Forecasting Get It Right or Risk Losing It All

When business planning, great scrutiny must be placed in the forecasting process and methodology as this will become the basis of all company spend. Do organisations and individuals have sufficient resources and time to assess the business needs appropriately to then execute future plans accordingly? Or are organization’s left making gut decisions and put their faith in the fact that their plans will work for their current neets? We are talking about the funds of shareholders, owners, and when we consider government we are even talking taxpayers dollars; the stewardship to spend funding in an suitable manner or risk a loss in confidence – and consequently a reduction in your firm’s worth and public assurance levels to plummet, these are the real issues at hand!

How many organizations are evaluating their forecasting methodology as well, to see after the fact if they were able to correctly forecast and spend the necessary funding for sustained growth? Formally known as Post Mortems.

Let’s review two common pitfalls that can occur and how organization’s can avoid going down this path with forecasting, which is unfortunately the ultimate path of a misappropriation of funds and demise of the future viability of a firm.

Misforecasting – either under/over forecasting the needs of the business. Let’s review both of these:

• Over forecasting (and therefore tying up resources in underutilized assets) - consequently companies are left with idle resources and funds spent on under utilized assets. In this case the project was built using overzealous plans, causing the organization to over compensate and be left with assets that remain idle. Not only have the funds been consumed, taking away funding from other endeavors but this typically causes additional operational costs that need to be incurred just to maintain the idle asset, and nowadays obsolescence may occur even before capacity is corrected causing a large asset to never be utilized. The result can be a need to selloff assets, write-offs causing large financial losses, and loss of confidence – which could take the firm in a downward spiral. Governments are notorious for this pitfall, all too often we see underutilized infrastructure (such as Freeways) being built and never realizing their forecasted traffic projections, having tied up tax paying dollars in the hopes that one day traffic will increase to make the road worthwhile.

• Under forecasting, either causing the organization to incur additional costs to get the right structure in place once the project/asset goes live (causing additional spend and resource time, taking away from other projects) or causing a loss of opportunity since there is excess demand in the marketplace and no capacity to capture this idle demand – at least from this particular organization’s point of view (competition will be happy about your misplanning as they will be right there to scoop up this demand). Under forecasting is much more ‘hidden’ than over forecasting however it is still of great concern to organizations. ‘Hidden’ in that targets set for the organization may still be met, however it’s those very targets that are under projected in the first place! This issue would be hidden if no reforecasting took place and a review of market demand/share did not occur. And in my experience, many executives that are responsible for under forecasting will try and make it seem like they did the organisation a favour in spending less, however there is this lost opportunity that must be investigated.

Both of these scenarios are quite common, however organization’s fail to plan for them causing a lot of unplanned modifications in the future to get things right. But this does seem counterintuitive doesn’t it; Failing to plan for unplanned items. However firms must be aware of the risks that are in their path, whether they want to plan for the unplanned or not. It’s not that you need to plan for the unplanned, because in that case why wouldn’t you just get your plans right in the first place?

The key is to ensure that you have considered any risk scenarios that may occur and how your plans would be impacted should those risks eventuate.

When project planning, gathering appropriate data rather than assumption setting is key. I know everyone would love to have data rather than assumptions, however it really is crucial that planners insist on getting data that is worthwhile. If you need to go out and gather the data (which takes time and additional spend), do it. Perfect data is not necessary however eliminating theoretical assumptions is very important to get closer to planning figures. Typically the funding needed to gather data is a fraction of what will be spent on the overall project and so putting this funding up front is a worthwhile spend – and all board of directors need to be aware of this and insist on this when reviewing project proposals. I cannot stress this enough, the cost to collect seemingly costly data could cause an enormous ripple effect down the road with such greater spending requirements and so spending upfront would save this need to overcompensate in the future. Pilot projects can work, and do work, however ensure that the methodology, time spent, and execution of the pilot is an accurate compass to your overall project.

Ensure that scenario analysis is performed, re-performed, and then reviewed a few more times. Scenario analysis is critical, and can be performed a multitude of times. The key to scenario analysis however is to look beyond forecasting the immediate results and how to structure operations to meet demands, and consider "once the project has been put into operations what other variables could impact business results", therefore impacting how the project was structured in the first place. Think of this as risk planning and mitigation rather than just another forecasting exercise involving scenario analysis. For an example of this, let’s say you are a workforce outsourcing company and have deployed 100 headcount for an account to execute a software rollout for a 6-month timeframe. You have performed scenario analysis to consider how many heads were required to fulfill this project in the set deadlines, however did you consider such scenarios as ‘what if this client no longer needs all 100 headcount and returns 60 headcount to you after 3 months, what alternative projects would you have to then redeploy these individuals?’ Considering these scenarios ensures that you are prepared once in execution mode to react and deliver on results. I would assume that you perform risk planning for BAU, why not risk plan for your projects and future endeavors as well.

A crucial element during forecasting is always ensuring that the vision has been considered; otherwise why pursue future projects in the first place? It sounds like common sense however is often missed, and projects go through because they have been in the project queue for a very long time. Never turn your back on the vision and each and every quarter you will be that much closer at realizing your vision.

I have highlighted to you what you and your organization cannot afford to do when evaluating projects and executing on plans. Ensuring forecasting methodology works for your organization and is tested/re-evaluated is critical to utilize all funds to their maximum capacity and continuing to expand and grow into the near and most importantly long term future to realize your vision. Many organizations forecast with very tight deadlines and spend little to no time evaluating and reviewing their forecasting methodology.

If you and your organization have forecasting concerns and need to tighten the reigns on spending, engaging professionals to evaluate and offer support surrounding your methodology is time well spent - engage Populis today for a no obligation consultation to appraise and improve your methods.