key relationships has at least been started and a clear plan / a specific objective has been set for the initial steps. Experience indicates this will take around 2-4 months.

7. Symbols and rituals

Symbolic management is the skilful and systematic combination of symbols and rituals to create a persuasive message.

The symbolic value of actions is particularly high at the start of a new job, when the employees still know little about the values and the self-perception of the new manager.
Once you have shown respect for the symbols and rituals of your predecessor, it is about making it clear that "I'm here now".

Often, it's not even a matter of creating new symbols and rituals, but just about questioning one's own habits.

Symbols and rituals are only effective if they are embedded in the overall context i.e. if all participants are prepared to give meaning to the ritual.

CONFLICT RESOLUTION STRATEGIES

2010-09-27T18:11:00.000-07:00

Gerhard Schwarz identifies six fundamentally different strategies for dealing with conflict. We all have these six strategies in our personal repertoire, although the extent to which we use them varies greatly from individual to individual.
1. Escape
Man is good at running away – and has been since the earliest days of mankind. Our very first strategy is to avoid conflict; anyone who spontaneously reacts differently to conflict is in a minority! In a professional context, there are various ways of adopting the escape strategy: by ignoring conflict, actively denying it, declaring it irrelevant, deliberately not dealing with it, or by labeling others who openly refer to the conflict as "conflictive".
2. Destruction
According to Schwarz, this strategy was originally Plan B for when escape was not possible. In the early years of mankind, a fight was usually to the bitter end with only one of the combatants surviving. In a professional context too, we will frequently witness conflict that ends in a "it's him/her or me" ultimatum (and once it's over, one or sometimes even both of the conflicting parties looks for "an interesting new challenge" within or outside the organization).
3. Submission
The battle can also end without bloodshed if the winner accepts his opponent's submission as victory. Without submission, long-term cooperation - and thus the development of large organizations - would be inconceivable and so in everyday situations it usually occurs in undramatic forms: falling into line with the opponent's viewpoint and cooperating despite one's own objections come under the heading of this conflict strategy.
4. Delegation
The two parties agree to put their disagreement to a third party for resolution, in other words to delegate the decision. This third party may be a decision-maker (line manager, judge) or a mediator, or it may even be a set of rules or a law etc. The two partners agree not to pursue the conflict by testing their strength against one another. They allow a third party to make the decision for them, and undertake to abide by the decision even if they do not agree with it.
5. Compromise
This is the typical negotiating strategy. Both parties know that they will not get 100 per cent of what they want, and therefore seek to achieve the greatest possible win relative to the win of the other party. A compromise may be "50:50" but can also be "70:30", and the views of the two parties on this point may differ widely. Some compromises are only achieved through the attrition of the tolerance of the other party to the conflict, and the "rottenness" of these compromises then puts their durability in question.
6. "Consensus"
Schwarz's definition of "consensus" is a long way from the common usage of the word. Whilst the term is usually used to describe a solution which has the agreement of all parties, Schwarz uses the same word to describe a new, surprising resolution to the conflict which completely satisfies the interests of all parties. This kind of solution generally only arises during lengthy negotiations where the parties are being extremely open – because only by being very open about one's own interests is it generally possible to create a trusting atmosphere. As desirable as this "consensus" might appear, in some situations it will be objectively impossible to find such a solution, even with the best will of those involved.
Your personal repertoire:
The first two conflict strategies - flight and fight – are known as the "primary strategies". It is assumed that everyone uses both these primary strategies to some degree, and the extent to which they are used will not change greatly over the course of a person's lifetime. The other conflict strategies, on the other hand, will be greatly influenced over a person's lifetime by the experience he or she has of them. For example, in one work context compromise might be the predominant conflict strategy but if a person moves out of this environment to another job, if may be that he or she has to learn to rely more on one of the other strategies, such as delegation.

Quotes on development

2010-09-27T18:10:00.000-07:00

If you want one year of prosperity, grow seeds.
If you want ten years of prosperity, grow trees.
If you want hundred years of prosperity, grow people.

Respect, support and challenge your partners and suppliers

2010-09-20T06:49:00.000-07:00

Humans often look to the animal world for inspiration. Especially exemplary are ants, which organize themselves brilliantly and seemingly never run out of team spirit. This successful species enters into a partnership with other organisms so that both sides profit. For example, ants raise aphids and actively protect them from enemies. In return, the aphids give the ants a sweet nectar. To linger in the ant world: If the aphids were not protected and nurtured, there would be no nectar. Even in an ant colony, the customer-supplier principle applies: all ants have a fixed task, with which they support other ants with different functions. This principle makes the entire colony successful. Now let’s transfer this successful principle to our workplace. We too must build and nurture effective partnerships in order to be successful. For example, Suppliers provide on time delivery of parts, Stamping produces parts for Assembly, Assembly provides the product needed at the plants, etc. In Lean, these partnerships are characterized by mutual respect and support. One-sided, exploitive relationships usually don’t last long. They end up demoralizing one or both sides, which has a negative impact on teamwork, which in turn adversely affects performance and quality.

Are you ensuring parts are deliver on time to your customers (other OU, other plants)?

Are you a team player?

Are you following your standard work? (if not, imagine an ant going against the flow of all other ants)

Steps for Creating a Budget

2010-05-05T06:49:00.001-07:00

1. Analyze your company's overall strategy.

What's the forecast for the global and national economy?
What are current industry trends and forecasts?
What are your company's strengths, weaknesses, opportunities, and threats?
How do your company's culture and values affect its approach to specific financial decisions?

2. If your company does top-down budgeting, start with the targets given to you by senior management. If your company does bottom-up budgeting, create these targets yourself.

What will best meet the needs of your unit? List the 3–5 most important goals for your unit—and put an expected completion date on each of them.

3. Articulate your assumptions.

What ongoing and/or one-time "events" do you want to see happen during the upcoming budget period? Assess the revenue and cost implications of each event.
Check the previous year's budget for ideas you can refine.

4. Quantify your assumptions.

Assign specific revenue and cost numbers to each of the events you've planned for your unit.
Get input from other team members about estimates for particular line items.
Check trade publications for industry averages to use as benchmarks.
Using a spreadsheet program, put the numbers in an abbreviated income statement template. Instead of including key assumptions and drivers in formulas, put them into separate cells so that they can be easily understood by others—and easily changed if the need arises. While you're at it, set up your spreadsheet so that you're ready for the tracking phase: create places for actuals, account numbers, charge codes.
Present the numbers in the proper format. If the company has specific policies about presenting a budget, make sure your budget complies with the format. Include the level of detail that is appropriate to your position in the company.

5. Take a step back.

Do the numbers add up? Does the budget meet the goals you and your senior management have established? What does the bottom line look like? How does it compare to last year?
Can you provide documentation for your assumptions?
Is the budget defensible? What questions are most likely to arise when senior management looks at your budget? How will you answer them? What adjustments or concessions would be easiest to make if your budget is not approved?
Write an executive summary that includes key points and numbers, as well as a précis of the major initiatives planned for your unit in the coming year.

Breakeven Analysis

2010-05-05T06:47:00.001-07:00

This kind of analysis is useful when considering an investment that will enable you to sell something new, or to sell more of something you already make. It tells you how much (or how much more) you need to sell in order to pay for the fixed investment—in other words, at what point you will break even. With that information in hand, you can look at market demand and competitors' market shares to determine whether it's realistic to expect to sell that much.

In more precise terms, the breakeven calculation helps you determine the volume level at which total contribution from a product line or investment equals total fixed costs. But before you can perform the calculation, you need to understand the components that go into it.

Contribution is defined as unit revenue minus variable costs per unit; it's the sum of money available to contribute to paying fixed costs. Fixed costs are items such as insurance, management salaries, rent, product development costs—they're items that stay pretty much the same no matter how many units of a product or service are sold. Variable costs are those expenses that change depending on how many units are produced and sold; examples would include labor, utility costs, and raw materials.

With these concepts, we can understand the calculation:
1. Subtract the variable cost per unit from the selling price—this is the unit contribution.
2. Divide total fixed costs, or the amount of the investment, by the unit contribution.
3. The quotient is the breakeven volume, expressed as the number of units that must be sold in order for all fixed costs to be covered.
Let's look again at that plastic extruder. Suppose each hat rack produced by the extruder sells for $75, and the variable cost per unit is $22.

$ 75 (unit price)

– 22 (variable cost per unit)

$ 53 (unit contribution)

$ 100,000 (total investment required)

÷ 53 (unit contribution)

1,887 hat racks (breakeven volume)

At this point, Amalgamated must decide whether the breakeven volume is achievable: Is it realistic to expect to sell 1,887 additional hat racks, and if so, how quickly? Note that this volume must be incremental: because Amalgamated has been producing this type of hat rack all along, and the extruder simply represents a way to improve the production process, the compensating sales volume must be above and beyond current sales volume.

What Is Cost/Benefit Analysis?

2010-05-05T06:39:00.001-07:00

Basically, this means evaluating whether, over a given time frame, the benefits of the new investment, or the new business opportunity, outweigh the associated costs.

Before beginning any cost/benefit analysis, it's important to understand the cost of the status quo. You want to weigh the relative merits of each investment against the negative consequences, if any, of not proceeding with the investment. Don't assume that the costs of doing nothing are always high: in many cases, even when significant benefits could be gained from a new investment, the cost of doing nothing is relatively low.

Cost/benefit analysis of a particular investment involves the following steps:
1. Identify the costs included in the new purchase/business opportunity.
2. Identify the benefits of additional revenues.
3. Identify the cost savings to be gained.
4. Map out the timeline for expected costs and anticipated revenues.
5. Evaluate the unquantifiable benefits and costs.
The first three steps are fairly straightforward. Begin by identifying all the costs associated with the venture—this year's up-front costs as well as ones you anticipate in subsequent years. Additional revenues could come from more customers or from increased purchases from existing customers. To understand the benefits of these revenues, make sure to factor in the new costs associated with them; ultimately, this means you'll be looking at profit. With cost savings, it's a little simpler, at least in the sense that they are incremental profit—they go straight to the bottom line. However, cost savings are sometimes a little more subtle, more difficult to recognize. They can arise from a variety of sources; for the ones listed below, it isn't hard to quantify the savings.

More efficient processing. This could mean that fewer people are required to do the processing, or that the process requires fewer steps, or even that the time spent on each step decreases.
More accurate processing. The time required to correct errors and the number of lost customers could both decrease.

Next, map out these two elements—the costs and the revenues or cost savings—over the relevant period of time. When do you expect the costs to be incurred? In what increments? When do you expect to receive the benefits (additional revenues or cost savings)? In what increments?

Once that's done, you're ready to begin the evaluation phase using one or more of the following analytical tools:

return on investment (ROI)
payback period
breakeven analysis
net present value (NPV)
sensitivity analysis

Preparing a Budget

2010-04-29T07:11:00.000-07:00

As a manager, you are expected to put together a budget for your department each year. Your compensation may depend, to a large extent, on your ability to stick to that budget. So it's in your best interest to create a realistic budget when you start out.

Begin by setting goals. An ambitious manager wants to improve her division's performance over the previous year, increase net income for the company, or decrease costs—maybe even all three. How do you think your department can accomplish everything it has set out to do? That's where the budget comes into play. After all, a budget is a plan with numbers.

Start with a list of three to five goals that you'd like to achieve—and put a completion date on them, too. For example:

Increase gross sales by 5% by June 30th.
Decrease administrative costs by 3% by end of fiscal year.
Reduce inventories by 2% by the end of FY 99.

Be sure you know the scope of the budget you're supposed to produce. Scope implies two things: the part of the company the budget is supposed to cover, and the level of detail it should include.

The smaller the unit that you're focusing on, the more detail you need. If you're creating a budget for a 12-person sales office, you typically won't need to worry about such capital expenditures as major upgrades to the building or the computer equipment. But you should include estimates of what kinds of office supplies you'll need, and how much they will cost.
As you move up the organizational ladder to include more people and larger departments in your budgeting, your scope broadens. You can assume that the head of the 12-person office has thought about paper clips and travel expenses. You're looking to convey the broad-brush outline, what the minute details of all the units' budgets add up to.

Other issues to consider:

Term. Is the budget just for this year, or the next five years? Most budgets are for the upcoming year, with quarterly or monthly reviews.
Overview. Does your budget need to be accompanied by an overview of your strategic plan—for example, your plans for increasing sales or market share? If so, you need to be prepared to defend it.

Take a hard look at your assumptions for the coming year. After all, a budget, at its simplest, takes current data, adds assumptions, and creates projections. Let's suppose you think sales will rise 10% in the coming year. If that's true, you may have to add two more people to your unit. But when you get before your budget committee, be prepared to defend your assumption that sales will rise 10%.

Role-playing may help you here. Put yourself in the position of a division manager with limited resources and many departmental requests for funding. How can you make your case for two additional staff members so that the division manager grants your request ahead of all the others?

The Budget Process

2010-04-29T07:09:00.001-07:00

A budget is a blueprint for achieving specific goals. Your unit's budget is part of your company's overall strategy. So you need to understand your company's strategy in order to create a useful budget.

How can you familiarize yourself with your company's overall strategy?

Watch the overall economic picture. A company's strategy during a recession will be far different than in a booming economy. Make a point to listen to your manager's and colleagues' views on sales and the economy—and make your own observations as well. Are you deluged by résumés or is good help hard to find? Are prices rising or falling?
Stay on top of industry trends. Even when the economy is booming, some sectors are going bust; your budget will need to reflect that reality.
Steep yourself in company values. Every company has a culture, and the very best companies keep those values in mind during every decision. Suppose your budget calls for a cut in the company's contribution to health care plans. If the company's culture views such cuts as anathema to its overall commitment to employees, your proposal will be dead on arrival.
Conduct SWOT analyses. Every company has strengths, weaknesses, opportunities, and threats. Keep them in mind as you build your budget.

Top-down versus bottom-up budgeting

If your company does top-down budgeting, senior management sets very specific objectives for such things as net income, profit margins, and expenses. For instance, each department may be told to hold expense increases to no more than 6% above last year's levels. It's left up to you to allocate your budget within the parameters to ensure that the objectives are achieved. For example, suppose Amalgamated Hat Rack decides that it wants to increase overall profitability by 10%. That could mean, among other possibilities, launching a new product line to generate new sales, or cutting overhead by upgrading technology, which would reduce the need for part-time workers.

In addition, if your company does top-down budgeting, make sure to look at the overall plans for sales and marketing, as well as cost and expense plans, as you prepare your budget. The company's sales plan determines, to a large extent, how much money will be available for the budget. The marketing budget will give you an idea of what the company will be emphasizing in the coming year. Further, many companies that emphasize quality insist on reducing expenses every year, no matter how slightly, as a way to improve overall company quality. Thus, most major expenses—a new computer system, a new plant, a new field office—are carefully budgeted years in advance.

In companies that do bottom-up budgeting, managers aren't given specific targets. Instead, they begin by putting together budgets that they feel will best meet the needs and goals of their respective departments. These budgets are then "rolled up" to create an overall company budget, which is then adjusted, with requests for changes being sent back down to the individual departments.

This process can go through multiple iterations. Often it means working closely with other departments that may be competing against yours for limited resources. It's best to be as cooperative as you can with other departments during this process, but that doesn't mean you shouldn't lobby aggressively for your own unit's needs.

Other ways to assess financial health

2010-04-29T07:06:00.001-07:00

Beyond profitability, operating, and leverage ratios, other ways of evaluating the financial health of a company include valuation, Economic Value Added (EVA), and assessing growth and productivity. Like the ratios described above, all of these measures are most meaningful when compared against the same measures for other companies in that particular industry.

Valuation. Wall Street investors and stock analysts scrutinize a company's financial statements and stock performance carefully in order to arrive at what they believe to be a realistic estimate of that company's value. Since a share of stock denotes ownership of a part of the company, analysts are interested in knowing whether the market price of that share is a good deal relative to the underlying value of the piece of the company the share represents.

