For decades, companies have insisted upon forecasting as a method of planning for almost every department. New research reveals that could be costing companies more than it’s earning them.
A new study, conducted by the Institute of Business Forecasting and Planning, found the margin of error for companies that forecast and plan for marketing, inventory, sales leads and other core competencies a month in advance is approximately 16%-28%. What’s more? The average company that forecasts a quarter in advance generally experiences a 50% error rate, and the curve only gets worse from there.
Consider that for a moment: Using traditional forecasting could be causing companies to order 50% too much inventory, hire excess manpower, generate unused leads, and plan based on revenue numbers that never materialize.
The reality is, over the course of years, a lot of veteran managers have simply gotten into the habit of simply resubmitting their numbers forecast from the previous quarter (or year), or they put optimistic numbers down on paper to keep the C-suite happy, despite the fact they have no real plan in place for achieving those results. Either way, there’s a lack of fundamental research and science involved, and – in the end – an organization is the only real entity that suffers.
So the question then becomes, “What can my organization do to avoid this type of discrepancy?”
Here are some suggestions that have worked for other organizations, and may go a long way toward tightening your process and planning more effectively:
- Hold weekly meetings to go over where numbers stand in comparison to projections. Make sure every managers is present and accountable for new anomalies. Ensure they investigate unexplained changes, and follow up to ensure nothing falls between the cracks. If a projection is far too high after a few weeks, adjust accordingly. Too low, raise the bar. The goal is to slowly hone each manager’s ability to not only project, but remain dedicated to that projection over the course of months or weeks.
- Require a step-by-step action plan along with each forecast. If managers expect better results, something needs to change. There’s no two ways about it. So rather than just accept some numbers on a spreadsheet, make sure they take accountability for how they plan to improve their numbers, and remind them of those action steps if results start to dip.
- Tie the forecasts into a fun contest. Offer some type of fun reward or incentive to the manager who lands closest to his or her projected numbers every quarter.
- Create consequences. The only way managers will feel compelled to keep their numbers on target is if there’s some type of consequence in place for failing to do so.