Forecasts. Can’t live without ‘em…can’t figure out how to do ‘em. Look, only TV weatherpersons can get away with producing wholly inaccurate forecasts on a regular basis. As account managers, we can’t. The forecasts that we either prepare or contribute to are vital to critical management functions—resource allocation and management, cost control, scheduling, just to name a few. And how about Investor Relations? There’s no quicker way to kill the stock price and destroy significant shareholder value than to miss earnings expectations for a quarter. Missing those earnings and not identifying it early enough is a close second.
Most of us are constantly forecasting our book of business. And many of our companies hold us responsible in some way for the accuracy of those forecasts. Yet, we know going into the preparation that the forecasts will be wrong; we don’t know by how much, but we know there will be forecasting error.
Forecasting error comes from many different sources and each miss has its own story. But in my experience, the errors can be narrowed to three general causes—1) failure to use all available, relevant information, 2) lack of objectivity and 3) uncontrollable, unforeseeable external influences.
Because all of my forecasting errors relate to the third cause (a.k.a., “it’s never MY fault!”), let’s deal with that one first...
It’s true that there are uncontrollable, unforeseeable external influencers that can make the best laid plans go awry. Few people built the collapse of our financial markets into their forecasts for the third and fourth quarters of 2008. Who would have built the terrorist attacks of September 11, 2001 in to their forecasts for the third and fourth quarters of 2001? The only thing I’ll say about these influencers is don’t use this as an excuse for things that were uncontrolled (rather than uncontrollable) or unforeseen (rather than unforeseeable). First of all, it’s not helpful in any way to simply blame forecasting error on things beyond our control because we won’t look to do anything about it to avoid the same errors in the future. Second, you will only get away with this answer so many times with management. Third, the market doesn’t care if the error was your fault or someone or something else’s fault—the market just wants it go away and never happen again.
The right attention to the other two causes should help reduce the errors caused by controllable and foreseeable. I’ll talk about those in parts 2 and 3 of this blog coming up quickly. In the meantime, don’t flip a coin, don’t be a victim of the uncontrolled or unforeseen.