Wall Street uses various means of valuation, that is, of assessing a company's financial performance in relation to its stock price.

The earnings per share (EPS) equals net income divided by the number of shares outstanding. This is one of the most commonly watched indicators of a company's financial performance. If it falls, it will likely take the stock's price down with it.

The price-to-earnings ratio (PE) is the current price of a share of stock divided by the previous 12 months' earnings per share. It is a common measure of how cheap or expensive a stock is, relative to earnings.

The price-to-book ratio is the current market price of a share of stock divided by a stock's book value per share. (To calculate the book value, subtract the preferred stock total from total equities, then divide the result by the number of shares outstanding.)

Growth indicators. Growth measures can tell a great deal about financial health. A company's growth allows it to provide increasing returns to its shareholders, and to provide opportunities for new and existing employees. The number of years over which you should measure growth will depend on the business cycle of the industry the company is in. A one-year growth figure for an oil company—an industry that typically has long business cycles—probably doesn't tell you very much. But a strong one-year growth figure for an Internet company would be significant. Common measures of growth include sales growth, profitability growth, and growth in earnings per share.

Economic Value Added (EVA). This concept was introduced as a way to induce employees to think like shareholders and owners. It is the profit left over after the company has met the cost of capital—the expectations of those who provided the capital. (Another way to describe cost of capital is that it is the weighted cost average to the company of acquiring debt and equity financing.)

Leverage ratios

2010-04-28T05:38:00.001-07:00

Leverage has to do with a company's debt structure: the greater the component of long-term debt in the overall debt structure, the greater the financial leverage. The following measures help you determine whether your company's level of debt is appropriate and assess its ability to pay the interest on its debts.

Interest coverage. This measures a company's margin of safety: how many times over the company can make its interest payments.
To calculate interest coverage, divide earnings before interest and taxes by the interest expense.
Debt to equity. This measure provides a description of how well the company is making use of borrowed money to enhance the return on owner's equity.
To calculate the debt-to-equity ratio, divide total debt (long-term debt plus short-term debt plus current maturities) by total shareholders' equity.

Operating ratios

2010-04-28T05:37:00.001-07:00

By linking various income statement and balance sheet figures, these measures provide an assessment of a company's operating efficiency.

Asset turnover. This shows how efficiently a company uses its assets.
To calculate asset turnover, divide sales by assets. The higher the number, the better.
Days receivables. It's best to collect on receivables promptly. This measure tells you in concrete terms how long it actually takes a company to collect what it's owed. A company that takes 45 days to collect its receivables will need significantly more working capital than one that takes four days to collect.
To calculate days receivables, divide net accounts receivable for the given time period by net sales, then multiply that quotient by 365.
Days payables. This measure tells you how many days it takes a company to pay its suppliers. The fewer the days it takes, the less likely the company is to default on its obligations.
To calculate days payables, divide accounts payable by the cost of goods sold for the period in question, then multiply that quotient by 365.
Days inventory. This is a measure of how long it takes a company to sell the average amount of inventory on hand during a given period of time. The longer it takes to sell the inventory, the greater the likelihood that it will not be sold at full value—and the greater the sum of cash that gets tied up.
To calculate days inventory, divide the average amount of inventory on hand for the period by the cost of goods sold for the same period, then multiply that quotient by 365.
Current ratio. This is a prime measure of how solvent a company is. It's so popular with lenders that it's sometimes called the banker's ratio. Generally speaking, the higher the ratio, the better financial condition a company is in. A company that has $3.2 million in current assets and $1.2 million in current liabilities would have a current ratio of 2.7 to 1. That company would be generally healthier than one with a current ratio of 2.2 to 1.
To calculate the current ratio, divide total current assets by total current liabilities.
Quick ratio. This ratio isn't faster to compute than any other—it simply measures the ratio of a company's assets that can be quickly liquidated and used to pay debts. Thus, it ignores inventory, which can be hard to liquidate (and if you do have to liquidate inventory quickly, you typically get less for it than you would otherwise). This ratio is sometimes called the acid-test ratio because it measures a company's ability to deal instantly with its liabilities.
To calculate the quick ratio, divide cash, receivables, and marketable securities by current liabilities.

Profitability ratios

2010-04-28T05:35:00.003-07:00

These measures evaluate a company's level of profitability by expressing sales and profits as a percentage of various other items.

Return on assets (ROA). ROA provides a quantitative description of how well a company has invested in its assets.
To calculate ROA, divide net income by assets.
Return on equity (ROE). ROE shows the return on the portion of the company's financing that is provided by owners.
To calculate ROE, divide net income by owner's equity.
Return on Sales (ROS). Also known as profit margin, ROS is a way to measure how sales translate into profit. For example, if a company earns $10 for every $100 in sales, the ROS is 10/100 or 10%.
To calculate ROS, divide net income by the total sales volume.
Gross margin. A ratio that measures the percentage of gross profit relative to sales revenue. Gross profit is profit or income after deducting the cost of goods sold. A decline in gross margin may signal that a company won't be able to meet its expense obligations. To calculate gross margin, first calculate gross profit by subtracting cost of goods sold from sales. Then calculate gross margin by dividing gross profit by sales.
Earnings Before Interest and Taxes (EBIT) margin. Many analysts use this indicator, also known as operating margin, to see how profitable a company's operating activities are.
To calculate the EBIT margin, divide net sales by EBIT.

Measuring Financial Health

2010-04-28T05:35:00.001-07:00

By themselves, financial statements tell you quite a bit: how much profit the company made, where it spent its money, how large its debts are. But how do you interpret all the numbers these statements provide? For example, is the company's profit large or small? Is the level of debt healthy or not?

Ratio analysis provides a means of digging deeper into the information contained in the three financial statements. A financial ratio is two key numbers from a company's financial statements expressed in relation to each other. The ratios that follow in the next posts are relevant across a wide spectrum of industries, but are most meaningful when compared against the same measures for other companies in the same industry.

Comparing the Three Financial Statements

2010-04-27T05:30:00.000-07:00

The three financial statements offer three different perspectives on your company's financial performance. That is, they tell three different but related stories about how well your company is doing financially.

The income statement shows the bottom line: it indicates how much profit or loss a company generates over a period of time—a month, a quarter, or a year.
The cash flow statement tells where the company's money comes from, and where it goes—in other words, the flow of cash in, through, and out of the company.
The balance sheet shows a company's financial position at a specific point in time. That is, it gives a snapshot of the company's financial situation—its assets, equity, and liabilities—on a given day.

Another way to understand the interrelationships is as follows:

The income statement tells you whether your company is making a profit.
The balance sheet tells you how efficiently a company is utilizing its assets and how well it is managing its liabilitiesin pursuit of profits.
The cash flow statement tells you whether the company is turning profits into cash.

The Cash Flow Statement

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A cash flow statement gives you a peek into a company's checking account. Like a bank statement, it tells how much cash was on hand at the beginning of the period, and how much was on hand at the end of the period. It then describes how the company spent its cash. As with a checkbook, uses of cash are recorded as negative figures, and sources of cash are recorded as positive figures.

If you're a manager in a large corporation, changes in the company's cash flow won't typically have an impact on your day-to-day functioning. Nevertheless, it's a good idea to stay up to date with your company's cash flow projections, because they may come into play when you prepare your budget for the upcoming year. For example, if cash is tight, you will probably be asked to be conservative in your spending. Alternatively, if the company is flush with cash, you may have opportunities to make new investments.

If you're a manager in a small company, you're probably keenly aware of the firm's cash flow situation, and feel its impact almost every day. The cash flow statement is useful because it shows whether your company is turning profits into cash—and that ability is ultimately what will keep your company solvent.

The cash flow statement doesn't measure the same thing as the income statement. If there is no cash transaction, it cannot be reflected on a cash flow statement. Notice, however, that net income on the cash flow statement is the same as the bottom line of the income statement—it's the company's profit. Through a series of adjustments, the cash flow statement translates this net income to a cash basis.

In general, a company looks to three sources of cash: ongoing operations, investment activities, and financing activities. It's traditional to start with ongoing operations.

Accounts receivable and inventory represent items the company has produced, but hasn't received payment for. Prepaid expenses represent items the company has paid for but has not consumed. These items are all subtracted from cash flow.

Accounts payable and accrued expenses represents items the company has already received or used, but hasn't yet paid for. So these items add to cash flow.

Investment activities can be

cash the company uses to invest in financial instruments or plant, property, or equipment (such investments in PP & E are often shown as capital expenditures)
gains realized from the sale of plant, property, or equipment
gains realized from converting its investments into cash.

The Balance Sheet

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Most people go to a doctor once a year to get a checkup—a snapshot of their physical well being at a particular time. Similarly, companies prepare balance sheets as a means of summarizing their financial positions at a given point in time.

A balance sheet utilizes double-entry accounting—a system that ensures that each transaction balances. This system relies on the following basic equation:

Assets = Liabilities + Owner's Equity.

Assets are the things a company invests in so that it can conduct business—examples include financial instruments, land, buildings, equipment, and commodities. In order to acquire necessary assets, a company often borrows money from others or makes promises to pay others. Monies owed to creditors are called liabilities. Owner's equity, also known as shareholders' equity, is what, if anything, is left over after total liabilities are deducted from total assets. Thus, a company that has $3 million in assets and $2 million in liabilities would have owner's equity of $1,000,000.

Assets	=	Liabilities	+	Owner's equity
$3,000,000	=	$2,000,000	+	$1,000,000

By contrast, a company with $3 million in assets and $4 million in liabilities would have negative equity of $1 million—and serious problems as well.

Thus, the balance sheet "balances" your company's assets and liabilities: the promises and agreements made with customers are balanced against the promises and agreements made with vendors and stockholders. It provides a description of how much, and where, the company has invested (its assets)—broken down into how much of this money comes from creditors (liabilities) and how much comes from stockholders (equity). Moreover, the balance sheet gives you an idea of how efficiently your company is utilizing its assets and how well it is managing its liabilities.

Balance sheet data is most helpful when it's compared with information from a previous year.

The balance sheet begins by listing the assets that are most easily converted to cash: cash on hand, receivables, and inventory. These are called current assets.

Next, the balance sheet tallies other assets that have value but are tougher to convert to cash—for example, buildings and equipment. These are called plant assets, or, more commonly, fixed assets (because it's hard to move them).

Since most fixed assets, except land, depreciate over time, the company must also include accumulated depreciation in this part of the calculation. Gross property, plant, and equipment minus accumulated depreciation equals the current book value of property, plant, and equipment.

Here again, the balance sheet makes a distinction between short-term liabilities, also known as current liabilities, and long-term liabilities. Short-term liabilities typically have to be paid in a year or less; they include short-term notes, salaries, income taxes and accounts payable.

Subtracting current liabilities from current assets gives you the company's working capital. Working capital gives you an idea of how much money the company has tied up in operating activities. Just how much is adequate for the company depends on the industry and the company's plans. For 1998, Amalgamated had $868,000 in working capital.

Long-term liabilities are typically bonds and mortgages.

Total assets must equal total liabilities plus owners' equity. Thus, subtracting total liabilities from total assets, the balance sheet arrives at a figure for the owners' equity. Owner's equity comprises retained earnings (net profits that accumulate in a company after any dividends are paid) and contributed capital (capital received in exchange for stock).

The Income Statement

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You might want to invest in a company for many reasons. Perhaps it's a leader in the industry. Or its CEO has a great record of turning companies around. Or its products are on the cutting edge of technology. But if the company is not turning a profit, or doesn't show strong potential to become profitable over the medium term, you probably wouldn't want to invest in it.

The income statement tells you if the company is making a profit—that is, whether it has positive or negative net income. (This is why the income statement is also called a profit-and-loss statement.) It shows a company's profitability throughout the year—typically, by presenting monthly, quarterly, and year-to-date summaries of the company's operations. In addition, the income statement tells you how much money the company spends to make that profit—that is, what its profit margins are.

How does an income statement present this profitability picture? It starts with a company's revenues: how much money has come in the door from its operations. Various costs—from the costs of making and storing its goods, to depreciation of plant and equipment, to interest and taxes—are then deducted from the revenues. The bottom line—what's left over—is the net income or profit.

Consider the following income statement for Amalgamated Hat Rack.

Retail sales $ 2,200,000
Corporate sales $ 1,000,000
Total sales revenue $ 3,200,000
Cost of goods sold $ (1,600,000)
Gross profit $ 1,600,000

Operating expenses $ (800,000)
Depreciation expense $ (42,500)
Earnings before interest and taxes $ 757,500

Interest expense $ (110,000)
Earnings before income tax $ 647,500

Income tax $ (300,000)

Net income $ 347,500

The cost of goods sold is what it cost Amalgamated to manufacture the hat racks. It includes raw materials, such as fiberglass, as well as direct labor costs.

By deducting the cost of goods sold from sales revenues, we get a company's gross margin—the roughest estimation of the company's profitability.

Operating expenses include administrative employee salaries, rents, sales and marketing costs, as well as other costs of business not directly attributed to manufacturing a product. The fiberglass for making hat racks would not be included here; the cost of the advertising would.

Depreciation is a way of estimating the "consumption" of an asset over time, or of accounting for the diminishing value of equipment as time goes by. A computer, for example, loses about a third of its value each year. Thus, according to the matching principle, the company would not expense the full value of the computer all in the first year of its purchase, but as it is actually used over a span of three years.

By subtracting operating expenses and depreciation from gross margin, we get operating earnings—often called earnings before interest and taxes, or EBIT.

Interest expense refers to the interest charged on loans a company takes out.

Income tax is levied by the government on corporate income.

The bottom line—in this case, the net income is positive, thus indicating a profit—is what the for-profit company lives for.

Accounting methods

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Financial statements follow the same general format from company to company. Depending on the nature of the company's business, however, specific line items may vary. Still, the statements are usually similar enough to allow you to compare one business's performance against another's. The reason for this similarity is that accountants abide by Generally Accepted Accounting Principles, or GAAP.

Most companies use accrual accounting: Income and expenses are booked when they are incurred, regardless of when they are actually received or paid. This system relies on the matching principle, which helps companies understand the true causes and effects of business activities. Accordingly,

revenues are recognized during the period in which the sales activity occurred
expenses are recognized in the same period as their associated revenues.

For example, at Amalgamated Hat Rack Co., which manufactures hat racks from imitation moose antlers, the revenue for a customer order is booked as each hat rack ships—even if payment is made on account and the cash is not received immediately. Similarly, if Amalgamated receives 2,000 brass hooks from a contracted supply company, those hooks are not all expensed at once. Rather, they are expensed on a per-unit basis: if it takes five brass hooks to make one hat rack, then the brass hooks are expensed five at a time as each hat rack is shipped out.

Occasionally, a very small company will begin its existence using cash-basis accounting, which counts transactions when cash actually exchanges hands. This practice is less conservative when it comes to expense recognition, but sometimes more conservative when it comes to revenue recognition. But as companies increase in size and complexity, it becomes more important to match revenues and expenses in the appropriate time periods, so they tend to switch over to accrual accounting.

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Financial terms defined - O through Z -

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Operating cash flow (OCF). The net movement of funds from the operations side of a business, as opposed to the investment side. OCF is usually described in terms of the sources and uses of cash. When more cash is going out than coming in, there is a negative cash flow; when more cash is coming in than going out, there is a positive cash flow.

Operating profit (EBIT). The difference between the revenues of a company and the costs and expenses associated with conducting business. Also known as earnings before interest and taxes.

Operating ratios. Financial measures that link various income statement and balance sheet figures to provide an assessment of a company's operating efficiency. Examples of operating ratios include asset turnover, days receivables, days payables, days inventory, current ratio, and quick ratio.

Payback period. The length of time needed to recoup the cost of a capital investment; the time that transpires before an investment pays for itself.

Pretax profit. Net income before federal income taxes.

