Turning Managers Into Forecasters

Bringing managers into the forecasting process can dramatically improve performance management. But success depends on the quality of your software and on close collaboration between finance and line managers.

The less-is-more concept may work well in some situations, but forecasting isn't one of them. When today's forward-thinking companies peer into the future, more is more. These businesses have found that conducting more frequent forecasts and getting more people involved in the process -- particularly front-line managers, who are in the best position to see how each division is going to perform -- can improve the reliability of expectations. Producing forecasts on a monthly, weekly or even daily basis gives companies better visibility into how they should prepare for the future. They can make regular, incremental adjustments to their business, a key to staying on track.

Not every manager, however, is up to the challenge. While some jump at the chance to call their own shots, others find frequent forecasting to be a bit overwhelming, especially if they already feel overworked. Where do they begin? What performance targets should they focus on? How time-consuming will their new planning responsibilities be? Turning managers into forecasters is a laudable goal, and software can help the cause. But this transformation won't happen automatically just because the company buys a great new application. It takes a lot of collaboration and understanding from all parties involved.

Dueling Forecasts

Organizations traditionally produce several sets of forecasts, and these often conflict. "The marketing forecast is the most optimistic. The sales forecast is less optimistic because the salespeople must hit their quotas, and the financial forecast is the most cautious because finance is worried about who'll pay the bills," says David Axson, chief intellectual capital officer at Answerthink Inc. in Hudson, Ohio. "If manufacturing bases its forecast on marketing's forecast, they'll make too much product. If they base it on finance's forecast, they'll make too little."

So the sales department modifies marketing's forecast, manufacturing modifies the sales forecast, and finance says there aren't enough funds to support manufacturing's plan. It's a confrontational, sequential process that needs to become less combative and more collaborative, according to Axson. "Form cross-functional teams from operations, marketing, sales and finance, who all have access to software tools that leverage information about customer relationship management and supply chain management and can use that information to create a forecasting consensus the first time around," he recommends. "Eighty percent of forecasting should be dialogue, via e-mail, conference calls, face to face. The power of the forecasts comes through this interaction and integration of information from the various parts of the organization." He adds that instead of simply expecting previous months' revenue and expense trends to continue, as many forecasters do, these cross-functional teams should consider what vendors, suppliers and partners are telling them about the business.