Make Sales Forecasting a Management not a Measurement Process
Sales Forecasts must not be seen by your managers as a tool for questioning or reassessing performance targets. Nor must they be used to demand sales changes or sales improvements. For example what happened in Procter & Gamble is classic example of mixing forecasts with targets. After abandoning the budgeting process for 1998-1999, the company introduced "stretch" forecasts and asked their managers to set their goals at more ambitious levels than they would have done under the old budgeting system. So managers did just that. They estimated revenues and resource requirements at a higher level which of course pleased senior management, but in the event caused great damage to the company's reputation with suppliers, customers, and shareholders. The forecasts were far too optimistic, causing costs and inventories to inflate and ending in huge write offs. The problem was that their forecasts were just that—forecast numbers unrelated to the reality of the business.
If your sales forecasts are only used to demand immediate action then over time trust and confidence will rapidly evaporate. Companies need to understand that forecasts and targets must be independent if you want to obtain not only relevant action plans but also reliable sales forecasts which allow risks and opportunities to be identified. Sales Forecast are not and should not be produced for control purposes only. Keep the wishful thinking at home.
To be useful, your sales forecasts should tell you something about the trajectory you are on compared with your business goals and thus whether further action is necessary. By completing sales forecast with this method gives you a management tool to indentify gaps rather than altering sales forecasts for a fixed target.
Businesses should also learn from their forecast record. Our clients always carries out post-mortems on their sales forecasts. The purpose is not to attribute blame but to learn if forecast accuracy is improving and how it can be further improved. For more information on Sales forecasting down load our whitepaper on
Sales & Operations Planning.