Price-to-book ratio. A method of valuation for stock, this ratio is calculated by dividing the current market price of a share of stock by the stock's book value per share.

Price-to-earnings ratio (P/E). A common measure of how cheap or expensive a stock is, relative to earnings. P/E equals the current price of a share of stock divided by the previous 12 months' earnings per share.

Productivity measures. Indicators such as sales-per-employee and net-income-per-employee, which link revenue and profit generation information to work force data, thereby providing a picture of employees' effectiveness in producing sales and income.

Profitability ratios. Measures of a company's level of profitability, in which sales and profits are expressed as a percentage of various other items. Examples include return on assets, return on equity, and return on sales.

Property, plant, and equipment (PP&E). A line item on a balance sheet that lists the value of a business's land, buildings, machinery, equipment, and natural resources that are used for the purpose of producing products or providing services.

Purchase order. A written authorization to a vendor to deliver goods or services at an agreed upon price. When the supplier accepts the purchase order, it is a legally binding purchase contract.

Quick ratio. A measure of a company's assets that can be quickly liquidated and used to pay debts. It is sometimes called the acid-test ratio, because it measures a company's ability to deal instantly with its liabilities. To calculate the quick ratio, divide cash, receivables, and marketable securities by current liabilities.

Ratio analysis. A means of analyzing the information contained in the three financial statements, a financial ratio is two key numbers from a company's financial statements expressed in relation to each other. Ratios are most meaningful when compared to the same measures for other companies in the same industry.

Return on assets (ROA). Expressed as a percentage, ROA is a quantitative description of how well a company has invested in its assets. To calculate it, divide the net income for a given time period by the total assets. The larger the ROA, the better a company is performing.

Return on equity (ROE)/return on owner's equity. This measure shows the return on the portion of the company's financing that is provided by owners. It answers the question, "How profitable have management's efforts been?". To calculate ROE, divide the total income by total owners' equity.

Return on sales (ROS). Also known as profit margin, ROS is a way to measure a company's operational efficiency—how its sales translate into profit. To calculate ROS, divide net income by the total sales volume.

Sales. An exchange of goods and services for money.

Sunk costs. Prior investment that cannot be affected by current decisions, and thus should not be factored into the calculation of the profitability of an initiative.

SWOT analyses. An analysis of a company's strengths, weaknesses, opportunities, and threats.

Time value of money. The principle that a dollar received today is worth more than a dollar received at a given point in the future. Even without the effects of inflation, the dollar received today would be worth more because it could be invested immediately, thereby earning additional revenue.

Top-down budgeting. A budgeting process whereby senior management sets very specific objectives for such things as net income, profit margins, and expenses. Unit managers then allocate their budget within these parameters to ensure that the objectives are achieved.

Valuation. An estimate of a company's value, usually for the purposes of purchase and sale, or taxation. Leverage ratiosand operating ratios provide means of evaluating and comparing companies' worth. Wall Street uses other ratios that describe a company's financial performance in relation to its stock price: earnings per share (EPS), price-to-earnings ratio (P/E), and price-to-book ratio.

Working capital. A measure of a business's ability to pay its financial obligations, working capital equals the difference between a company's current assets (easily sellable goods, cash, and bank deposits) and its current liabilities (debt due in less than a year, interest payments, etc.). Shortages of working capital are often relieved by short-term loans.

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Financial terms defined - H through N -

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Hurdle rate. The rate of return on investment dollars required for a project to be worthwhile. It is typically a higher rate of return than what would have been obtained by investing the capital in low- or moderate-risk financial instruments.

Income statement. A report that indicates how much profit or loss a company generates over a period of time—a month, a quarter, or a year. In addition, the income statement, sometimes referred to as the earnings statement, tells how much money the company spends to make its profits.

Interest coverage. This measures a company's margin of safety, or how many times over the company can make its interest payments. To calculate interest coverage, divide earnings before interest and taxes by the interest expense.

Inventory. The supplies of the company that are or will become its product. Examples include the merchandise in a shop, the finished work in a warehouse, work-in-progress, and raw materials.

Investment in PP&E. Dollars spent on Property, Plant, and Equipment. Sometimes called capital investment or capital expenditures.

Invoice. A bill submitted to the purchaser, listing all items or services, together with amounts for each.

Journals. The transaction records of the business.

Leverage ratios. Ratios that assess a company's debt structure. The greater the component of long-term debt in a company's overall debt structure, the greater the financial leverage. These ratios, including interest coverage and debt to equity, help determine whether a company's level of debt is appropriate and assess its ability to pay the interest on its debts.

Liabilities. The economic claims against a company's resources. Such debts include bank loans, mortgages, and accounts payable.

Margin (%). Another term for profit, this equals revenues minus expenses. The margin is often expressed as the percentage by which revenues exceed expenses.

Market price appreciation. The increase in the value of an asset over a specified time period.

Market value. The value of an asset if it were to be sold at the current market price.

Net book value (NBV). The value at which an asset appears on the books of an organization, minus any depreciation (usually as of the date of the last balance sheet) that has been applied since its purchase or its last valuation.

Net income. The income of an organization after deducting the expenses, including interest and taxes, incurred in earning that income.

Net present value (NPV). The economic value of an investment, calculated by subtracting the cost of the investment from the present value of the investment's future earnings. Because of the time value of money, the investment's future earnings must be discounted in order to be expressed accurately in today's dollars.

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Financial terms defined - E , F and G -

2010-04-15T06:28:00.001-07:00

Earnings per share (EPS). One of the most commonly watched indicators of a company's financial performance, it equals net income divided by the number of shares outstanding. When EPS falls, it usually takes the stock's price down with it.

Economic Value Added (EVA). The profit left over after a company has met the cost of capital—the expectations of those who provided of the capital.

Equity. The value of a company's assets minus its liabilities. On a balance sheet, equity is referred to as shareholders' equity or owner's equity.

Expenditure. An activity that results in an expense, or, the payment of cash for goods or services. This is a more specific term than "disbursement," which can include payments other than cash.

Financial leverage. A company's long-term debt in relation to its capital structure (the total of its common stock, preferred stock, long-term debt, and retained earnings). A company that has consistently high earnings can afford to be more leveraged, that is, it can afford to carry more long-term debt than a company whose earnings fluctuate significantly.

Financial statements. Reports of a company's financial performance. The three basic types of statement included in an annual report—the income statement, the balance sheet, and the cash flow statement—present related information, but provide different perspectives on a company's performance.

Fiscal Periods. An accounting time period (month, quarter, year), at the end of which the books are closed and profit or loss is determined.

Fixed vs. variable costs. Fixed costs remain constant despite sales volume; they include interest expense, rent, depreciation, and insurance expenses. Variable costs are incurred in relation to sales volume; examples include the cost of materials and sales commissions.

General ledger. A company's centralized and authoritative accounting record, where balance sheet, income, and expense information for the period in question is summarized.

Generally accepted accounting principles (GAAP). The rules and conventions that accountants follow in recording and summarizing transactions and preparing financial statements.

Gross margin. A ratio that measures the percentage of gross profit relative to sales revenue.

Gross profit. The sum left over after all direct product expenses or costs of goods sold have been subtracted from revenues.

Growth. An increase in the value of a company's revenues, profits, or the value of its equity.

Growth indicators. Measures that tell about a company's financial health. Common measures of growth include sales growth, profitability growth, and growth in earnings per share.

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Financial Terms Defined - D -

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Days inventory. A measure of how long it takes a company to sell the average amount of inventory on hand during a given period of time. The longer it takes to sell the inventory, the greater the likelihood that it will not be sold at full value—and the greater the sum of cash that gets tied up. To calculate days inventory, divide the average amount of inventory on hand for the period by the cost of goods sold for the same period, then multiply that quotient by 365.

Days payables. A measure that tells how many days—based on balance sheet and income statement data—it actually takes a company to pay its suppliers. The fewer the days it takes, the less likely the company is to default on its obligations. To calculate days payables, divide accounts payable by the cost of goods sold for the period in question, then multiply that quotient by 365.

Days receivables. A measure that tells you in concrete terms—based on balance sheet and income statement data—how long it actually takes a company to collect what it is owed. A company that takes 45 days to collect its receivables will need significantly more working capital than one that takes four days to collect. To calculate days receivables, divide net accounts receivable for the given time period by net sales, then multiply that quotient by 365.

Debt. What is owed to a creditor or supplier. Debt is sometimes referred to as notes payable or bonds payable.

Debt to equity. This measure provides a description of how well the company is making use of borrowed money to enhance the return on owner's equity. To calculate the debt-to-equity ratio, divide total debt (long-term debt plus short-term debt plus current maturities) by total shareholders' equity.

Depreciation. A way of accounting for the diminishing value of an asset as time goes by.

Direct vs. indirect costs. Costs that are directly attributable to the manufacture of a product—for example, the cost of plastic for a bottling company. Direct costs vary in direct proportion to the number of units produced. Indirect costs cannot be directly attributed to a particular product—for example, the cost of machines that are used in the production of more than one product.

Dividend. A payment (usually occurring quarterly) to the stockholders of a company, as a return on their investment.

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Financial terms defined - C -

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Capital expenditure/capital investment. The payment required to acquire or improve a capital asset.

Cash-basis accounting. An accounting process that records transactions when cash actually exchanges hands. This practice is less conservative than accrual accounting when it comes to expense recognition, but sometimes more conservative when it comes to revenue recognition.

Cash flow statement. A review of a company's use of cash, this statement tells where the company's money comes from, and where it goes—in other words, the flow of cash in, through, and out of the company.

Cash utilization/cash flow measure. The changes that affect a cash account during an accounting period.

Chart of accounts. A way to outline the accounting system of a business, the chart of accounts establishes how the business will operate, what information will be captured, and what information will subsequently be readily retrievable by the system. It includes such items as inventory, fixed assets, accounts receivable, and costs.

Cost of capital. The costs of different types of capital, including short-term debt, long-term debt, and equity. This cost is typically expressed as a percentage of the underlying capital.

Cost of goods sold (COGS). The total cost paid for the products sold during the accounting period, plus freight-in costs. Most small retail and wholesale businesses compute cost of goods sold by adding the value of the goods purchased during the accounting period to the value of the beginning inventory, and then subtracting from that figure the value of the inventory on hand at the end of the accounting period. For manufacturers, cost of goods sold includes, in addition to raw materials, the direct cost of manufacturing labor (including Social Security and unemployment taxes on factory employees), and overhead charges such as supervision, power, and supplies.

Cost of services (COS). Charges billed to a customer for a service. Overhead is often included in the calculation of the cost of services.

Costs and expenses. The costs related to running the business—for example, salaries, office overhead, light, heat, legal and accounting services.

Current assets. Those assets that are most easily converted into cash: cash on hand, accounts receivable, and inventory.

Current ratio. This is a prime measure of how solvent a company is. It's so popular with lenders that it's sometimes called the banker's ratio. Generally speaking, the higher the ratio, the better financial condition a company is in. A company that has $3.2 million in current assets and $1.2 million in current liabilities would have a current ratio of 2.7 to 1. That company would be generally healthier than one with a current ratio of 2.2 to 1. To calculate the current ratio, divide total current assets by total current liabilities.

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Financial terms defined - B -

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Balance sheet. A means of summarizing a company's financial position—its assets, equity, and liabilities—at a specific point in time. According to the basic equation in a balance sheet, a company's assets equal its liabilities plus owner's equity. Balance sheet data is most helpful when compared with information from a previous year.

Banker's ratio. See current ratio.

Book value. The value at which an asset is carried on a balance sheet. The book value of equipment is reduced each year for depreciation. Therefore, the book value at any time is the cost minus accumulated depreciation.

Bottom-up budgeting. A process whereby managers put together budgets that they feel will best meet the needs and goals of their respective departments. These budgets are then "rolled up" to create an overall company budget, which is then adjusted, with requests for changes being sent back down to the individual departments.

Breakeven. The volume level at which the total contribution from a product line or investment equals total fixed costs. To calculate the breakeven volume, subtract the variable cost per unit from the selling price to determine the unit contribution, then divide the total fixed costs by the unit contribution.

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Financial terms defined - A

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Accounts payable (A/P). Money owed by the firm to agencies and suppliers.

Accounts receivable (A/R). Money owed to a company for goods or services sold. The figure is important in determining a business's ability to meet its financial obligations.

Accrual accounting. An accounting method whereby income and expenses are booked when they are incurred, regardless of when they are actually received or paid. Revenues are recognized during the period in which the sales activity occurred; expenses are recognized in the same period as their associated revenues.

Accruals. An amount incurred as an expense in a given accounting period—but not paid by the end of that period. An example would be the electricity bill for a given quarter.

Activity-based costing (ABC). An approach to cost accounting that focuses on the activities or cost drivers required to produce each product or provide each service. ABC assumes that most overhead costs are related to activities within the firm and that they vary with respect to the drivers of those activities.

Allocation. The process of spreading costs from one expense category to several others, typically based on usage. For example, such corporate overhead expenses as rent and utilities may be charged to departmental units based on square feet.

Amortized expenses. The costs for assets such as buildings and computers, which are depreciated (expensed) over time to reflect their usable life.

Assets. The economic resources of a company. Assets commonly include cash, accounts receivable, notes receivable, inventories, land, buildings, machinery, equipment, and other investments.

Asset turnover. A measure of how efficiently a company uses its assets. To calculate asset turnover, divide sales by assets. The higher the number, the better.

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Understanding Financial Statements

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Companies do many things: build cars, process data, provide services, even launch satellites. But the underlying purpose of all for-profit companies is to make money. As a for-profit manager, your job is to help the company make money—preferably, more money each year. Even if you work in the nonprofit or government sectors, where net income is neither the only nor the most important bottom line, it is still vital that you carefully monitor how much money comes in and where it gets spent.

You can help your company make money by reducing costs, increasing revenues, or both. The best managers don't just mind the budget—they look for the right combination of controlling costs and improving sales.

How's your company's financial health? Where does its revenue come from, and where does it spend its money? How much profit is it making? Companies provide answers to such questions in three documents, called financial statements: the income statement, the balance sheet, and the cash flow statement. Publicly traded companies make these statements available to everyone—shareholders, industry analysts, and competitors as well. As a result, they are not as detailed as the company's internal financial statements.

How do I deal with rumors that are damaging morale?

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The only way to stop rumors is with the truth. It is important that management be very candid and that it make available to employees, and others, truthful information in a timely fashion. This can be done with Web sites, telephone call-ins, taped messages, memos, etc.

What if I discover that a capable and loyal employee has violated the law and done so thinking that it would be in the interest of the company?

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The violation should be disclosed immediately to at least the legal department and generally to the authorities. The company can provide the employee with good outside legal assistance, but a firm can never condone any form of violation of the law, no matter how well intentioned.

Should I disclose possible problems (to the public, my boss, my colleagues) if I am not certain that they are real problems or if there is a possibili

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In general, it is best to disclose even potential problems. Although one does not want to make a habit of crying wolf, it is much worse to surprise others when problems do become serious. Furthermore, when problems are disclosed, your company may be able to find a way of avoiding them.

What if my boss wants to cover up a problem?

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First, talk to your boss. If that doesn't work, get a new job or blow the whistle, or both. If your boss is trying to cover up a problem, then you will either become part of the cover-up, or you will appear to be part of it. You could even become the fall guy, the person who is blamed. In any case, your reputation will be damaged and you will suffer serious repercussions. Reveal the cover-up and/or get out.

Managing Yourself During the Crisis

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Managers can show themselves as true leaders during a crisis. How do leaders handle themselves during a crisis? How do they handle their uncertainty and fear? They use the energy they derive from their feelings to face the crisis and deal with it as effectively as possible.

Dealing with a short-term crisis

If the crisis flares up and is over quickly, then try these simple steps to maintain your own emotional balance.

