Here is a brief excerpt from an article written by Doug Yakola for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Even good managers can miss the early signs of distress, says McKinsey’s Doug Yakola, who’s been running recovery programs for 20 years. The first step is to acknowledge there’s a problem.

“I’ve seen my share of boiled frogs,” says Doug Yakola, comparing companies in crisis with the metaphorical frog that doesn’t notice the water it’s in is warming up until it’s too late. As the chief restructuring officer or CFO of more than a dozen turnaround situations over nearly two decades, Yakola has witnessed firsthand how managers back right into a crisis without recognizing that their situation is worsening. “They’re not bad managers, but they’re often working under a set of paradigms that no longer apply and letting the power of inertia carry them along.” And if they don’t realize they’re facing a crisis, they won’t know that they need to undertake a turnaround, either.

He’s also heard the regrets: sometimes managers underestimated how critical their situation was—or they were looking at the wrong data. Others took advantage of easy access to cheap capital to stay the course in spite of poor performance, believing they could push through it. Still others got so caught up in the pressure for short-term returns that they neglected to ensure their company’s long-term health—or even willfully sacrificed it.

Rare among them is the executive who stepped back to review his or her own plans objectively, asking “Is this what I thought would happen when I first started going down this road?” That’s a problem, Yakola says, because acknowledging that your plan isn’t working is a necessary first step.

Yakola joined McKinsey’s Recovery & Transformation Services as a senior partner in 2011. Here, he offers ten ways ailing companies can get started on the turnaround work they need.

[Here are the first three.]

1. Throw away your perceptions of a company in distress

It’s next to impossible to come up with one working definition of a company in distress—and dangerous to think that you have one for your own company. Depending on the situation, there are probably 25 different signs of potential distress (exhibit). The problem is seldom made up of just one or two of these things, however. Rather, it is the result of a greater number of them interacting together and with other external factors.

2. Force yourself to criticize your own plan

The biggest thing you can do to avoid distress is periodically review your business plans. When you’re creating them, whether at the beginning of the year or the start of a three-year cycle, build in some trigger points. A simple explicit reminder can be enough: “If we don’t have this type of performance by this date or we haven’t gotten the following 12 things done by this date, we’ll step back and decide if we’re going down the right path, given what’s happened since our last review.”

Such trigger points should be oriented both to operational and market performance as well as to basic financial metrics and cash flow. Look at where you are as a company using basic financial and cash milestones, and then look at where you are with respect to your industry and competitors. If you’re not moving with the rest of the industry (or not outpacing it, if the industry is struggling), then your plan may be obsolete. And don’t forget to look back at your performance over past cycles to identify any trends. If you keep missing performance targets, ask why.

3. Expect more from your board

The beauty of a board is that it has enough distance from the company to see the forest for the trees. Managers often treat their board as a necessary evil to placate so they can get on with their business, but that undermines the board’s role as an early-warning system when a company is heading for distress.

It’s also the board’s responsibility to look the CEO, the CFO, and the chief operating officer (COO) in the eye and say, “OK, we like your plan. Now let’s talk about what it would take to cut costs not just by 3 percent but by 20. Let’s talk about all the things that can go wrong—the risks to the business.” Sometimes significant events happen that no one could have foreseen, of course. But in a typical distress situation, a company has usually just had 18 to 24 months of poor performance, and the board hasn’t been aware or hasn’t asked the right questions. Independent board members—truly independent ones—can have a big impact here.

The senior team at one company maintains a list of risks to the business, employees, and the plan. They review those risks with the board on a quarterly basis to ensure that they’re staying top of mind. It’s an excellent way to have conversations that you wouldn’t normally otherwise have in a business operation.

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Here is a direct link to the complete article and video that accompanies it.

Doug Yakola is a senior partner in McKinsey’s Recovery & Transformation Services, which focuses on turnarounds and financially distressed companies.

The Quarterly‘s editors would like to thank Ryan Davies and Bill Huyett for their contributions to this article.