If performed well, forecasting can be an invaluable tool for businesses to utilize in long-term budgeting, planning, and strategizing.
Here we’ll provide an overview of forecasting and offer some helpful tips and practical considerations to help ensure that your forecasting is effective.
First things first, let’s establish the role of forecasting in a business setting. According to Vanguard Software, forecasting is “In the simplest terms, forecasting is the attempt to predict future outcomes based on past events and management insight.”
Understand The “Now” Before Looking Ahead
One of the most common forecasting pitfalls, some businesses primarily focus on predicting future development, growth, and strategies, ultimately losing sight of the company’s immediate needs and opportunities. Forecasting is a useful process and tool, but not at the expense of current practices.
By observing and understanding customer behavior, companies can adjust their current financial processes, become less dependent on analyzing illusory future developments. Therefore, to reliably map out a trajectory for the future, a company must first consider the indicators of past and present.
“What Gets Measured Gets Managed”
“What gets measured gets managed” is a popular business adage attributed to management expert, Peter Drucker. Like most business endeavors, definitions and data are essential to measuring forecast accuracy. Unlike guesswork, quantitative forecasting requires collecting enough data from the past to create a pattern base for the future.
Different Products, Different Ranges
Different monthly demands create variables in a company’s annual sales forecast. For example, when attempting to forecast demand for November, understand that patterns from prior months – January to October as well as the same period the prior year.
It is also important to remember that the materials and resources backing products require lead-time, which should be factored into forecasting. This fact begs the question, “what timeframe ensures an accurate forecast?” The answer varies between company products and sales demand. When anticipating seasonal surges, for example, a company must avoid short lead times where, if products run out before the season is over, sales are lost. To determine what lead-times are the most relevant, a strategic review of processes and materials should be conducted.
Include the Right Stakeholders
Forecasting cannot be delegated to a financial analyst crunching away in his or her cube. Company leaders from sales, marketing and operations must be included in the process. It is crucial to understand market dynamics, competitors, pricing, supply availability and economic trends, among other things. All of this information does not typically reside with one or two people. Including a broad range of perspectives will result in better forecasting
Forecasting Should Be Worth while
An effective forecasting process is one that provides value. Some measurable forms of value include increased sales, improved customer satisfaction, increased visibility, prioritization of opportunities and a better ability to meet customer demand. If these factors, or similar, do not result from your forecasting efforts, it may be time to reevaluate your process.
Use The Right Tool For The Job
An effective forecasting tool should provide real-time feedback on performance indicators to engage sales and marketing personnel. A successful tool will equip staff, such as sales representatives and account managers, with sound data and information that is not only informative but also actionable.
The Bottom Line
There are a range opportunities to improve company forecasting. Fortunately, the areas or actions outlined above are practical and don’t require complex statistical models or investment in planning and analytics software. By evaluating your current processes using these considerations as a guide, you can ensure your forecasting is worth the time invested and produces accurate, actionable information for your team. When you tie together the right business processes and people with a simple data-driven model, you will achieve excellent results.
Consulting services, offered by companies such as Lauber Business Partners, guide companies through the forecasting process and help refine their current practices to succeed in times of growth and change.
The Lauber Difference
Our mission is to bring critical expertise and insight to organizations like yours in order to help you become more successful. Lauber Business Partners has a deep bench of experts with proven, practical business experience.
Contact us today to learn more and discover how Lauber Business Partners can take your forecasting to the next level.