Stop. As soon as you begin to feel the first rush of anxiety flooding your mind, say "Stop!" to yourself. Say "Stop!" out loud. Repeat the message two more times. To face a crisis, you need to have a clear mind as unclouded by anxiety, toxic stress, and fear as possible. Thus, recognizing those feelings and verbally pushing back can block them from controlling your mind and actions.
Breathe. Take a deep breath. Hold that breath for eight seconds, and then slowly let the air out. Just as the word "stop" blocks the negative thoughts from your mind, breathing overcomes the stress-induced tendency to hold your breath.
Reflect. By interrupting the pattern of toxic stress and giving yourself energy through breathing, you can now focus on the real problem, the crisis you face. By reflecting on your stress response, you can begin to distinguish the different levels of thought and to sort out reasonable from irrational stress responses. You can see the practical situation more calmly and realistically and distinguish it from the distortions of your anxiety-influenced thoughts.
Choose. Finally, with your attention now on the practical situation itself, you can choose to find real solutions, follow the crisis plan your group has developed, and tend to the needs of the people you lead.

Dealing with a long-term crisis

You may have to handle another kind of crisis—one that starts as a slow burn and then breaks out into a wildfire of trouble. For example, financial crises often start as small problems in receivables, or perhaps cash flow fluctuations, and then build to an inability to borrow or cover basic expenses. You may have a sense of the emerging crisis for several weeks or months, yet you're unable to stop the spread of trouble.

In this case, when you're coping with stress over long periods of time, taking care of yourself becomes even more important. Long-term stress can be toxic—physically harmful to you.

Taking care of yourself gives you the strength and stamina to take care of the impact of the crisis. So even when you feel hemmed in by the growing crisis, remember to

talk to people—don't become isolated
get enough sleep
exercise regularly
eat a balanced diet
avoid alcohol, caffeine, or sugar
take a break whenever you can
find humor wherever you can

Learning from the Crisis

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When you make it through a crisis, don't just try to forget about it. Rather, take the opportunity to learn from the experience and make changes to avoid or prepare for another similar crisis.

Engineers use earthquakes as a learning experience to plan for stronger roads, bridges, and buildings. They use massive floods to determine the best ways for people to adapt to (build dams or dikes) or yield to (move out of a flood plain) the power of nature.

An organization, too, can do a post-crisis audit to learn and even profit from the event.

For example, when everyone in the catalog company mentioned earlier worked overtime to fill a large volume of orders they hadn't expected to receive, they successfully handled the immediate crisis. But operating in crisis mode is an ineffective way to work all the time (even though some businesses don't seem to think so). It takes its toll on morale, turnover, and the health of everyone, especially the manager. After the rush at the catalog company, everyone was given large bonuses and extra vacation time. Then management took steps to plan for the next year, so the company would be prepared to meet a large demand—with less pressure on the employees.

Review how the crisis was handled

Plan the timing of the crisis review soon enough after the event so that people remember details, but long enough for some emotional healing to have taken place.

Analyze the crisis from beginning to end. Pinpoint actions, assumptions, and outside factors that precipitated the crisis. Ask yourself the following questions:

Knowing what we knew then, could the crisis have been prevented? How?
At what point did we realize we were in a crisis? Could we have recognized the signs earlier?
What warning signals went off that we may have ignored?
What warning signals did we pay attention to?
What were the early signs? Why were they turning points?
What did we do right? What could we have done better?
What were the stress points in the system that failed?

Look and plan ahead

Knowing what you know now, how can you prevent the same type of crisis from occurring again? Create a plan so that you learn from what you know.

Get input from everyone. You need to get everyone's story, but pay attention in particular to those with expertise in the areas of importance. If the crisis was technological, then listen to the computer experts, the IT group, the network engineers. If the crisis was relational—a critical vendor cuts off your supply of goods—talk to your buyers, but then get out in the field and find out what happened and why.

For example, the management of the catalog company listened to its employees and to outside consultants. Consultants analyzed workflow, looked at bottlenecks and technology. And everyone in the company who had worked in the warehouse to help get through the crunch now understood first-hand how the business was run. Their experience had taught everyone a great deal. The CEO set up a system to tap into the cumulative knowledge of everyone in the company. A suggestion program was implemented, and many suggestions were put into practice. A $100 reward was given each quarter to the employee who came up with the best idea.

Incorporate the ideas and information in your next round of strategic planning. You've already performed your first crisis audit; now, you'll have much more knowledge to improve the revised audit and the crisis-prevention plan.

Track results

Track the results of changes you make in the wake of the crisis. How are they working? Will they actually reduce the negative impact of a future event?

Resolving the Crisis

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By definition a crisis requires fast, confident decision making. But how do you make good decisions when events are moving quickly? During times of confusion? When it's hard to sort out what's important and what isn't? How can you stay on track?

Be aware of the effects of stress

Typically, three emotions can combine to create the stress you feel during a crisis:

fear of disaster
anticipation of a potentially positive outcome
desire for the crisis to be over

Under stress, you feel the pressure to make a decision. But the pressure can push you to a state of panic where you are making decisions solely to be "doing something." In reality, however, you are dispersing energy and resources—and this energy is your source of strength. Use the power of positive stress to handle the crisis as a confident leader.

Avoid toxic stress responses. Often people respond to these natural and conflicting feelings of fear, hope, and despair in ways that can aggravate—rather than relieve—the crisis.

Be sure to avoid these common ineffective and often harmful responses.

When in doubt, scream and shout. The noise may seem as though the manager is doing something, but it is a waste of energy and fails to lessen the crisis situation.
Hide your head in the sand. At times, the pressure to act becomes so stressful, a manager slips into a state of paralysis and can't make any decisions at all.

The leadership role

Whether acting as the CEO of a large corporation or a supervisor of a department, an effective leader finds out as quickly as possible what the real problem is. Often in a crisis, there will be a flurry of information, most of it inaccurate. It's your task to discover the truth and face it by asking the right people, listening to the most reliable voices, and going to the right places.

A leader in a crisis responds by

facing the crisis—turning fear into positive action
being vigilant—watching for new developments and recognizing the importance of new information
maintaining focus on the priorities—ensuring that people are safe first, and then assessing the next most critical needs
assessing and responding to what is in his or her control and ignoring what is not

Act. Once you understand the problem, there are really probably only a few realistic options open to you. If you have a crisis plan in place, use it.

Work together. A leader has the power to draw people together to act as a team. If your people know you are in charge, they will respond to your direction.

For example, when a catalog retailer that offered a large number of custom products—monogrammed bags, sweaters, and so forth—put out its holiday catalog, it was shocked by the positive response. From the moment the catalog was released in October, its phone lines were swamped. The company hired temporary help to work the phones, but still had a tremendous bottleneck: customizing and shipping the products. It was the holiday season. The head of distribution recognized that if they didn't get everything shipped in time for Christmas, there might not be a next season.

So the CEO put out a call for help and recruited management and administrative staff to work in the warehouse in the evenings—after they had done their regular jobs. Everyone worked together for six long and grueling weeks—everyone from the top down. By working as a team, the whole company eventually enjoyed astonishing success by growing 80% in that one year. What could have been a crisis and failure was turned around by teamwork.

Avoid blaming others. As the crisis heats up, the impulse to blame people can become irresistible. Certainly, a team member's incompetence or serious error may have caused the crisis, or may be perpetuating it. However, during the heat of the crisis, trying to find a scapegoat is counterproductive. Focus your people on handling the crisis, not on blaming others.

Later, after the crisis, it will be up to you to analyze whether or not a person should be reprimanded in some way. However, keep in mind that constant fault-finding lowers morale and stifles the creativity and commitment you need to solve the problem. Create an atmosphere where people look forward to what needs to be done, not backward to who was at fault.

Do what needs to get done. Rules, policies, structures, procedures, and budgets are created to maintain order and provide a productive process in the normal course of business. But most rules were not created with a crisis in mind. Do whatever has to be done, and don't worry about the "rules"!

Containing the Crisis

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When a crisis does strike, the first thing you must do is contain it. Your goal is to stop the hemorrhaging fast. You must make decisions quickly. Be on the scene. Your physical presence is important. It lets everyone know that your company cares about what is happening. And you must communicate critical information to key people.

For example, when a supermarket chain was accused by major TV network of selling spoiled meat, the value of its stock plummeted. But the management team responded quickly. They gathered the facts by not only listening to the news media and hearing the message from stockholders but by paying attention to and working with their own employees as well.

They immediately stopped the practice of selling less-than-fresh meat, and they put large windows in the meat-preparation areas so the pubic could watch meat being packaged. They expanded their employee training, gave public tours of their facilities, and offered consumer discounts to draw people back into the stores. The company eventually earned an excellent rating from the Food and Drug Administration and sales returned to normal.

Be decisive and compassionate

When a torrential rain flooded a section of a building, the water destroyed computers, carpeting, paper records, and the workspace of 10 employees. The manager was on the scene as the workers showed up in the morning to help workers and direct immediate clean-up efforts. Later, after the clean-up, workers began having breathing problems and headaches. Though the carpet had been cleaned, it was determined that it was probably infested with mold. Instead of trying to clean the carpet again, or waiting for budgetary approval, the manager immediately ordered all the carpet in the area be removed and replaced.

Make decisions. This manager demonstrated two essential qualities necessary in a crisis—decisiveness and compassion. First, his presence on the scene showed that he, and the company, cared. Later, his decisiveness in replacing the toxic carpeting demonstrated that the health of employees was more important than any other consideration.

Decisiveness is not always easy, but it is important. Often you have to act on too little or inexact information. If there is no workable contingency plan in place, if there are no guidelines for the situation, and if there are no trusted confidants, there is still always your conscience. Ask yourself, what is the right thing to do? And then do it, hoping it is the right thing!

Respond to your people. Compassion is a part of many organizations' cultures, and it is typically rewarded in those cultures. But not always. Some companies pride themselves on having a ruthless and competitive culture. Nevertheless, a manager still has the power to set the tone for his or her own division. No manager—regardless of the corporate culture—has to abandon compassion or humanity, especially during a crisis.

Go public

Anyone who is handling a crisis is going to have to communicate with others. This could be the general public, or your immediate vendors, suppliers and clients. In any case, you will need to communicate to your team how the crisis will impact them and what they need to do. What you say and how you say it are critical. You are managing the perceptions of people whose reactions can drastically affect what happens. The way you communicate can precipitate actions that can make the crises worse—or better. A crisis, by definition, means that there is bad news. Dealing with pain and anger early on can forestall far worse problems later on. Your goal is to contain the overall crisis, not to make the present moment easier.

Expect rumors and false information. During a crisis, people want information—true or not. Use the communication plan you've developed as part of your crisis planning to address and stop the flood of false news.

Notify key people. Inform anyone who needs to know—company management, customers, employees, suppliers, government authorities—and do so quickly, within two hours, if possible. If you have created a communications plan or list of important phone numbers, now is the time to use it.

Stick to the facts. Whether you're talking to co-workers, authorities, or the media, make your message straightforward and honest.

Avoid these typical, but inappropriate messages:

"No comment."
"We haven't read the complaint."
"A mistake was made."

As Warren Buffet made it clear in the quote above, give all the facts that you know. You are not obligated to speculate, or to cover-up because lying and speculating will only damage your credibility and your company's credibility if and when you are proven wrong.

Communicate all the bad news at once. It's like pulling off a sticky bandage. It will hurt now, but it will be over soon.

Communicate honestly. If you don't communicate honestly and openly, you will likely face a host of dangers.

People will think you have something to hide and resent it. They'll keep digging, and when they find out what's going on, they will blame you.
People cannot act effectively unless they as fully informed as you are.
People will not be fully behind you if they do not understand the problem. You need as much support as you can get!

Recognizing the Crisis

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The CEO of a major corporation was alerted one day that the president of one of its subsidiaries—a film company—had been accused of embezzling money and forging checks. But the CEO refused to believe that the film-company president would ever commit such crimes. He ignored the problem, but it didn't go away. By the time the CEO decided to fire the president, the charismatic thief had gotten board members lined up on his side. The board insisted on keeping the president. The situation worsened, with reports coming out in the paper tarnishing the name of the film company, the corporation, and all involved—including the CEO. It was an ugly, painful crisis, and one that could have been completely avoided had it been recognized as a potential crisis and dealt with promptly.

Like the CEO, many managers don't want to face unpleasant situations. Unfortunately, unpleasant situations can be signs of an impending crisis.

Is it a crisis?

Pay attention to that voice inside you that says "Uh-oh, there's something wrong!" The CEO must have been very disturbed when he found out that his film-company president was accused of embezzling. But he rationalized the event by telling himself that what he had heard was impossible.

On a day-to-day basis, managers learn of many disturbing facts and events. Instead of trying to ignore them, rationalize them, or minimize their importance, turn around and face them. Take a minute to step outside yourself and question the event and its consequences.

Characterize the event. If you answer yes to any of the following questions, you are probably dealing with an impending crisis.

Has the event caused—or does it have the potential to cause

injury to any person?
a threat to health or safety of any person?
a threat to the environment?
a breakdown in your company's ability to serve customers or to do business?
a serious threat to employees' morale and well-being?
a loss of data?
a breakdown in your company's ability to communicate?
potential damage to your company's reputation?
serious financial loss?
a legal action against your company or an individual associated with it (employee, subcontractor, partner)?

Evaluate the size of the crisis. Once you've realized that you are dealing with a crisis, you need to determine its scope and magnitude. Quickly gather as much information as you can.

Ask yourself questions such as the following:

How many people are involved? Who are they?
How long is this likely to last?
Have any laws been broken? If yes, which ones?
Who already knows about the crisis? What do they know?
Who needs to know?
What are the costs already in terms of health? Money? Reputation?

Self-reflect. Evaluate how you manage the situation. Are you someone who tends to underreact? Maybe you need to become more concerned. Or do you have a tendency to overreact? You may need to calm down. If you have time, talk over the event with someone you trust to check the validity of your reaction.

Consider your values. What is important? What is the right thing to do? For example, if an employee is breaking the law—and using the company to do it, what is your responsibility? Or, if a subcontractor is disposing of toxic waste from your company illegally, harming the environment, and possibly endangering lives, and you suspect the company is turning a blind eye to it, what should you do? Who is ultimately responsible when carcinogenic chemicals are found in a community's water supply?

How will you deal with the crisis?

You know you have a crisis on your hands. What do you do? You may have to deal with some aspects of the crisis immediately, but you will also need to come up with a flexible plan for dealing with the crisis' short- and long-term effects.

Get a team in place. You will need to get your crisis-management team in place as quickly as possible. Depending on the scope, members of the team may need to be assigned to the crisis full-time. If the crisis is big enough, or of long enough duration, you may need to pull the crisis-management team off some or all of their regular duties.

If you have performed a crisis audit, then your team members will already know what their roles are and how to communicate with each other.

Get the information you need. Throughout the crisis, you'll need key information about what's happening—as it happens. You'll need to ask the right people the right questions. Work with your team to make sure the information is flowing. You'll also need to make sense out of the information you get. Sort out what's relevant, and what isn't; what's important and what's trivial. It's easy to get bogged down in details, so step back every now and then, and take a broad view of the situation.

At this phase of the crisis, it's important to have a sounding board—a person you can trust to help you talk through ideas, information, and decisions.

Analyze potential risks

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With your group, brainstorm the costs for each risk you've identified. Consider everything that might go wrong, and assess the costs if it should. A risk analysis measures more than just costs in terms of money. Determine costs in terms of human health and safety, and other important factors such as ability to meet customers' demands, ability for employees to work and communicate efficiently, and the company's reputation.

Prioritize those that are most pressing, and deal with them first.

Come up with a crisis or contingency plan. Having selected a key what-if scenario and analyzed possible consequences, brainstorm the kinds of decisions that will have to be made. In the event of a natural disaster, employees may have to be evacuated. Second- or third- shift employees might have to be notified. If a problem arises getting a product to market, additional staff may have to be hired quickly, alternative methods of transportation might have to be lined up, or management may have to answer phones. In the event of an impending strike by transportation workers, you might decide to call in a team of employees who drive minivans to bring some people to work and arrange for some people to work from home.

