Budgets, Goals, Strategies and Tactics: What Does It All Mean?
By George Haldeman
When preparing a business plan, casino operators often confuse budgets, goals, strategies and tactics. If you think about it in terms of a hierarchy, tactics are specific initiatives designed to support particular strategies. Strategies are both broad and measurable. They are tied directly to the goals of the company. The goals are ultimately what enable the company to achieve its budget.
Understanding how each of these often misused terms affects the actions of a company will not only be additive to profit, but also enable senior management to focus on the long-term success of the company. Having a common lexicon keeps everyone on the same page and an understanding of what each term means increases the planning capabilities of all aspects of the business.
Budgets
Budgets need to be prepared to give senior management and department heads guidelines for operating and marketing properties. Clearly, capital and operating budgets are prepared separately but are both designed to give operators a financial framework for making decisions throughout the fiscal year. Capital budgets work like bank accounts. They reflect the totality of what can be spent.
Operating budgets should not be viewed the same as capital budgets. Operating budgets are guidelines. Operators need to monitor the efficacy of their programs, as well as the actions of their competitors and be flexible in terms of making adjustments. The budget implications of the adjustments must be clearly understood and be communicated to ownership groups. However, the budget itself cannot be the driver of the actions operators and marketers take. Actions are taken based on customer demands, competitive pressure and economic conditions.
Goals
A well stated goal will be short and measurable. An example may be to achieve $100 million in slot revenue for 2010, or achieve 90 percent of all room reservations online. Goals enable senior management to focus department heads on what is important, and goals give executives a starting point for developing their plans for the new year.
It is true that we are in business to make money for our ownership groups. That does not mean it is sufficient to simply say our goal is to make $25 or $50 million of EBITDA. A goal like that does not provide direction for department heads. We need to establish goals that focus management toward strategy development.
Strategies
Strategies are both broad and specific at the same time. An example of a strategy that may be engaged in support of the $100 million in slot revenue could be to grow the database by 2.5 percent per quarter. It is specific and it is broad enough to allow for multiple tactics to support it. As part of generating $100 million in slot revenue, the marketing director can develop tactics around growing the database.
There are almost always strategies from multiple departments in support of the company’s goals. Slot operations may have a strategy for replacing 10 percent of their machines during the year. This is a strategy that supports the goal of $100 million. Again, it is specific and broad enough to allow for multiple tactics.
Tactics
Tactics are akin to the initiatives that we execute on a weekly basis. Offers, events and telemarketing campaigns by player development executives are all examples of marketing tactics that can be used in support of the strategy of growing the database. In order to keep everything on track, it is important during the planning process that due dates be added to each tactic.
Tactics and the execution of those tactics are often the most analyzed, discussed and reviewed layers of the entire process. Tactical flaws are easier to correct because of the scrutiny they receive. Goals and broad strategies usually come from the highest levels of the organization and are rarely questioned, and therefore the flaws aren't as thoroughly vetted.
Analysis
A key component to ensuring your budget, goals, strategies and tactics are optimized is your ability to analyze your information. Ensuring that you have analysis processes in place in order to fully understand financial, operational and marketing data is critical to optimizing your planning efforts. Casinos have had the ability to analyze their P/L for years.
Understanding our operational and marketing data is getting better as more and more operators are investing in business intelligence tools and training analysts and department heads how to use them. If you think about the continuous improvement cycle (report, analyze, decide, act, results, reward and repeat), analysis must play a key role if we are to fulfill our obligation to maximize results.
Conclusion
Often times, they are well thought out and executed tactics that are put in place to support poorly planned strategies. Other problems in the planning process occur when unrealistic goals are established, leading to poorly constructed strategies. Making sure the goals of the property are consistent with the property's position in the market and with market conditions enables the entire process to flow smoothly.
If your property is not getting the market share it should, don't skip right to new or modified tactics. Take a look at your goals—not budget—and see if they are consistent with market conditions. If they are, take a look at your strategies. It is also worth mentioning that sometimes management becomes personally attached to their internal planning processes. Sometimes it takes a dispassionate third party to take an independent look at the process and work with management to realign the process.
In order to completely understand the property's situation and compete effectively in the market, management must dedicate appropriate resources to developing budgets, goal strategies and tactics. Under valuing any of these separate but related concepts will lead to less-than-optimal results.
George Haldeman is a 24-year veteran of the casino industry. As a founding principal of Strategic Gaming Advisors, he provides his clients with powerful analytics and proven techniques for optimizing revenue in competitive markets while maintaining a financially disciplined approach to program development. He can be reached at haldemang[at]sganv.com.