Forecasting and crystal balls!
During a coaching session recently a young, and recently promoted, first line manager posed the question, “What should I write into my business forecast and how can I be sure it’s going to happen?”. Well, as you might imagine, my immediate response to that was that if we knew that, then we’d all be lottery millionaires.
That said, in the absence of a crystal ball, there is much we can do mitigate what we think is going to happen going forward to at least try and ensure that we create a business forecast that is as accurate as possible. The world today is fast-paced, and things can change rapidly so we have to have our collective finger on the pulse at all times in terms of business knowledge and good market intelligence to get as close as we can.
We talked in general terms for a while about ‘what’ she should do and the general principles of forecasting, why it’s important and the reason for doing it. Then we focused on the really important aspect of ‘how’ she should do it. From that conversation, here are just a few items that came out of our flip chart session once we had covered the essentials of forecasting, such as understanding the need to review past performance and analysing current trends to establish what is happening right now with your business and the market in which you operate.
As stated, having a very clear understanding of the market in which you operate is vital. You must know as much as you can about your business, your competition and your customers. This will help you to stay well informed about market trends and movements that may affect your business. Knowing exactly what your customer is looking for in terms of developments for their business is essential. For example, if you produce a ‘widget’ that is 5cm high and weighs 10 ounces and you know from talking to your customers that the trend is moving towards widgets that are only 3cm high and weigh 5 ounces, then you’d better have a chat with your production department. So, know what’s happening in your market.
In the process of gathering that kind of market intelligence it is worth noting that you must also ensure the legitimacy of such information. Do your due diligence, talk to other customers and users of that product. Make sure that you are not basing an important element of your business forecast on the strength of one buyer who has a unique machine that requires smaller and lighter widgets and is highly unlikely to be adopted by any other customer.
Being aware of the socio-economic factors that could affect buying decisions will also help in this matter. Let’s take the motor industry at the moment for example. If you are a motor dealer or motor spares provider, you will be aware that as we sit here in 2018 the word ‘Diesel’ has become something of a dirty word. Global sales of diesel engine cars have dropped significantly and the trend would suggest that this will continue to decline with the advent of electrically powered vehicles and the need to reduce fossil fuels. Therefore, if you know that a force of this nature is going to affect your business going forward, then you can take the appropriate action by writing this into your business forecast.
Even if the legitimacy of your information is sound it still always pays to have a contingency for if things change dramatically in your market place. Using the above example again, not too long ago the government was keen to extol the virtue of diesel fuel and positively promoted the sale of diesel engine cars, in fact offering considerable incentives to consumers to buy them. It takes a turnabout in attitude from the government, leading to increases in taxes, which effectively penalises the ownership of diesel engine cars, and in a very short period of time that form of fuel if much vilified. It clearly pays to widen your offering, look for other market opportunities and as the old proverb goes, ‘don’t put all your eggs in one basket’.
Once you have written your forecast, your boss may actually ask you for an annual or bi-annual review. However, it would pay to review your plan as often as you think your particular industry requires it to be done to keep it relevant and accurate. Some markets move quicker than others, so you need to be sharp and stay with the pace in this situation. Others are like turning a proverbial super tanker in mid-ocean, so you have time to assess and see what’s coming from some distance away. Keep monitoring your forecast to ensure that you are on track.
In my early days as a business manager, I remember writing forecasts. As I am by nature a relatively cautious person, I was probably prone to ‘under-egging’ where I thought we might be. I guess I never liked the notion of over promising and under delivering much. As a result, I tended to take a more pragmatic view of the future. However, I worked with managers in the organisation who I noticed would often take a very optimistic view with their forecast, so optimistic in fact, that it would lean away from realistic and more towards fantasy (in my humble…). All I can tell you is that they did rather more ‘explaining’ than I had to several months down the line. Remember there’s no crystal ball, so don’t be pessimistic, but do be realistic about where you think you forecast will take you.
Writing an accurate business forecast is definitely not easy and there’s no doubt in my mind that this provides a major challenge to a lot of managers. Like any other body of work, once you have finished it and you are happy with everything you have written into the plan, it wise to then seek further guidance on what you have predicted before final submission. At the very least, someone else’s perspective is always welcome and they may just offer a nugget that you may not have considered.
Much like any journey you set out on it pays to start from the right place and so the final issue we discussed was, have we got everything in place to execute this forecast and is the overall business plan a good one that will support what we are trying to achieve. One my favourite sayings is ‘you can’t fire a cannon from a canoe’ and this perfectly illustrates the need for a solid foundation to work from and this comes in the form of your organisation’s business strategy. Get this part right and it will set you on the right path going forward with your future forecasts.
Here at Maguire Training we have classroom-based courses and programmes that can help you with producing accurate business forecasts. We are also proud to offer a versatile and intuitive suite of over a hundred e-learning modules on our website which covers a range of business management, strategy and related topics. Have a look at our elearning module ‘Accurate Forecasting’ which would be the prefect complement to our classroom-based programmes.
If you need further information then you could always call us of course on 0333 5777 144 for a no obligation discussion about your training requirements. Alternatively, simply hit the ‘Contact Us’ on any page of our website at www.maguiretraining.co.uk and we’ll get right back to you.
Either way it would be great to hear from you.