First POST, let’s talk finance maybe financial analysis, it’s what I love and something I think I am pretty good at. At some point your boss will probably ask you to do some kind of estimate or projection that involves tons of assumptions, unknown risks, and maybe even the statement “make it work” from the boss man (I have never had a woman boss just like I have never had a woman graduate school professor but I am open to the idea of both). The beautiful thing about projections, estimates and forecasts is that they are all one step above bullshit they never come out as you had planned but hay they do provide an extremely valuable basis for which thousands, millions or even billions of dollars will be bet with the hope and prayer that you will make more money in return.

First let me congratulate you for being in this position the boss man has serious faith in you and believes you are the one for the job, you have been asked to lay the ground work of the project, can we make more money by spending this money?

So let’s talk about an analysis tool I use called the Top Down Approach. But first what is the top down approach? The top down approach is looking at a market, budget, or even company from the top, HOW BIG IS IT and what are the major pieces of the whole? Example, the Mobile Phone market is a $30 Billion a year industry (I have no idea if this is true or not) and if we can grab a 1% market share we will have $300 Million (M) market cap. Another example is we have a budget of $5M for advertising and it’s broken out by $2M for TV ads, $2M for Salary, and $1M for product demos and giveaways.

Let’s use the $5M advertising for further research, your boss man comes up to you and says I want to spend $2.5M on Internet Advertising, can we afford it? The top down says “YES” we have $5M but you are going to have to reshuffle the budgets big time, possibly lay off staff, TV ads will be reduced along with demos and giveaways. Now if you have a Mobile Phone industry killer that you think will do $70B in annual sales guess what the market is only $30B so you got a problem.

Another interesting thing about the Top Down approach, I believe it is a good way to evaluate a market but a poor way of presenting data to investors, boss men, or who ever. Sure it’s a rosey picture, if we capture 1% of $30B we are doing great, yeah no kidding, but just because you open your doors doesn’t mean in a matter of days you are going to be doing $300M of business and if you are, good luck managing the growth, people, capital, and resources to do it but more power to you.

So what do you think? Is this something useful? Has the boss man asked you for help here, do you think your organization needs help in this area?