In a recent blog Phil Morettini discussed the problems of generating an accurate forecast. True it is difficult enough to forecast over a month or two with any degree of accuracy let alone a longer period, or with a new product or new market.
However in essence a forecast is just a piece of paper (or a spreadsheet) the real question centres around what you do with it; Forecasts are used for many things ranging from the operational (stock, manning levels etc.) to investment plans, so a forecasting “error” can generate challenges in many areas.
From my point of view forecasts will always be inaccurate – the world is run on statistical rules and these always have variations – plan for these inaccuracies and you can win in an unpredicateble world:-
- Admit the Inaccuracies – to my mind a forecast without some attempt to guage the scale of the likely deviations is pretty useless. An understanding of likely inaccuracies either as upside/downside or 80% confidence limits forces people throughout the business to consider the risks.
- Characterise the Risk – is the risk a total risk, that is the orders do not happen and they are lost forever (forecast is perishable) or is it simply a timing risk (timing errors).
- All within the business can work to minimse impact of likely Inaccuracies – once inaccuracies are openly talked about then action can be taken to minimise the impact:-
- Sales and Contract can run a funnel showing interest at all points leading to the actual order.
- Materials can negotiate appropriately flexible supply deals.
- Engineering can use common standard parts wherever possible to minimise exposure.
- Production can drive down on lead time & labour content.
- Senior managers can ensure that trigger points are set on forecast so that certain actions are not taken until those triggers are met.
- Reforecast & Review – a reforecast without reviewing previous forecasts is pointless – understanding variations is key to obtaining a smuch information about the market and the offering as possible.
Forecasts are Inacurate – learn to Live with IT