Thinking Through the Forecast

I just caught this article in the Insiders Group blog and thought I would comment about our demand forecasting experiences and how they can be applied to the midsize business.

About the sales forecast.  Or for that matter any forecast.  In my own experience this has yet to be solved generally.   We worked for years aiming to perfect the methods used.  It is often not so much about the analytical technology you can apply, but the number of contextual influences you can include.   Can you include the influence of promotion, of the economy, of competitor activity?  Depending on the industry cyclical and the changes in fashion are also important.  The article states:

" ... Instead of relying on gut feelings and hope when forecasting , top-performing companies in Aberdeen's research are 46% more likely than all others to perform regular sales pipeline modeling and simulation exercises.

On a tactical level, predictive analytics can cut down on the end-of-cycle demands for C-level support to close deals that their reps claim are "THIS close to the goal line!" In reality, there are only so many opportunities that merit high-level help, volume discounting, and the other forms of late-stage motivators.

Accurate forecasts have benefits across the business. For example, the folks who run purchasing, inventory, logistics, supply chain, operations, and even human capital management, can dramatically benefit from realistic sales forecasts that helps them more efficiently plan for their own activities post-sale. .. ." 

Good thoughts,  and I will add a few.  First is that you need a single set of forecasts, so that all the company is being driven from the same numbers.  You need to frequently calibrate the numbers, as the context of your markets change.  You also need either a corporate economist, or access to good econometric models.  This last point has changed radically in the last few decades.  When I arrived at the enterprise we had a room full of corporate economists.  When I left we had none, and had outsourced the entire econometric process.  This created several problems in our ability to deal with  changes proactively.

What does this mean for the small to midsize company?  The forecast is very important to the Midsize, even more important because minor changes in forecasts can severely hurt the small business.  A close linking between true business process and forecast is also important.  A forecast should be a key part of the business process model, so it can help direct next steps and cautions.  Make sure there is a business model, and you know where it links to sales and demand forecasts. Make the forecasts count, and continually re calibrate them.  Any technology choices should support this process and be clear to executive using the results.

This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. I’ve been compensated to contribute to this program, but the opinions expressed in this post are my own and don't necessarily represent IBM's positions, strategies or opinions.