Are Your Assumptions Serving You Well?by Susan Nemetz, June 2019
|Ah, June, the season of life transitions — weddings, graduations, school progression and, with the year nearly half over, a reminder to reflect on where we have been and where we are going in 2019.|
I had such an opportunity, recently, as I listened to the commencement speakers at my son, Jonathan’s, college graduation (empty nest, here we come). Interestingly, as inspiring and polished as the keynote speakers were, I found myself most engaged in what the student speakers had to say.
One young man, in particular, was both articulate and funny (I loved his story about wearing a prom dress to a banking network event!). He was insightful as well, posing two questions that I’ve been thinking about ever since:
- What are your assumptions?
- How are those assumptions serving you?
These are important life questions, of course. But it struck me while sitting there that they are relevant in our industry, too. When commercialization strategies fail, it often occurs because there is minimal (sometimes zero) alignment on the assumptions underlying the work itself.
In my experience, it is often not until someone grabs the scented marker and approaches the whiteboard to capture the assumptions present in the room, that the real conversations begin.
With this in mind, I am pleased to call on the wisdom and experience of three members from The NemetzGroup to talk about the importance of aligning on assumptions in three areas of commercialization:
- Commercialization Mapping
- Market and Revenue Forecasting
- Commercial Budgeting
Colleen Moore has played a key role in leading many commercialization mapping initiatives with our clients. When asked about the importance of formulating, articulating, and aligning on assumptions, she shared that this is an essential and often lengthy aspect of the mapping process. As she explained, this exercise provides the foundation for the commercialization map, informing the objectives that will drive the key pre-launch and launch activities.
The initial mapping workshop is often the first opportunity for members of the cross-functional team to really think through and voice their perspective — on the product, the clinical and regulatory timelines, and the guiding principles for commercialization. Until this point, insights as concrete as whether the product will require refrigeration and as complex as the go-to-market geographic priorities, may not have been discussed collectively.
I asked Colleen what advice she would give clients who need to align on these commercialization assumptions:
“In the almost 15 years that we have been building commercialization maps with clients, we have yet to encounter a situation where the entire team was on the same page with respect to assumptions. Individual team members have their own perspectives, experiences, and insights, so it is not surprising that everyone is touching a different part of the proverbial elephant. Without exception, the rich discussion around the assumptions is as valuable as the assumption document itself.
“I advise clients to go through an assumption alignment exercise in the pre-launch phase — even in the absence of a mapping initiative — to ensure that there is a shared view of the critical considerations.”
Market and Revenue Forecasting
While assumptions are an integral part of any forecasting initiative, they are not always explicitly shared when the output is communicated. This can be problematic — when underlying assumptions change, the numbers need to change as well (and vice versa). Several people on our team are master forecasters. They work hard to ensure that the “story” of how the forecast was built — together with the underlying assumptions — is part of the final presentation.
Jim Whalen has built numerous models for both pipeline and commercial products, as well as manufacturing demand. For anyone creating or communicating a forecast model, Jim offers the following thoughts:
“No one can predict the future with 100% accuracy. Rather, much like a prosecuting attorney in a criminal trial, the job of the model builder is to craft a compelling story, step by step, that leads the viewer to arrive at the same conclusion the modeler reached, in terms of the projected value of an asset. Each rung on the ‘story ladder’ should be supported by the most objective information available. If the audience buys into each assumption as ‘reasonable,’ there is a greater chance they will support the overall conclusion of the exercise.
“Forecast assumptions and their sources should always be part of a forecast presentation. We recommend meticulous documentation of these so the audience can gauge the reliability and reasonableness of each assumption. When data sources are used to support calculations (price benchmarking or average dose exposure, for example), it is important to ‘show your work,’ typically in a separate worksheet within your model. Early models will often rely on secondary research and market normative data; later models should be informed by well-validated, widely-accepted sources such as industry audits, and quantitative primary market research data.”
How many times have you been asked to build a budget for your department, product, or program and started with last year’s numbers, making adjustments from there? Or, worse, you laid out all the tactics you wanted to implement, added up the cost, and committed to the total as the budget you needed to “defend.” Sometimes, after assembling a finely-tuned budget, you’re then asked to reduce it by 10%.
In each of these scenarios, what’s missing is the essential link between assumptions and the final outcome, whether building the budget in the first place or modifying it, as necessary.
Lori Horvat has built budgets for departments, products, and programs in both early stage and established commercial companies. Lori believes the following approach will help to ensure assumptions always track with the budget:
“A budget needs to be built from the bottom up, taking into consideration the key milestones or market events outlined in the commercialization map. When going through the budget planning process, you want to plan ahead, proactively developing potential scenarios. Ask, 1) What is the optimal spend that will drive revenue growth consistent with the brand objectives?, and 2) What is the level of spend that puts the brand objectives at risk?
“Your ability to clearly articulate to senior management and others the key milestones that trigger more or less investment, as well as the potential implications to top-line revenue growth due to inadequate investment, will ensure a smoother budget process.”
Thank you, Colleen, Jim, and Lori!
And finally, back to my friend, the commencement speaker. He did add a third question at the end of his speech, one that is inherent in the behavior we must demonstrate in our respective roles as commercialization leaders:
If your assumptions are not serving you, what are you doing to adjust?
Please reply to me with your thoughts regarding assumptions and their impact/use across these three areas.