As you go through this exercise, start to consider who should be making these decisions.

Explore the crisis plan's possible side effects. Perform a reality check on your plan by brainstorming possible side effects.

For example, when a chain of auto-repair shops wanted to boost sagging sales, management offered mechanics sales incentives. The more work they brought in, the bigger bonus they'd make. Unfortunately, some of the mechanics began recommending unnecessary repairs. Customers complained that they were being ripped off, and the chain's reputation suffered. Similarly, a factory offered incentives for every defective product turned in, but it soon turned out that some workers were deliberately damaging products in order to receive the awards. And when a pizza company promised to deliver their "pizza in 30 minutes or it's free," speeding drivers caused car accidents.

You don't have to cover every eventuality, but thinking things through carefully can help prevent problems.

Form a crisis-management team

The outcome of the crisis depends on the performance of the people making the decisions. The better prepared they are, the better the crisis will be handled.

Determine who on your team will

be involved in handling each aspect of the crisis
make what kinds of decisions
notify authorities within the company
notify employees, government agencies, media, and so forth
decide if employees should stay home
decide to evacuate a building
decide to hire temporary personnel in the event of an unexpected business rush

Once these decisions have been made, make sure that every person on the team has a back-up in case they are unavailable.

Create and distribute a list of all phone numbers, e-mail addresses, and ways to reach critical team players. Have people put the list on their computers, in their mobile-phone address books, on wireless communicators, and in their home office . . . wherever anyone on the team could possibly need access to it.

Form a crisis network. Identify both formal and informal networks within the organization. Who are key players you may need to rely on in a crisis? Make it a point to establish relationships that you don't already have. When a crisis comes, it's a lot easier to handle if you already know all the players.

Recognize the risks

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Consider a major investment company that had only one line of business—helping individual investors buy and sell stocks. When the investment market was at its peak, this company did a booming business. It poured its profits into expanding its business by hiring more people and opening more offices. But when the economy stalled and individual investors stopped buying, the company had no other sources of revenue. The company's stock dropped and they were forced to make huge layoffs which affected everyone in the organization. By exploring other sources of revenue, and investing some of its profits in those opportunities—and by doing some "what-ifs" about their rate of growth—the company may have lessened some effects of the disaster. Of course, some things are clear in hindsight, but important lessons are all around.

Use the results of your crisis audit as a basis from which to brainstorm potential crises. Question basic assumptions about your business—both the present, and the future. What assumptions do you have that might not be true? Ask yourself, "What would happen if people stopped buying our best-selling product?" or "What if demand for our product is so huge that we can't fill our orders?" It's important to do this as a group. Other people can provide a valuable perspective on each other's closely held assumptions. And finally ask, "How would this impact our group?"

Once you've determined what crises you need to plan for, consider ways to minimize these risks.

Preparing to Manage the Crisis

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In business, creating a contingency plan means making as many decisions as you can before the crisis occurs, so that your energies can go into handling the crisis effectively when it does occur. Many of these tasks are fairly easy to do when things are going well, but difficult and stressful to do in the middle of a crisis.

However, just a as a hospital arranges for a standby generator in case power goes out during surgery, you need back-up plans for the set of crises you have identified as the ones your company or department must expect and prepare for.

Avoiding the Crisis

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Crises that are handled poorly often get the greatest media attention. But we don't often hear much about crises that were prevented. Remember the Y2K bug? On New Year's Day, 2000, virtually every computer in the world made the calendar switch to the new millennium without a hitch. All those listening for trouble heard was the quiet sound of a crisis that had been prevented. For years, businesses had worked to solve the Y2K problem before it happened. And their efforts paid off.

Of course, managers at every level of an organization intercede and prevent minor crises every day.

A sales representative notices that a client's name is misspelled on every page of a major sales proposal. The manager has all the copies destroyed, makes the adjustments, and has new proposals printed at an all-night copy center saving the company from losing a major account.
A manager foresees a cash flow shortage, takes steps to hurry receivables, and makes sure a credit line is available at the company's bank should the expected cash still not come in.
A manager who, when informed that a key employee is leaving, takes steps to find a replacement instead of leaving it to the last minute.

All these managers are actively involved in avoiding crises. It's their job.

Perform a crisis audit

Most managers are already attuned to possible and probable crises and take some steps to avoid them. But you can become even more effective by preparing for crises when things are going well. The first step is to perform a crisis audit. Look for things that are going wrong now or that have the potential to go wrong in the future.

A crisis audit may look like one more "To do" on your long list, but examining what has the potential to go wrong should not be just one more item to be squeezed into your already busy day but, rather, an important part of your company's or department's long-term plan.

A crisis audit involves the following steps:

Make crisis planning a part of your strategic planning. Incorporate the crisis audit into your part of the overall strategic planning process. Whether you run your own business or department, you still have to plan strategically for the future, and that planning needs to include crisis planning.

Get together and share ideas. People's perspectives about potential crises often differ greatly. No one person has all the information a company needs. By talking to people from other areas of your department, division, or company, you may get some surprising information. Work with colleagues in your department and in other departments to analyze your situation.

Perform the SWOT analysis from a crisis perspective. One useful strategic planning tool is the SWOT analysis (Strengths, Weaknesses, Opportunities, Threats). Conduct the analysis specifically from a crisis perspective—after all, crises often evolve from internal weaknesses or external threats.

What are your organization's internal weaknesses? Where might a crisis occur in your normal business procedures? For example, are you so understaffed that if one member of the team were to leave, you couldn't function? Or is your infrastructure old and patched together? Are you having quality control problems that could lead to consumer dissatisfaction or harm?

What are your most likely external threats? Which of those threats would be the most damaging to your company? Is your competition likely to introduce a radically new product, making yours obsolete?

Note: Often people refuse to recognize the one major threat that looms over the company. By ignoring the reality, any constructive action that might avert or lessen the impact of the problem is left undone. For example, if your company has been successfully producing one major product line, but the managers refuse to acknowledge a new, innovative product that will eventually make your entire product line obsolete, your company very likely will not survive.

Focus on the four major crisis areas. To break down your audit into manageable segments, focus on the four major areas where crises tend to occur.

Health and environmental disasters: The health and safety of employees, consumers, the general public, and the environment are high priorities. Some of the most embarrassing and damaging crises have occurred when profitability or reputation is placed above health and safety. This type of crisis can escalate from a small problem to a major crisis quickly, particularly when people within the institution try to cover it up, place blame, or minimize its importance.
Technological breakdowns: You probably already have a good idea of some of the biggest weaknesses in your company's or department's technology. Maybe it's the phone system, the server, or the Internet hook-up. Weaknesses in technology can precipitate paralyzing crises if left untreated.
Economic and market forces: Economic forces and market swings can be crises with the greatest opportunities hidden inside—but only if you are prepared. Otherwise, an unexpected market swing can be damaging or even devastating.

For example, consider a small, health-related dot-com at the height of the dot-com investment bubble. The development team invested an enormous amount of money in creating content that was provided for free on the company's Web site. Little money or resources were left to develop the subscription site—the part of the site that was actually set up to make a profit. The company was following the model of other Web-development companies at the time—giving away most of their content for free. And many of these companies went out of business, the ultimate business crisis! Why did this happen? The tiny dot-com might have failed anyway, but by following what everyone else was doing without questioning the business fundamentals, they guaranteed it. They ignored how they were going to make a profit once the venture capital money ran out.
Relationships: People are unpredictable. Consider the fast-food company that sponsored a quiz game with a million-dollar prize. Unknown to anyone in the food company, the subcontractor in charge of printing and distributing the game pieces rigged the outcome of the game—over a period of several years—funneling the prize money to its employees and their friends.

Clients can surprise you; for example, the advertising agency whose Fortune 500 client simply closed its doors. Millions of dollars worth of business were lost.

As a manager, you have to deal with numerous and diverse relationships. Look for vulnerable relationships. Be particularly aware of the one vendor, client, or computer whiz whose sudden departure could ruin your company.

Develop your crisis-risk list. In performing the crisis audit, ask yourselves two basic questions:

What are the worst things that could go wrong?
What are the most likely or probable crises that could occur?

You can't possibly address every potential problem or crisis, and some crises simply won't touch your organization. For example, if your company is not located in an earthquake zone, don't put earthquakes on your crisis risk list. Or, if you are part of a consulting firm, you won't be worrying about a possible labor strike.

Narrow the crisis-risk list by focusing on the crises that would have the worst result, would be most likely to occur, and would affect your group.

The Six stages of crisis management

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There is no simple formula for eliminating crises, following the six stages of crisis management can certainly make a big difference in how successfully you cope with crises.

Six stages of crisis management

Stage 1: Avoiding the Crisis

Stage 2: Preparing to Manage the Crisis

Stage 3: Recognizing the Crisis

Stage 4: Containing the Crisis

Stage 5: Resolving the Crisis

Stage 6: Learning from the Crisis

Quote on leadership

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"The crucial role of language in human evolution was not the ability to exchange ideas, but the increase ability to cooperate"

Fritjof Capra

What should you do when........One team member has bullied the rest of the team into accepting his viewpoint on a decision. Now the rest of the member

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Don’t allow the team to gang up on any individual—even one who bullies.
A team must compromise and accept the decision the team makes. In this situation you do not want to interfere; however, you might want to speak up and encourage the team as a group to find some common ground or new possibilities.

What should you do when......a good debate is happening in your weekly team meeting. Then you notice that not everyone seems to be participating.

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Stop the flow of conversation and ask if anyone else wants to contribute or is feeling left out.
When you structure time for everyone to participate, the team benefits from each member’s opinion.

How to promote team identity

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Use inclusive pronouns, such as "we," "us," and "our," to show that you identify with the team.

Refer often to team goals and mutual interests.

Don’t interrupt members who have less power than you.

Ask members to rephrase statements you don’t understand instead of putting them down.

How to keep Virtual Teams Focused

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Don’t establish virtual teams until you’ve proven that you can successfully manage conventional ones.

Bring the team together—physically, in real time—at least at the beginning of the assignment.

Make doubly and triply sure that you’ve established clear objectives and procedures for the team—you don’t have the luxury of running into team members during the course of the day to clarify issues.

Megacommunicate—contact virtual team members every day.

If some team members work on more than one team at a time, forge alliances with their other managers.

Be extremely alert to potential conflicts when you check the team’s e-mail archive and when having telephone conversations with team members.

How to evaluate your team

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Measure more than just goals—assess group processes as well.

Members are juggling many tasks to reach the team’s goals. How you achieve those goals can be just as important as the end result, especially if the team must work together on an ongoing basis.

Observe how the team communicates, how it deals with adversity, how it resolves conflicts, and what other methods it uses to reach its goals. A useful question to ask yourself is whether the team has created a capability as well as a result.
Solicit outside opinions—for example, customer satisfaction surveys may provide useful insight into how well a team is functioning.

Get to know your team’s weaknesses.

For example, examine your team’s problem-solving methods. Does it spend its time arguing or coming up with solutions? Does it follow its agenda during problem-solving sessions or are its meetings disorganized?
Perhaps your team’s shortcoming is in the area of goal setting or follow-through. Whatever the weaknesses are, you need to pinpoint them before you can address them.

Set up evaluation milestones.

Make sure you provide feedback at regular intervals throughout the project. When a project is over, it may be too late or very difficult to correct past problems.

Help team members evaluate each other.

The most constructive criticism will come from other members, because team members are most familiar with each other’s work. But proceed gently here: some team members may feel uncomfortable evaluating their peers.

To get started, try having everyone share his opinion of how effective the team has been and what it needs to do to improve.
If there is a general consensus about these issues, move on to feedback about individual members—have each person begin with a self-assessment.
Be prepared to handle conflict, anger, or hurt feelings when members start evaluating each other.

Balance individual performance with team performance.

An individual’s performance should judged on his contributions as well as how the team’s work has progressed.

Tips for Reinvigorating Commitment within a team

2010-04-01T11:18:00.000-07:00

Maintain a "learned optimism": take five minutes at the beginning of each meeting to highlight what has already been accomplished.

Remind members of the various individual benefits that will result from successful team performance.

Couple your positive attitude with friendly assessments of what the team can be doing better.

Especially when the team seems overwhelmed, identify "small wins," simple tasks that can help a team regain its confidence and morale.

How to resolve conflicts within a team

2010-04-01T10:27:00.000-07:00

Diagnose the root cause of the conflict, then search for possible solutions.

Listen to what the parties are saying. Is the cause a particular behavior, a clash of personalities, or a situation? What seems to be really at stake for the members in conflict?
Find the right tone and setting for conflict resolution. Don’t take sides—moderate the discussion. Consider scripting what you plan to say, and anticipating how others will respond.
Allow the disagreeing parties to voice their feelings, and ask questions about why they feel as they do.
Encourage members to manage their emotions and to talk rationally about what can be done to solve the problem.
Work with the disagreeing parties or the entire team to identify and evaluate alternative solutions to the problem.

Think twice before replacing a member who is not a "team player."

Before removing a difficult team member, make him aware of his actions and how he negatively affects the team.

Set up an appointment with the difficult person to explain the problem.
Give him a chance to change his actions—set specific goals and deadlines for this behavior change.
If no changes are made, consider bringing the matter up for a group discussion. Do not be confrontational. Instead, allow the member to give his or her side of the story before the other team members contribute their feelings. Stay focused on the issues—don’t allow personality conflicts to take center stage.
Only if the negative behavior persists after all these interventions should you consider removing the difficult person from the team.

Discourage cliques from forming.

Teamwork calls for the collaboration of the entire team, not just a few select people. If you see cliques developing, try to break them up, if possible, by shuffling assignments, so that members who don’t know each other as well can work together.

Encourage members to forgive each other.

Encourage forgiveness by practicing forgiveness yourself. Don’t hold a grudge. Don’t harbor ill will after a conflict has been resolved. And remember to apologize when you’ve done something wrong.

How to keep a meeting right on track?

2010-04-01T08:35:00.000-07:00

1. Follow a predetermined agenda.

If each participant knows ahead of time what will be discussed, everyone will be more likely to stick to the topics at hand.

2.Make sure that the agenda is realistic, and that the most important items are included.

Conflicts can start to simmer when agendas provide too little time to address issues fully, or when important subjects are left off the agenda.

3.Leave time at the end of each meeting for new business or unscheduled items.

4.Let members know they can freely contribute to discussions without fear of retribution.

All opinions, suggestions, and constructive criticism need to be welcome. Of course, this is easier said than done. You need to show support for the expression of views with which you may disagree. Tell members that no one will be censured for an unpopular opinion, as long as they’re trying to accomplish the team’s goals. Try to encourage others to explore such opinions instead of dismissing them out of hand.

5.Encourage quiet, less assertive team members to get involved.

When you draw up the meeting’s agenda, allow time for all members to participate.
Go around the table and ask each member to offer ideas.

How to communicate the big picture?

2010-03-31T04:23:00.000-07:00

Steps for Communicating the Big Picture

Communicate a destination.

Employees need to understand the company’s new direction and how they fit into it. They need to see how specific strategies and projects fit into overall plans and what the final outcomes are supposed to look like.

Be honest and forthright with information about revenue, forecasts, and production.

Most employees respect being given honest information and respond positively even to bad news. Keep the information reliable, but mostly, keep the information coming.

Distinguish external forces from internal ones.

Examples of external forces are changing markets, shifting customer preferences, and deregulation. Internal forces include reorganization, new work processes, and new technology.

Understanding the origin and motivation for change often helps employees gain perspective on why they need to do things differently. External causes of change can sometimes make employees feel more afraid and less in control.

How should I respond if the other side seeks to change something (in its favor, of course), after a deal has been reached?

