Why Wrong is Good – The Myth of Forecast Accuracy

Forecast Accuracy 1296 x 864How important is your forecast accuracy? Do you reward your team for forecasting accurately? Or even penalise them for incorrect forecasts?

I was talking with a client the other day about how frustrated the CEO was with the errors that constantly showed up in forecasts. Her managers would update their rolling forecasts every month, based on their analysis of what was happening in the market and they never got it right. She was frustrated. Sound familiar?

I then asked for an example. One Product Manager had developed a 12 month sales forecast based on current sales resources and market share. The market was expected to grow, however their capacity to meet demand was limited, so their relative market share was likely to decline and their forecast showed it. The product manager didn’t manage the sales team. Over the next couple of months the Sales Manager then increased his team and the Product Manager adjusted his forecast upwards, based on the new sales capacity.

So what’s the problem? Isn’t that what planning is all about? Well yes, but the initial forecast accuracy of the Product Manager was way out. He’d flagged what was going to happen based on the current situation. Then the business changed tack in reaction to his forecast. But his initial forecast accuracy was shot.

So should he be penalised or applauded for this?

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John Vaughan

John Vaughan is a highly experienced Accountant and Consultant. He has experience in the pharmaceutical, FMCG, distribution, professional services, manufacturing and financial service industries. With over 25 years of commercial experience and 20 years working with the Cognos products, he...

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