Revising revenue forecasts is a common occurrence for virtually every company. Sometimes re-forecasting occurs on a continual basis as sales reps update their online CRM systems. Other times, re-forecasting occurs on a weekly or monthly basis. This activity makes sense and is necessary to help other elements within the organization plan their activities accordingly. Out of fear of the reaction to outsiders, typically Wall Street “experts,” some companies do not readily acknowledge forecast revisions, and they hope that future events will work in their favor and allow them to meet their past forecasts. Simply changing the forecast is not enough if forecasting accuracy is to be improved. It is necessary to look backwards and determine why the forecast has been changed.
The obvious answer to why a forecast is changed is that some internal or external events have taken place. The events could have been out of the control of the company or sales rep or could have been due to the direct result of the company or sales rep. The questions that need to be answered are straightforward:
- What has changed?
- What is the impact on the old forecast?
- Is the changing situation likely to continue and cause future forecast changes?
- When did we discover the changing events?
- When did the actual changing events take place?
- Is there anything, in hindsight, that we should have considered?
These six questions are not intended to place blame or be conducted as an inquisition. Instead, they are aimed at understanding why the changing forecast occurred. It is safe to assume that the previous forecast was made with the best intentions and based on the best available information at the time. The process of looking backward with the six questions is intended to help to avoid similar changes in the future. They also can serve as warning markers for future, new, sales opportunities that may be able to be avoided orat least tempered in the future.
After the new forecast is made, take a moment to ask a simple question: What are the potential most likely events that could occur in the future to cause us to once again revise the forecast? In most cases, the speculated answers to this question will be remarkably accurate. It is human nature to hope that negative events will not occur. After the fact, the reaction is likely to be some variant of “Yep, I thought that might happen.” There are few true surprises in business. Avoid this trap by asking the question “Why do you think tomorrow will be different?” Followed by “What can we do now to hopefully reduce the likelihood of the negative occurrence?” Straightforwardly asking these questions can result more realistic forecasts to the benefit of everyone.