2010-03-30T10:50:00.000-07:00

Chances are they’re afflicted with the "winner’s curse": whenever they reach a deal, they become cursed with the thought that they could have gotten more.

When the other side seeks to change one item, you should express some surprise or disappointment. Explain that if they must make a change, then they must understand that you will want to open up other issues as well. You agreed to a total package. A change on one issue affects the whole package. Are they willing to renegotiate other issues?

If the answer is yes, then the other side was sincere, and you should proceed with the renegotiating. If they reconsider and withdraw the request for change, then they were just testing you. If they insist that they must have this change and no others, you can express dismay, but you must decide whether the adjusted deal has sufficient value for you to agree.

Is it better to deal with difficult or easy issues first?

2010-03-30T10:49:00.001-07:00

In general, dealing with easier issues will build momentum, deepen the parties’ commitment to the process, and enable the parties to become familiar with each other’s negotiation and communication styles before hitting the tough stuff.

In some instances, however, you may want to deal with a more difficult issue as a threshold matter. If you cannot reach tentative agreement on the difficult issue(s), then you will not have wasted time on the smaller issues. It is also true that once the most difficult issue is resolved, smaller issues often fall more easily into place.

In a complex deal, is it better to reach agreement issue by issue, or wait until the end?

2010-03-30T10:48:00.001-07:00

Every deal is different, but it’s generally better to aim for tentative agreements, or agreed-upon ranges, for each issue, one at a time. This will give you the necessary flexibility to make value-creating tradeoffs between issues, and to create alternative packages of different options.

Lost in the land of firefighting?

2010-03-25T05:59:00.000-07:00

Please take a moment to watch this video. Although it is intended for creating awareness about possible traffic accidents, it also teach us a lesson about how easily we can get trapped in the firefighting (work or home) and lose sight of what is really going around us

Negotiation Authority

2010-03-24T04:21:00.000-07:00

Conventional wisdom says you should insist that the negotiator on the other side of the table have full authority. Otherwise, you’ll fall victim to the old "car dealer" trick, where just as you are about to reach agreement with the salesman, he has to check with his manager. In other words, the first negotiation with the salesman is used to bring you to your bottom line, and the second negotiation with the manager, to push you beyond it.

There are advantages to negotiating with the person who has the power to sign on the dotted line:

You know that all of your reasoning is heard directly by the decision maker.
The benefits of the good relationship you have built are likely to be reflected in the deal and its implementation.

You are less likely to have disputes or confusion about the interpretation of a particular provision.

You avoid the "car dealer" trick described above.

As a practical matter, you won’t always be able to negotiate with the individual (or committee) who retains final authority. This can sometimes be an advantage, however: people without formal authority may be freer to discuss their company’s interests and to invent creative options. If you are dealing with someone who does not have full authority, view this as freedom from the need to commit.

Confirm the ground rule that neither side will be committing his or her company in the negotiation. (If they’re not committing, you shouldn’t have to either.)

Suggest using the opportunity to discuss your respective interests and to come up with creative options and packages.

When negotiating about dollar issues, leave yourself some "wiggle room," in case the final negotiator pushes harder in a second round.

If there’s no "wiggle room," strongly convey the message that this is your best offer.
Instead of insisting on full authority, it’s more important that you determine the authority level of the person with whom you will be negotiating, so that you can plan accordingly. Thus, try to ascertain who will be at the negotiating table what her formal title and area of responsibility are
how long she has been with the company how the company is structured. Is it very hierarchical, with significant decision-making powers centered at the top, or is it relatively decentralized?
how the negotiator is viewed within the organization. Is she generally respected and listened to, or not? (Granted, this information may be difficult to obtain, but it’s well worth digging for. If you know other players in the industry or business community, you may be able to learn this through an informal, off-the-record phone call or two.)

If you learn that the negotiator for the other side has very little formal authority and is not respected or listened to by the decision makers, try to get another representative to participate in the negotiations as well. One tactful way to do this is to suggest that you will be bringing a colleague (either with more formal authority or because your joint recommendation will carry more weight), and request that the other side do the same.

As for your side, always know exactly how much authority you have in a negotiation. For example:

Are you authorized only to commit to a predetermined deal for which committee approval has been obtained? What if you can negotiate something better? What would the committee consider to be better?

Are you authorized to commit to a deal that meets certain objectives (with freedom to structure the deal in the best way you can)? Would your company prefer that you bring such a deal back for formal review and approval?

Is your authority limited on dollar issues but not on other creative options without significant financial implications?

Are you authorized to provide information about your company’s needs, interests, and preferences if the other side engages in a good-faith, reciprocal exchange?

You may be frustrated if you don’t get the authority you seek, but at least you won’t unwittingly overstep your bounds. Here again, less authority is sometimes better. The need to check back for certain decisions may be strategically helpful, and may enable you to be more creative in inventing options.

Is it okay to bluff or puff during a negotiation? If I do not want to be a positional hard bargainer, does that mean I can’t bluff or puff at all?

2010-03-23T04:58:00.000-07:00

One man’s puff is another’s positive spin. One woman’s bluff is another’s best foot forward.

Lying about a material fact in a negotiation is unethical, and it is almost certainly grounds for legal action. In certain circumstances, creating a false impression or failing to disclose material information may be a formal ethical breach and actionable as well.

Even a cooperative, creative negotiator, however, must have a sense of strategy. As long as what you bring to the table has real value, you need not reveal all the circumstances making you desperate for a deal. Thus, if you are negotiating the terms of a job offer, there is nothing wrong with describing the major projects for which you have been responsible, and the likely next step on the corporate ladder in your current company. There is no shame in describing your achievements in a positive light. You need not mention that the new division president is impossible to deal with or that one or two projects have not turned out well. This is not hard bargaining; it is effective self-advocacy or salesmanship.

When asked by the other side to name a dollar figure, is it okay to state my range?

2010-03-23T04:57:00.000-07:00

Not unless you can be happy with a deal that is at the least favorable end of that range—or worse. If you tell someone that you would pay $20,000 to $25,000 for a piece of property, rest assured that you will pay at least $25,000. That is the only number he will pay attention to.

The only reason to mention a range occurs toward the end of the negotiating process, to discourage the other side from pushing you beyond it. After several rounds of back and forth on a dollar figure, you are at $23,000, and the other side is at $30,000 and seems to be pushing for a deal at approximately $28,000. You could say, "My preferred range walking into this negotiation was $20,000 to $23,000, but not above $25,000." Revealing your range may make it easier for the seller to accept $25,000 because he will feel that he has pushed you to the top.

Integrative or win-win negotiations

2010-03-23T04:54:00.000-07:00

In business, essentially integrative negotiations are more likely to take place

in structuring complex, long-term partnerships or other collaborations
after financial terms (or the competitive aspects) of a deal have been set
among partners or co-venturers who value their long-term relationship
between professional colleagues or superiors and subordinates whose long-term interests benefit from the other’s satisfaction.

In a win-win negotiation, your task is to "create" as much value as possible for you and for the other side. Often, the two sides’ interests do not compete at all. Their task is to arrive at a deal that integrates their interests as efficiently as possible. Agreeing to more of what one negotiator values does not require the other to take less of anything he or she values. The ability of one to claim or win what one side wants or needs in the deal does not detract from the other’s ability to claim or win just as much. Cooperation carries no cost here; indeed, cooperation and disclosure of information make you more effective.

In a win-win negotiation, there are often many items or issues to be negotiated; opportunities for creativity abound and the relationship between the two negotiators is often highly valued.

When participating in a win-win negotiation, do the following:

Provide significant information about your circumstances. Explain why you want to make a deal. Talk about your real interests or business constraints. Reveal and explain your preferences among issues or options. Consider and reveal any additional capabilities or resources you have that might meet their interests, and could be added to the deal. However, if the parties’ interests are in conflict at all, it is generally not wise to reveal your BATNA or to state your minimal requirements for a deal.
Learn as much as possible about the other side’s circumstances and preferences—including why they want to make a deal, what their real interests and business constraints are, what their preferences among issues or options are, and what additional capabilities or resources they have that might meet your interests and could be added to the deal.
Use what you learn to find creative options that will meet both of your interests to the greatest extent possible.

Benefits of Green Tea

2010-03-22T11:11:00.000-07:00

Green tea is rich in catechin polyphenols, such as epigallocatechin gallate (EGCG). EGCG is an antioxidant with cancer fighting powers.

Studies have shown it can aid in protection against various forms of cancer including esophageal, gastric, skin, ovarian, lung, and colon cancer. Studies have also shown that drinking 2-3 cups per day can lower blood pressure, cholesterol, and decrease the risk of heart attack.

Not only does green tea contain immune boosting antioxidants, but it can also protect your teeth. Tea has bacteria killing properties to fight plaque, gum disease, and bad breath. Tea contains fluoride, which can protect against cavities.

Green tea has gotten a couple of knocks for it's fluoride content, despite the positive attributes, since too much fluoride can be bad for you. It is recommended that a person receive no more than 10/mg of fluoride per day. Loose leaf green tea only contains about 0.3 mg of fluoride, so unless you're drinking about 30 cups per day, don't worry.

Studies suggest that the polyphenols in green tea can help reduce and prevent rheumatoid arthritis. One study found that regular tea drinkers reported to have stronger bones and were less likely to develop arthritis. Those who drank tea regularly for 10 years or more had higher bone mineral density in their spines than non-tea drinkers.

Zero-sum negotiations

2010-03-22T11:01:00.000-07:00

Classic examples of zero-sum negotiations include

the sale of a house, where the buyer and the seller do not know one another
the commodities market, in which the vendor and purchaser negotiate over price—of, say, silver, or hog bellies.

In a zero-sum negotiation, you are competing to "claim" value for yourself—to take it away from the other party. Cooperation and disclosure of information can make you less effective.

Often, there is only one issue in a zero-sum negotiation: money. The seller’s goal is to negotiate as high a price as possible; the buyer’s goal is to negotiate as low a price as possible. A dollar more to one side is a dollar less to the other. Thus, the seller and the buyer compete to claim the best deal possible for themselves, and bottom lines define what is possible.

A "tug of war" is the underlying negotiation dynamic (whether the parties have friendly or difficult styles). The goal of each negotiator is to "pull" the final deal point as close to the other side’s reservation price as possible (or even beyond it). They are competing to claim as much of the value in the ZOPA as possible.

In such a situation, it is impossible to make tradeoffs based on differing preferences. Because there is only one issue, you can’t trade more of what is highly valued by one party against a different item or issue highly valued by the other party. Thus, the deal is confined: there are no opportunities for creativity, or for enlarging the scope of the negotiation.

Similarly, relationship and reputation are completely irrelevant: the negotiators are not willing to trade value in the deal for value in their relationship with the other negotiator.

To achieve success in a zero-sum negotiation, remember the following:

Harness the power of anchoring. The first offer can become a strong psychological anchor, one that sets the bargaining range. Studies show that negotiation outcomes often correlate to the first offer. So start at the right place.
Do not disclose any significant information about your circumstances—including why you want to make a deal, what your real interests or business constraints are, what your preferences among issues or options are, and what your BATNA and reservation price are.
Learn as much as possible about the other side’s circumstances and preferences—including why they want to make a deal, what their real interests and business constraints are, what their preferences among issues or options are. To learn about the other side’s interests and concerns, you should
- do preparatory research
- contact sources within the industry
- check potentially relevant business publications
- review annual reports (or public filings)
- ask questions informally of the negotiator or others within the company
- imagine what your interests, preferences, and needs would be if you were in their position
- ask questions during the formal negotiation session.
Exploit what you learn about the other side in setting your first offer or demand. Based on what you learned about the other side’s BATNA and what value you believe the deal would hold for them,
- set your first dollar offer somewhat above what you believe to be their reservation price
- attach a high price to what they value most (even if it costs you little)
- use time to your advantage if you know that they face an external deadline.
Don’t overshoot. If you claim aggressively or greedily, the other side may walk away. You will have lost the opportunity to make a deal that would have been better than both sides’ BATNAs. If you claim aggressively or greedily, the other side may walk away. You will have lost the opportunity to make a deal that would have been better than both sides’ BATNAs.
For example, assume that you have been approached by a prospective buyer interested in a piece of commercial real estate owned by your company. Your reservation price is $250,000; you think the property is worth $250,000 to $300,000, based upon the general market price per square foot in that area. You also know that the property is unique and may have great value for a particular buyer. This buyer told you that he has not found any other property suitable for his business in the town and that he desperately needs to relocate. In your initial round of negotiations, you decide to demand $400,000 for the property. The buyer looks disappointed, gets up and walks out the door, saying "there is no use wasting our time." In fact, the buyer would have been willing to pay up to $275,000 for the property. Unfortunately, your high initial demand drove the buyer away. You have missed the opportunity to make a favorable deal.

Types of Negotiation

2010-03-22T10:59:00.000-07:00

There are essentially two kinds of negotiation:

A zero-sum negotiation, in which the parties compete over the distribution of the benefits of an agreement. This is also known as a "distributive" negotiation.
An integrative or win-win negotiation, in which the parties cooperate to achieve maximum benefits by integrating their interests into an agreement. This is also known as an "integrative" negotiation.

Most, if not all, of your negotiations combine elements of both types: there will be some direct competition between the parties’ interests and goals, as well as some opportunities to integrate the parties’ interests and preferences. But for the purposes of understanding, let’s examine each type in its pure form right now.

What is ZOPA (Zone of Possible Agreement)?

2010-03-22T10:53:00.000-07:00

The "Zone of Possible Agreement" is the area in which a deal can take place. Each party’s reservation price determines one end of the ZOPA. The ZOPA itself exists (if at all) in the overlap between these high and low limits, that is, between the parties’ reservation prices.

Here is an illustration. A buyer has set a reservation price of $275,000 for the purchase of a commercial warehouse (and would like to pay as little as possible). The seller has set a reservation price of $250,000 (and would like to obtain as much as possible). The ZOPA, therefore, is the range between $250,000 and $275,000.

If the numbers were reversed, and the buyer had set a reservation price of $250,000 while the seller had set a reservation price of $275,000, there would be no ZOPA—no overlap in the ranges in which they would agree. No agreement would be possible, no matter how skilled the negotiators, unless there were other elements of value to be considered—or one or both sides’ reservation prices changed.

What is Reservation Price in Negotiations?

2010-03-17T10:17:00.000-07:00

Your reservation price (also referred to as your "walk-away") is the least favorable point at which you would accept a deal. Your reservation price should be derived from your BATNA, but it is not usually the same thing. If the deal is only about money, however, and a credible dollar offer is your BATNA, then your reservation price would be approximately equal to your BATNA.

Example: When preparing to negotiate with a commercial landlord over a lease for office space, you determined that you would not pay more than $20 per square foot in a downtown high-rise. If more than that is required, you will walk away and attempt to lease space in a different building. At the end of a lengthy negotiation session, the landlord declares that he will not accept less than $25 per square foot. You graciously suggest that the negotiations be terminated and walk away from the deal

What is BATNA?

2010-03-17T10:14:00.000-07:00

BATNA is the acronym for "Best Alternative to a Negotiated Agreement." Knowing your BATNA means knowing what you will do or what will happen if you do not reach agreement in the negotiation at hand.

For example, if you are negotiating with a potential client about a month-long consulting assignment, your BATNA might be to spend the month developing marketing materials for other potential clients, which is likely to be more profitable.

Negotiation - Why do we negotiate?

2010-03-17T10:13:00.000-07:00

Negotiation occurs throughout your professional and personal life. It may be a formal affair that takes place across the proverbial bargaining table, in which you negotiate over price and performance, or the complex terms of a partnership venture. But it may just as easily involve a very simple deal or a very messy dispute. Given the money, issues, and emotions that are regularly involved in negotiations, even a modest improvement in your negotiating skill can yield a sizable payoff.

