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Improve Your Finances with the 4 Disciplines of Execution
The Four Disciplines
I was originally introduced to The 4 Disciplines of Execution at my 9-5 job. My responsibility within our organization includes using statistical analysis and documented processes to improve efficiencies, reduce defective products, and ultimately make more money for the company.
Sounds great, right? Except, many of these initiatives did not make it out of the planning stages. Or if they did, they would die a slow, painful death out on the production floor.
Even the best of strategies are often not implemented because of lack of focus or resources. Those doing similar work as I know that strategy is much easier than execution, but knowing is not enough to change the way of things.
Enter The 4 Disciplines of Execution (abbreviated as 4DX for simplicity).
4DX seeks to set up a "winning game" (there are a fair number of sports metaphors in the book) by applying four disciplines to achieve better execution of an initiative. These four disciplines are:
Executing Financial Goals
4DX was established as a methodology companies can use to successfully execute a project. While implementing several projects at our facility, I discovered that the methodology could be applied to personal finance concepts as well.
In fact, I owe a portion of improvements my wife and I have made to our finances to 4DX. Let's take a look at each of the four disciplines and how they may be used to better execute on your financial goals:
Discipline 1: Focus on the Wildly Important
The activity surrounding your personal finances can be split into two spaces - the Whirlwind and the Wildly Important Goal (WIG).
The whirlwind is the everyday hustle and bustle. Bills are due throughout the month, items pop up that require your immediate attention (our furnace went out this month, for example), and the entire financial planning process must be balanced with increasingly less and less time in the day.
Wildly Important Goals (or WIGs) , on the other hand, are those goals that will make a major impact. Saving for an emergency fund, interviewing for a different job, switching to a different grocery store chain - these are all ways to increase income, decrease spending, or otherwise improve your financial health.
Now unfortunately, we do not live in a world where the whirlwind can be ignored. Having your car repossessed because you were funding an emergency fund instead of paying your bill, is not what 4DX advocates.
The whirlwind must be managed. Then our focus can be placed on the WIG.
Creating a WIG
As we've said, a WIG is the goal that will make a major impact. It is a step-change to your finances. In order to create a WIG, you should follow a particular format (for this illustration, we will use the goal of setting up an emergency fund).
Go from X to Y by Z.
"X" is your current situation - I do not have an emergency fund.
"Y" is your desired situation - I want a $5,000 emergency fund.
"Z" is your time frame to get there - I want the emergency fund within 1 year.
With the overall target defined, you can break it down into smaller chunks of time if that helps. Let's round $5,000 in a year to $420 per month. If you can put away $420 per month, you will hit your target of $5,000 at the end of the year.
Discipline 2: Act on the Leading Measures
W. Edwards Deming
Once you have a WIG determined (in our case, creating an emergency fund), the next step is creating and acting on leading measures.
Think of it this way. Each month you reflect back on your spending. You see that you did not contribute to an emergency fund, and there are probably several reasons why. Maybe you conclude that you couldn't afford it. Or maybe you just forgot to open the account.
Regardless the reason, it's too late to do anything about it. The lagging measure is "how much money went into the emergency fund - nothing" but we have no leading indicator. This makes it difficult to plan for anything different.
4DX can be used to develop the type of indicator we're looking for. Your indicator should predict the outcome you desire.
Developing Leading Measures
Developing leading measures can be thought of as a series of questions. First, ask yourself "given our overall goal, what battles must we fight to win the war?"
Next, ask "given those battles, what indicators will let us know if we are winning?"
In our example, let's imagine that you determine having more money in your budget will allow you to contribute to an emergency fund. You find that going out to eat too often is one item in your budget that you could cut back.
By eating out half as often as you typically do, you will have more money in the budget (the battle will win the war). If you apply this money to an emergency fund, you will see the account grow towards your overall target of $5,000 in a year, or $420 per month.
Knowing this, you can set a leading indicator: "I will reduce my eating out from 10 times a month to 5 times per month.
Now one single leading indicator may not get you to your goal completely, but several smaller indicators can.
Discipline 3: Keep a Compelling Scorecard
Don't believe this to be true? Watch a game of pick-up basketball where no one's keeping score. Then, introduce scoring - this sudden introduction of stakes changes behavior.
Goals are solidified and success is measured. Blame can be handed out if your team loses. In order to save $5,000 in an emergency fund, you will need to keep score.
How to Create a Scorecard
Keep It Simple
In Discipline 2, you determined that targeting a reduction of "eating out" from 10 times per month to 5 times per month would help you save for an emergency fund.
The scorecard should be just that - plot the number of times you go out to eat each month. It can be a tally, a bar graph, or anything else that makes it easy to see your target and how you're performing against that target.
Do not clutter up the graph. Where you go to eat is not part of the metric, so it should not be included. Same goes for time of day, who you're with, or anything else. Keep. It. Simple.
The caveat is if you determine those additional metrics are leading indicators in and of themselves. Where you go to eat might be a metric related to cost. Do not be afraid to use multiple leading indicators if it makes sense.
Here's an example of what you could do:
Make it Visible
A scorecard hidden in a drawer will not motivate you as much as one you see each day, just as a basketball scoreboard is displayed so that players, coaches, and fans alike can see it easily.
Post each scorecard in a prominent place that will remind you of your progress. Good places might be your kitchen, beside your front door, or going out to your garage.
Each of these places might be part of the decision to go out to eat - having the goals displayed can help you stick to your target!
Discipline 4: Create a Cadence of Accountability
As often as you need, set up a time to reflect and hold yourself accountable. I would recommend weekly or monthly, but no longer.
This "accountability session" has a particular structure under 4DX. It is based around the idea of commitments.
Step 1: Account on last session's commitments.
Consider how well you did versus your targets. Did you go out to eat 8 times last month? If you missed your target, you need to be aware of it.
Be honest with yourself, but do not dwell too long on your mistakes. This is meant to be an exercise to understand improvements moving forward, not beat yourself up over a failure.
Step 2: Review the Scoreboard
Step two is to review your targets and actual values. Are you performing as desired (aka, eating out 5 or fewer times during the month)?
And the big question - has eating out less allowed you to contribute to the emergency fund?
Although rare, you might find that the leading indicator you thought would impact your goal (eating out less will allow me to contribute more to my emergency fund) actually doesn't.
If you find this to be true, the accountability session is a chance to course-correct. Or if the leading indicator is not enough to move the needle, you can brainstorm additional ways to reach your goal.
Step 3: Clear the Path and Make New Commitments
Finally, determine what commitments you will make for the next week.
For example, if you went out to eat more often than you'd like, commit to not going out at all next week.
Ideally, you should pick 1-2 action items that will have a large impact on your overall target. Other ideas, while potentially valuable, should be place on hold for the time being.
Remember that 4DX is about focusing on the wildly important. Be careful not to overwhelm yourself with too many action items.
The 4 Disciplines of Execution outlines a system for improving execution, based on thousands of installations into many major companies. Having run two successful projects and using the principles to improve our finances, I have seen first hand the impact 4DX can have.
If you want to hear more about The 4 Disciplines of Execution, check out the link to the book on Amazon below!
Have you heard of 4DX, or does it sound like a promising methodology? What tips do you have for improving your execution and staying motivated? Have you had any difficulties with "life getting in the way?" Let me known in the comments below!
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