| Whether you are talking about the weather | | | | business is extremely volatile like retail clothing, |
| report or a business situation, "forecasting" often | | | | your forecast may only last a single selling season. |
| comes right before rolled eyes or a dismissive | | | | If your business is more stable and cyclical like |
| wave of the hand. I have often joked that I'd | | | | heavy equipment manufacturing, a forecast of |
| love to be a weatherman, because I could be | | | | three to five years may be more suitable. |
| wrong a lot and still keep my job. Unfortunately, I | | | | Gather only as much information as you need to |
| cannot use that joke since I started forecasting in | | | | anticipate the future - It is extremely important |
| my corporate jobs. At least weathermen have | | | | to recognize the different levels of detail between |
| state-of-the-art computers to track their weather | | | | a forecast and a budget. Budgets are very |
| patterns. Business forecasters often have little | | | | detailed, often being reported by account and |
| more than an Excel spreadsheet and information | | | | department. Forecasts are less detailed and are |
| pulled together through intuition and a lot of | | | | more focused on the overall business. The devil is |
| badgering. I'm starting to envy the weathermen. | | | | in the details when it comes to forecasting. Realize |
| Business forecasting is admittedly a difficult task. | | | | that forecasts contain a high level of uncertainty, |
| We need to anticipate and project future results | | | | and that uncertainty cannot be reduced by asking |
| to make critical business decisions. If business | | | | more detail. Spend more time looking for patterns |
| forecasts are to become credible sources of | | | | in the high-level information and how that can help |
| business decision making, the entire business must | | | | you make decisions. |
| make accurate forecasting a priority. Too many | | | | Forecast based on events, not time - Forecasting |
| organizations treat forecasting as an accounting | | | | is a time-honored tradition at month end for most |
| exercise. The accountants spend days at the end | | | | businesses. Accountants will look at last month's |
| of the month compiling actual data, adjusting | | | | forecasts, determine how actual results impact |
| numbers based on new demand schedules (which | | | | those forecasts, and then adjust forecasts. |
| are forecasts themselves), applying manual | | | | Unfortunately, business does not follow a strict |
| adjustments to numbers that do not "look right", | | | | time schedule. In order for forecasts to be useful, |
| and call the forecast complete. When this occurs, | | | | you must be able to update them after a |
| forecasts often look completely out of line with | | | | significant event occurs. What if your competitor |
| reality. Several companies have stopped providing | | | | cuts capacity by 20%? What if your main supplier |
| earnings guidance to Wall Street analysts in part | | | | cannot ship a key component? If these events |
| to reduce the possibility of inaccurate forecasting | | | | happen in the middle of the month and you do |
| affecting stock prices. | | | | not forecast until month end, you will lose two |
| Forecasting must be a critical part of any | | | | weeks of relevant information. |
| successful business' plan. Forecasting forces the | | | | Prepare forecasts for multiple scenarios - Another |
| business to ask hard questions about its future | | | | hallmark of forecasting is to provide one number |
| and anticipate uncertain events. A failure to | | | | based on a series of "most likely" events. No one |
| forecast is just like traveling to Florida in March | | | | can predict the future that well. Forecasting should |
| without looking at the 10-day weather outlook. | | | | consider several alternative versions of the future. |
| You can guess about what will happen, but you | | | | If you have forecasted several scenarios, you are |
| may be unpleasantly surprised by the results | | | | more likely to react quickly and correctly |
| when they occur. However, the forecast process | | | | regardless of what really occurs. |
| must undergo significant changes before becoming | | | | Forecasting can be a valuable part of an |
| a valued part of the planning process. | | | | organization's planning process. If a company's |
| Set a realistic time horizon - Five-year plans are | | | | management trusts its forecasting capability, it |
| now a waste of time. Imagine a five-year plan in | | | | can react more quickly to save valuable |
| 2003 correctly predicting the 2008 credit crisis. If | | | | resources. Unfortunately, too many businesses |
| it occurred, it was likely done by sheer luck. While | | | | treat forecasting as a financial activity instead of |
| no business can operate day-to-day with no plan | | | | a critical business process. Intelligent companies |
| in place, you should only forecast as far into the | | | | prepare their forecasts as a key tool to anticipate |
| future as you can reasonably expect. If your | | | | the future and plan for long-term success. |