When you don’t have the power to force a certain outcome or behavior, you seek to negotiate in order to influence that outcome or behavior. You agree to negotiate because you believe it is to your advantage to do so. But a negotiated solution is advantageous to you only under certain conditions—that is, only if you don’t have a better option. Any successful negotiation, therefore, must have a fundamental framework established by each side knowing

what its best alternative to a negotiated deal is
what its minimum threshold for a negotiated deal is
how flexible it is willing to be, and precisely what tradeoffs it is willing to make.

Three concepts are especially important for establishing this framework: BATNA (Best Alternative to a Negotiated Agreement), reservation price, and ZOPA (Zone of Possible Agreement).

(More to come...)

Getting things Done - Create a routine - Kata

2010-02-23T05:31:00.000-08:00

It takes only three months to create a habit, good or bad. Routine builds good habits. Just look at a
successful major league baseball pitcher. In all likelihood, he can tell you his game day routine
down to the minute. He eats his pre-game meal at the same time, arrives at the ballpark at the same
time, and does his stretching exercises and warm-ups at the same time. He has programmed
himself to succeed by using this routine. Imagine a teenager who has a messy room, but who sincerely desires to become neater. If she starts by tidying her room 15 minutes every day, eventually the results will encourage her to do more. Soon, she'll find herself straightening up instinctively. Sometimes, a lack of routine is the only thing that stands in your way. Even something as seemingly mundane as checking e-mail can be turned into a productive routine. Instead of checking your e-mail every 15 minutes, only check it twice a day. Pretty soon that will be a habit, too.

Getting things done - you think you know it all.. think twice

2010-02-21T10:03:00.000-08:00

Many managers, especially those recently promoted to positions of authority, think they always have to be right. They believe everyone will scrutinize them now, so they can't afford to be wrong because that would show weakness. They believe their credibility will be affected if they make a mistake or don't know something. Quite to the contrary, a manager who admits mistakes and is willing to accept team members' suggestions graciously will gain infinitely more respect and become a source of inspiration.
Who is right and who is wrong doesn't matter.
Reaching goals and achieving success is the ultimate barometer. Great leaders make mistakes all the time, but the key is whether they are able to extract the very best from their people.

Getting things done - Be a Optimist and be successful

2010-02-20T04:08:00.000-08:00

Although they are involved in serious work, good managers try not to take themselves too seriously.
They may be disappointed when something doesn't go well, but instead of plunging into self-doubt and depression, they pick themselves up and attempt to resolve the issue from a different angle. Instead of spending time worrying or over-analyzing a failure, they try again. In the workplace, especially during challenging times or even when business strategies fail, it is easier to be pessimistic than optimistic, but that's a wrong turn - especially when your team members are looking to you for a psychological boost. Memorable bosses maintain their optimism through the most challenging times

Getting Things Done - Who is winning the game

2010-02-18T15:04:00.000-08:00

In a basketball game between the Lakers and the Celtics, how do you know who is winning?

Answer: by looking at the score.

Although many managers are reluctant to deal in numbers, that's really the only way to keep your
team members apprised of their progress, tell them what you expect and show them how they can
improve. Imagine a coach sending a play to the quarterback without knowing how many yards the
team needs, what yard line the team is on or what the score is? As a team leader, you need to know the score and to be able to discuss scoring more points.

A coach may applaud his quarterback for trying to score, but ultimately if the quarterback can't get into the end zone, the team will get a new quarterback.

Your salespeople need to keep their eyes on the scoreboard at all times. They need to know when
they're winning or if they need to adjust the game plan.

Getting things done - how to motivate people by relaxing

2010-02-17T14:47:00.000-08:00

Baseball night. The team is losing by a run; the bases are loaded. Two outs. The third-base coach calls time, meets the batter halfway down the baseline, puts an arm over the batter's shoulder and says quietly, "Just relax up there. Take it easy. Don't squeeze the bat so hard. Don't worry, you'll be fine." The coach knows that acting nervous or pressuring the batter would be counterproductive.
Such behavior could convey anxiety to the batter, who might then fail. The same principle applies to
the workplace. Nervous employees probably will not achieve maximum productivity. But employees who see that their manager is relaxed and patient may well adopt the same attitude. To motivate your team, be positive and calm.

Key Points of the Toyota Way

2010-02-15T15:32:00.000-08:00

I thought that could summarize the main point of the Toyota way.

1) Do not stop improvement. At Toyota, this activity is called Kaizen (Continuous improvement). This is the heart of Toyota's success. Achieve mey small improvements and overtime you will have huge improvements.

2) Toyota's success comes also from the application of Lean manufacturing, which in short can be summarized as adding value to your customers by eliminating all waste in your processes.

3) Waste comes from overproduction, delay, unneeded transport, over-processing, too much inventory, unproductive movement, defects and unused employee creativity.

4) Trying to apply the tools that Toyota has implemented and used over the years, do not guarantee success. The success comes understanding and making the tools part of your culture.

These are the basic principles of the Toyota Way:

1- Apply a long term philosophy and grow leaders who live it.
2- Create continuous flow.
3- Avoid overproduction
4- Level the workload
5- Develop the right culture to ensure problems are resolved at the source.
6- Standardize tasks
7- Use visual control
8- Use only tested technology.
9- Develop People (Leaders)
10- Respect your network
11- Observe problems at the source
12- Decide slowly but implement rapidly
13- Practice relentless reflection.

Getting things done - Use positive reinforcement

2010-02-14T06:30:00.000-08:00

A positive attitude is always better than a negative attitude in the relationship between a manager and a team member. Embrace every opportunity to be uplifting, whether you are suggesting a team-building exercise or giving someone a pat on the back. Welcome contributions from team
members rather than rejecting ideas out-of-hand.

When you embrace an employee's idea, you elevate yourself in the eyes of your team members and
convey the advantages of having a positive attitude.

Getting things done - Manage the agreements with people not the people

2010-02-13T06:19:00.000-08:00

Managers frequently make the mistake of coddling those employees who seem to experience the most emotional turmoil. Managers get caught up in this tumult to be liked, and to keep that attitude of
constant churn from becoming contagious. The end result resembles a father-son or mother-daughter
relationship, which is doomed to fail in the workplace. You can't send an employee "to your
room" if he or she fails to meet deadlines or submit reports. However, you can appeal to an employee's professionalism and explain why a job must be completed. Feelings and emotions have little to do with such agreements. Establish a relationship that makes the employee feel accountable.

Getting things done - Do one thing at a time

2010-02-12T03:43:00.000-08:00

Managers like to think that they can do many things simultaneously, but even the most effective manager can only tackle one problem or deal with one issue at a time. Many times, your mind may seem to be racing at 100 miles an hour - tomorrow's meeting with the vice president, the project that's due in a couple of weeks, the inbox full of e-mails. But if you allow your mind to dart from one thing to the next, you easily can become overwhelmed. In most cases, that will increase your stress, build tension in your workplace and harm employee productivity. As a manager, combat feelings of being overwhelmed by establishing priorities. Decide which phone call to return, deal with the person who called in a calm, intelligent manner and then turn to the next task. Resist the temptation to think ahead.

Supervisors and Managers trying to get results

2010-02-11T11:27:00.001-08:00

These are some tips for managers or supervisors that are not getting what they expect from their people. Please consider these ideas when trying to get your people do what you want them to do:

1- Positive feedback is always more effective than criticism.
2- It's never appropriate for the boss to be "bossy."
3- When employees aren't productive, it's usually the manager's fault.
4- A well-prepared manager always has a game plan.
5- An inspired employee is productive because of self-motivation.
6- No matter what the situation, managers need to keep their perspective.
7- Don't be afraid of change; it's almost always for the good.
8- Hire good people - always. Good managers take responsibility.
9- Greatness is within everyone's grasp.

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How to influence people - The Influence principles

2009-12-01T12:27:00.001-08:00

One of the key skills required during the implementation of lean is the ability to influence others to pursue a common goal. Influence gets hand in hand with leadership and when combined properly they are powerful tools that could change the way things are done.

Here are the principles of influence:

1- Liking: We are more likely to respond favorably to those who sincerely respond positively to us
2- Reciprocity: follow the the golden rule of collaboration and support :" Do unto others as you hope they would do unto you when you need it.
3- Social Proof: We are drawn to be like those who are like us or whom we want to be like.
4- Consistency: We tend to follow our commitments with action and more commitment particularly those that we made publicly
5- Authority: We tend to rely on information from those we recognize as having expert knowledge or greater experience.
6- Scarcity: We tend to want more of something we believe has limited availability

5s is not Cleaning

2009-12-01T12:13:00.001-08:00

5s is not cleaning, period.

Consider the following scenario.
You are trying to implement lean and you are giving your first steps by trying to introduce a 5s program or perhaps you have been already implementing 5s for a while and the people in your company keep relating 5s with cleaning.
When you asked them to tell you what is 5s, their answer is :5s is "that cleaning program"....now what, what do you do, how do you explain that 5s is not cleaning??

Here are some tips to do this:
1- start by explaning what the 5s are: Sort, Set in Order, Shine, Stadardize, Sustain. By doing this you should make the point that only during the "Shining" is where some cleaning is involved. The other 4 "s" do not have anything to do with "Cleaning"
2- make very clear that the purpose of 5s as (as well as other lean tools) is to "make problems visible".
3- Performe the 5s simulation called: " The Numbers game". This simulation walks the participant through the 5s process by purposely not using the S of Shining (the one that involves some cleaning). A complete description of the simulation can be found by clicking here:

Lean Leadership means knowing far more than the tools: You need to be a Human Engineer as well

2009-10-20T05:42:00.001-07:00

This was a great article I got via email.

"It's a quiet autumn afternoon, the sun is shining. The branches of the trees move gently in a cool breeze against a blue sky made milky with high cloud. The birds are mostly silent at this time of year - the only sound I can hear is a few leaves falling outside my open window.
But, what's that? I can hear a distant sound. Not sure what it is at present but it sounds kind of familiar. It sounds like a low buzzing or humming, slowly getting louder.
As I strain my ears to listen, I work out that what I can hear is voices. Lots of voices.
And they're all chanting the same thing. Can't work out what all the words are but I think I can hear something about "ducks in a row"
Then the penny drops.
You see, I live next door to a Home for the Terminally Bewildered. There are about 75 residents in all. A few retired military officers, one or two former head teachers, a politician or two and one ex-football manager.
But by far the most occupants are Lean Experts. So: what's their story and how do they come to be chanting in the nursing home whilst I'm trying to work?
Firstly, they're all good people. Educated, passionate, knowledgeable and committed (literally, in this case). None of them intended to end up like this. They all set out to do the right thing for some company or government department that wanted to implement lean practices.
Secondly, they all know how lean works. They've been trained very thoroughly in the tools to make processes lean.
That's where the problem starts...
All these people know how to use the technology of lean but none of them has been taught how to implement them in a real, human and diverse organization. They've discovered that knowing the tools is one thing. To make them meaningful to employees and managers is another matter entirely.

Take Mike. He was trained in Lean Implementation at his old company, ModPrint. An experienced Team Leader, he'd been on various training courses and understood all about line balancing, cycle time, throughput, kanbans and all the myriad bits and pieces that make a process lean. He became a real believer. He was so enthusiastic about it that he gave up his job at ModPrint and went freelance.
Soon, he was hired to implement lean in a plastics factory. After a quick tour of the plant he was convinced that there was lots of waste that could be eradicated. (He was right, but that didn't save him). He turned to the Operations Director for the plant and said confidently "I can save you a lot of money and make drastic improvements in your quality." The Ops Director was impressed and hired him.
Two weeks later all the line supervisors were gathered in the factory training room where a laptop hummed gently and a projector shone brightly at the screen. Nobody knew why they were there or what the session was about. Only that they had been told to turn up.
Mike entered the room and explained that they were all going to learn how lean works. He told them that he had made it work at ModPrint and that they could do the same at this plant. As he turned to his laptop, one or two of the Team Leaders looked at each other sceptically. He put up slide one and started to speak. "To understand lean we need to go back to the era of craft and mass production, before the first world war..."
What followed was a mixture of a few group activities and slides – lots and lots of slides. Between slides 89 and 90, the group were given a task that involved making things in a simulated production line with plastic toy bricks. That was fun.
By the time the workshop ended, the delegates felt a bit like people who have eaten too much – happy but stuffed. Mike's parting shot was "Go and make it happen!"
Three weeks later, Mike had sent in his bill for the work he'd done but nothing had happened on the shopfloor. One or two Team Leaders had tried to gather some data on current cycle time but had not had time as it was month end and the Production Manager had been pushing to achieve targets. Another had tried to run a session with his team to define the scope of a Value Steam Map. But his team were short handed that day and besides, the meeting room was booked for a senior management meeting
The Ops Director was very disappointed and refused to pay Mike. Mike tried to force the issue but they ended up having a blazing row. He only ever got a fraction of his money.
That was the beginning of Mike's descent into despair. His confidence drained away. He became more and more nervous in front of clients – worried that he wouldn't be able to deliver what they wanted. His clients – sensing his insecurity – stopped asking for his help. The money stopped coming in, the bills piled up. He became more and more quirkily obsessed by the tools. Eventually, he was apprehended by police standing in the middle of a busy highway shouting at passing motorists "Go to the Gemba!! Go t o the Gemba!!" After his family pleaded with him to get help, he agreed to check himself in for some serious therapy.
And that's how he ended up at the Home for the Terminally Bewildered. They treat the residents very well at this detox center. There's volleyball and tennis. There are attractive gardens in which the residents can walk. There are regular group therapy sessions. Sometimes – as part of the treatment regime – the group will intone mantras in unison. The chanting helps them to stay calm and reminds them of what they've learned through their ordeal. For the politicians it might mean saying in unison "Everyday, in every way, I'm learning what the truth is...." The football manager simply shouts repeatedly, "Publish and be damned!"
But it's the lean experts I can hear through my window, right now: "To change my company top to toe, I must get allmy ducks in a row."

And the moral of the story is....

Training in Lean tools is not enough – experts need to be human engineers as well.
That's the trick that many lean interventions miss. Many training courses will emphasize the technical components that make up lean processing. As if lean is somehow like a newly delivered machine with a set of instructions. Just unpack it, read the manual and a lean culture will just happen.

It isn't like that – as many readers will know. Employees and managers need information, two-way involvement and a true rationale for engaging with lean. Lean isn't a technique; it's a way of thinking and behaving."

What do you do to come up with suggestions?

2009-10-09T12:33:00.001-07:00

At times companies trying to implement suggestions programs struggle with the most important part of such programs.....generating suggestions!

What can we do in order to come up with suggestions? if we are the ones going to provide suggestions, here there are some ideas.
Take note of whenever there is something that does not quite feel right
Collect information from the work of other companies, or other departments. It may be available from presentations, books, TV. etc
Study" idea products" by visiting stores such as a do-it-yourself shop.
Study many examples of improvement
First experiment by cutting, pasting, bending, etc. using such alternative materials as paper
Always ask yourself if it is satisfactory the way it is now
Always be attentive to what is happening at the shop floor
Review improvement ideas of small group improvement activities

What can we do in order to encourage people to contribute suggestions?

Provide support as much as possible to meet the goal of ten suggestions per person every month
As we improve the work by involving our people, link ideas generated by suggestions
Provide hints to people so that they can develop the habits, willingness, patience, and confidence within themselves
Avoid criticizing ideas generated
Always observe people's work and contribute advice
Always generate questions, and ask people to think about them.
Always demonstrate practicing improvement by management as well
in order to develop people's interest in making improvement, help execute ideas to show how things can be improved
Encourage people to face reality as opposed to staying at the conceptual level

The 5s of dramatic change

2009-09-16T08:52:00.001-07:00

Stabilize the core business
Shock the System
Simplify your change process
Spark a transformatioin in attitude
Spur daily innovation

Learn By doing by Fujio Cho, Toyota Motor Corporation

2009-09-16T08:21:00.000-07:00

"We place the highest value on actual implementation and taking action. There are many things one doesn't understand and therefore, we ask them why don't you just go ahead and take action; try to do something? You realize how little you know and you face your own failures and you simply can correct those failures and redo it again and at the second trial your realize another mistake or another thing you didn't like so you can redo it once again. So by constant improvement, or, should I say, the improvement based upon action, one can rise to the higher level of practice and knowledge."

"Fujio Cho, Toyota Motor Corporation"

How to burn fat in 15 minutes

2009-08-22T07:13:00.001-07:00

We all have heard that doing low intensity cardio (like walking) for more than 45 minutes is ideal to burn fat....but what options do we have if we do not have 45 minutes or more to do our cardio?

Well the answer to this is High intensity cardio. High intensity cardio means that you are going to work your heart at bout 75% to 85% of your maximum heart rate. On the other hand low intensity cardio works your heart at about 55% to 65%.

With high intensity cardio, you burn more calories quicker. To illustrate this, let's say that you walk (low intensity cardio) for 20 minutes and burned 100 calories, about 50 of this calories will be coming from fat stored in your body. (50 calories is about 5 grams of fat).

Now if you were doing high intensity training for 10 minutes, you could burn up to 160 to 180 calories. 40% of these calories will be coming from fat stored in your body. This means that you will burn 64 to 70 calories from fat in only ten minutes or better yet you will be burning 6 to 7 grams of fat.

As you can see you will be burning more fat in less time. Low-intensity exercise only burns calories while you are actually exercising. That means the moment you stop exercising, your caloric expenditure goes back down to nearly baseline levels. Within minutes, you're not burning many more calories than if you hadn't done anything at all.

High-intensity exercise, on the other hand, continues to boost your metabolism long after you're done (often up to 24 hours after, depending on the length and intensity of the training session). This means you're continuing to burn many more calories all day long!

Also it is worth mentioning that high intensity cardio stimulate more your muscle, helping in some cases to develop more.......and we know that the more muscle and better tone, the more calories that we burn while we are not exercising.

Here are some examples of high intensity training.

On a Bike,
ride your bike for 2 min at a easy pace, then increase the intensity, either by increasing the resistance or the speed and ride the bike this way for 1 min. then go back to the easy pace for 1 min, and then after 1 min go back to the higher intensity pace. Try this for ten minutes and you will see the difference, besides it is a fun activity since you will be challenging yourself.

If you have 20 min for your exercise, try different time intervals, for example start with 4 min easy pace, then 2 min at a higher intensity and 30 sec at at even higher intensity then go back to the easy pace. The combination are endless and the only limit is your imagination, the key is to get your heart to 75-85% of your maximum heart rate.

How much food to eat when trying to lose fat - Portion sizes

2009-08-22T05:48:00.000-07:00

How much should we eat if we are working out?
A good way to measure the amount of food that we need to eat is to measure with our hands.
We know that all our meals should have a combination of proteins, carbohydrates and fats. We use our hands to measure the amount of protein and carbs that we need to it. The assumption here is that we are trying to lose fat, so, to keep it simple we need to eat the same "palm" size portions for proteins and carbs. Example, a palm size portion of protein (fish, meat, eggs) and a palm size portion of carbs (rice, or potatoes, etc). Since we know that fats are more calorie dense that the proteins and carbs, what we do is take a teaspoon of fat, (peanut butter, olive oil, etc).
This quick tip should help on keeping things easy when it comes to measure how much food to eat.

Limiting your cravings when losing fat

2009-08-16T17:33:00.000-07:00

Fats are a very important tool to limit your cravings while trying to lose fat.

yes, in order to lose fat you have to eat fat!

I am talking about good fats, not the fats that come in pizzas or hot dogs. The good fats are the ones that come from peanut butter, olive oil, almonds fish, etc). Fats are broken down slow, helping us in avoiding cravings for "bad" food.

Make sure as well that you are having frequent meals. Having frequent meals helps keep the blood sugar levels from drooping to low. When the blood sugar decreases or brain send signals to find food and it is at this moment when we are tempted to eat any sugary meals that can get the blood sugar back up.
For this reason keep having your small 6 meals during the day this will help you avoid cravings for "bad" food and will also help you on burning the fat you want to get rid of.

How to generate ideas for improvement - Machine related

2009-08-07T18:30:00.001-07:00

The Following questions help in the generation of ideas to improve the conditions affecting the MACHINE

Can we improve the processing method?
Can we improve the effective use of machines, computers, and other facilities?
Can we use machines to do the job?
Can we adequately maintain the service of machines?
Can we modify, maintain, or upgrade to improve the performance of the machines?
Can we identify the common causes of machine failure and find solutions to prevent them?
Can we think of improving tools and fixtures to do the work better?
Can we think of applying the tools in other areas?
Can we improve the procedures for machine or facility breakdown?

How to generate ideas for improvement - Employee related

2009-08-06T13:27:00.001-07:00

The Following questions help in the generation of ideas to improve the conditions affecting the Employee (MAN)

Can we educate ourselves better in what we do?
Can we communicate better among ourselves?
Can we improve the new employee or temporary staff introduction package?
Can we direct people to the person who is in charge of a certain job without any trouble?
Can we effectively share work when overloaded
Can we do more cross-training and job rotation?
Can we improve the storage areas for personal belongings?
Can we improve the condition of the work environment, especially related to health and safety?
Can we improve the interface with the customer, internal or external?
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How to generate more ides for improvement

2009-07-29T06:44:00.001-07:00

Sometimes we might feel that we can not come up with suggestions and that we have looked at all possibles opportunities for improvements. When that happens we need to step back and look at our activities and processes from a different perspective. The attached check list can be used by anybody to try to come up with more ideas for improvement. As always I encourage the team leaders, supervisors and managers to ask these questions while on the shop floor or office. The answer to these questions will be opportunities for improvement.

Try to focus on these questions affecting the way we do things, the method that we use.

Can we simplify, combine, or eliminate our jobs, materials, parts, etc?
Can we eliminate the redundant work done at multiple locations?
Can we do it right the first time?
Can we clarify the standards better and practice managing by exception?
Can we change the work method?
Can we improve the use of Standard operation procedures so that it is easy to follow?
Can we improve the training method? Do we have one?
Can we improve the housekeeping and workplace organization for materials, tools, parts, etc?
Can we improve the capacity of the operation, machine, or line?
Can we improve the layout?
Can we reduce the setup time?
Can we stop overproduction?

The 14 key points of the Toyota Way

2009-05-09T13:46:00.000-07:00

In the Book the Toyota Way, Jeffery Likers describe the following 14 key point's of the Toyota Management System

1- Do business with a long term philosophy rather than constantly driving short term gains.
2- Grow leaders from inside your organization.
3- Create a “learning organization” that is continuously improving.
4- Drive decisions through consensus.
5- Empower employees to stop production to fix problems.
6- To understand issues, go see them for yourself rather than simply getting reports from others.
7- Respect your suppliers and network of supporters.
8- Create continuous product flow to expose quality problems.
9- Create pull systems to regulate work.
10- Create visual inventory control.
11- Level the work load so groups are equally balanced.
12- Use reliable and stable technology.
13- Employ exceptional people.
14- Standardize processes and tasks.

Please note that from these key points we can identify 6 that relate directly with employee development:

1. Base all operations and activities on fostering the long-term future of the company,
not on achieving short-term profits or immediate stock value. Invest heavily in employees, their careers, their training and their future.

2. Standardize whenever possible. Empower workers to perform as trusted partners so
they continuously perfect all of the company’s production and work processes. This
will increase efficiency and reduce waste.

3. Ensure that all managers and supervisors thoroughly understand their responsibilities
and can capably instruct their subordinates. Being a good teacher is the most important job requirement for individuals in positions of authority.

4. Establish teams of highly trained employees who can work together seamlessly.

5. Understand that suppliers represent a vital link in your production chain. Help your independent contractors develop and train their employees so they can support your overall production mission.

6. Plan and organize everything so that learning and improving are constant processes
for workers, supervisors and executives.

is your company following any of these?

5S office quote

2009-05-08T07:34:00.000-07:00

“People would rather talk to you about their sex lives than their paper problems.”

How to handle you mail?

2009-05-08T07:32:00.000-07:00

Are you always looking at the mail staking up on your desk? if you answer positively to this questions, please follow these simple steps:

Open and sort the mail with a trashcan at hand.
Junk mail goes right into the can.
Divide the remaining incoming mail into two stacks: one with correspondence and bills, and the other with magazines, catalogs, newsletters and other items to read later.
Set up a quick, easy system for sending mail. Have envelopes, addresses, boxes and tape at hand, so you don’t accumulate items to be mailed.

How can you fight clutter accumulation?

2009-05-08T07:27:00.000-07:00

1- Whenever you finish working on something, put it away.

2- Never leave the office without cleaning your desk and leaving things organized for the next day. Combat paper proliferation by dealing with each piece while it is fresh in your mind.

3- If time constraints make this impossible, carry the paper around with you until you can give it your attention. Look at it, define the problem, devise a solution and then take action. But do not let things sit and build up as a testament to your indecisiveness.

4-“In” and “Out” trays can be helpful if you use them. If you do not make use of them, they
will become just another place to accumulate paper. Let the trays help your work flow.
Empty them on schedule, daily or weekly – or get rid of them.

How to get started with 5s in your office - practical tips

2009-05-08T07:12:00.000-07:00

Let's assume you decide to move forward with 5s -ing your office, now what. Follow this simple guide:

Start your cleanup by getting rid of “junk bunkers” – those mugs, pencil cups, little
bins and cute boxes where people stash stuff and forget about it.
Next, dispose of empty containers, like old glue bottles. Throw away the “useful” boxes things come in, including CD-ROM boxes, film canisters and mailing tubes. Return duplicate office supplies, such as extra scissors, staplers and notepads, to storage. Other items people think they’ll use, but rarely do, include: last year’s magazines; old calendars and appointment books;
out-of-date stationery, business cards or forms; freebies from seminars and conventions
(next time, just don’t take them); old keys and broken pieces of furniture. Toss it all!

People hold on to all kinds of stuff thinking that they might need it some day. Be ruthless in
your quest to “declutter.” If you don’t use a tool, gadget or accessory, don’t give it valuable
space. If something is broken, even a little broken, pitch it. Get rid of swivel chairs that no
longer swivel, and printers, scanners, fax machines, calculators, recorders and projectors
that either don’t work or seldom get used. Lose the clutter of trophies, souvenirs, wilting
plants, photos, paper clip holders, old eyeglasses, empty binders, candy dishes, ancient
mail, outdated brochures, empty tissue boxes, broken lamps and decorative clocks.

Reroute clothes that have taken up residence at the office, such as golf shoes, raincoats,
extra sweaters and forgotten jackets. You want your work area to be warm and welcoming,
but don’t overdo it with photos, crafts and mementos. Add a personal touch or two, and
then stop.

Now what can you do with the piles of paper stacked high on every surface and weighing
heavily on your mind? To quickly sort through mounds of paper accumulation, follow
this practical guide. You’ll need four boxes, scissors, a stapler, a marker, packing tape and
a garbage can. Label the boxes “Out,” “Route,” “Doubt” and “Sprout.”
Sort through each pile of paper, throwing at least half into the “out” box or garbage can. Paper that found a home in your office, but belongs somewhere else goes into the “route” box.

Anything you’re not sure about should go into the “doubt” box, with the understanding that you
will work on it every day until it is empty. The “sprout” box gets everything that you
want to keep and use.

Computers create their own special clutter. This includes old disks, outdated instruction
manuals, unlabeled CDs, out-of-date hardware, original packaging and outdated
programs. VCR tapes, DVDs and CDs can accumulate and take up room. You might
intend to watch or listen to them, but if the pile gets too high and the contents get too old,
throw them away.

People often hide unwanted, broken, old, ugly or obsolete items in a storage area. Ask
yourself if you are going to need or use each item, and if an item flunks that question,
don’t store it – junk it. However, if something has value, store it properly. That means:

• “Get if off the floor.”
• “Repackage it” when necessary to make it more accessible or stackable.
• “Go for first-class containers.”
• “Mark all sides of each container with the contents.”
• “Make dejunking easy” with a big trashcan.

Besides cluttering up their own work areas, people also tend to clutter the company’s
common areas. Cafeterias and lunchrooms are often depositories for cups, mugs, plastic
containers and paper plates. But the ugliest, nastiest place in any office lunchroom is
inside the communal refrigerator.

Within its doors lie half-eaten sandwiches, almost empty soda bottles, dried up pizza, moldy bread, spoiled yogurt, rotting fruit and rock hard bagels. The company refrigerator should not become an old food graveyard. Take responsibility and clean up your mess. Many companies enforce a weekly cleanup policy for the communal fridge.

The next significant mess magnet is the coffee area. Used spoons, stirrers, napkins, sugar
packets and creamer cartons litter the space around the coffee maker. Go through the
office and collect the half-filled or dirty mugs that can drip, spill and stain your clothes,
carpet and desktop. Spilled drinks cause all kinds of work problems from ruining
documents to killing keyboards. Never set anything down that can spill onto your work
surface or computer.

I hope this has given you some ideas about how to start right on your efforts to 5s your office

Additional reasons to implement 5S in your office

2009-05-07T17:21:00.000-07:00

A lot of people ask about why they should implement 5S in their offices if 5s is a concept that was developed in the manufacturing environment.

In addition to all the benefits that we have already mentioned in this blog, I will list some other considerations that you might want to take in to account when trying to decide whether or not you should apply 5s to your office:

You can't work to the best of your abilities when your office is a disorganized mess.
Your workspace is a visual representation of what kind of person you are; that's how your clients and supervisors see it.
Out-of-control office clutter costs money in time, effort, late fees and lost business.

Most people excuse their messy offices by saying they don’t have time to clean. But dealing with the consequences of a chaotic workspace takes far more time than simply cleaning. If a clean office increases your productivity by only 20%, that can convert into approximately $40,000 to $50,000 in value over the next 10 years. A clean office also pays off in reduced stress and anguish.

Office clutter is intimidating, frustrating and time wasting. Your workspace represents you to your clients, superiors and co-workers. It reflects your personality and work habits. What do you want your work area to say about you? (Or do you just want it to be quiet?)

When your desk is a mess, people assume you are incompetent, indecisive and uncaring.

Office clutter is not only unsightly, it’s dangerous. Workplace accidents occur when someone trips on an electrical cord or a box, walks into an open file drawer, has to dodge a falling pile of junk, or slips on loose papers or spilled coffee. To check if your workspace is safe, ask yourself the following questions: Is anything stored on the floor, on stairs or in precarious stacks? Is junk blocking access to fire escapes, doors, windows or walkways? Are chemicals stored properly? Are the electrical outlets overloaded?

These reasons might motivate you to push forward your 5s effort in your office.....if this is still not enough please let me know

TIme Management Tips- How to Manage your email more effectively

2009-05-02T07:21:00.000-07:00

Less is more – Unless your job requires hourly e-mail monitoring – such as receiving
orders from customers – only check e-mail twice a day, in the morning and in the afternoon.

Prioritize – Millions of people turn their computers on in the morning and
immediately check their e-mail. That allows e-mail to dictate their schedules. Paying
attention to your projects, goals and tasks is much more important.

Turn off and tune in – Pull the plug on the ping or fl ashing signal that alerts you to
the arrival of a new e-mail. All that does is interrupt your work.

Fight the urge – Breaking the e-mail habit means trying your best for a week or two.

Make a sign as a reminder of your commitment. Resist the urge to check habitually.

Filter, filter, filter – Find a reliable program to keep spam out of your in-box. Notify
family and friends that you’d rather not receive jokes and other useless e-mail.

Reply, divert or delete – Decide what to do with each message: Reply right away, send
it to a particular sorting folder or delete it. Don’t just let stuff sit in your in-box.

Reply in brief – See if you can keep your e-mail answers shorter than five sentences.