A Forecast Should Be a Tool, Not a Weight

By Neil S. Kohrn

As companies refine their plans for the coming year, the forecasts supporting those plans deserve another look.

A customer’s name and a dollar amount provide little explanation of what the business should reasonably expect. Yet those entries can become the basis for purchasing, staffing, cash planning, sales goals, and compensation.

Over four decades, Mr. Kohrn has encountered forecasts that were too vague to guide decisions, overly aggressive, or padded to make expectations easier to meet.

Improving them begins with understanding how they are used.

Separate planning from compensation

A planning forecast should provide a candid assessment of what the business should prepare for.

When the same forecast determines bonuses, sales targets, or other consequences, the person preparing it has additional interests to consider. An optimistic assessment may become a higher compensation hurdle. A conservative assessment may make a bonus easier to earn.

Mr. Kohrn developed his approach following a frustrating discussion with a client facing employee compensation issues and declining margins.

His approach separates management-approved goals used for compensation from the working forecast used for planning.

For compensation, he favors clearly agreed measures of acceptable improvement over the previous year: growth, reduced losses, or a reduction in expected losses.

A well-structured compensation plan encourages people to pursue the company’s objectives. A poor one can discourage effort and distort the information management receives.

Keeping the figures separate also allows management to compare its goals with the current forecast. Does the forecast support the desired improvement? If it falls short, what additional business or action is needed?

The goal provides direction. The working forecast shows where the business stands in relation to it.

Examine the opportunity

Mr. Kohrn designed the model for broad use across businesses, rather than for a particular company or industry. Some organizations—including certain nonprofits, government entities, and others with different purchasing or funding structures—may require adaptation.

Consider a hypothetical customer, CSI, with a potential need for Product A valued at $100,000.

Is CSI a new customer, an existing customer, or a former customer returning? Is the product for a current use, an upgrade, or a new application?

That context supports five assessments:

• Our share of supply: How much of the customer’s requirements do we supply?

• Customer satisfaction: How satisfied is the customer with the existing relationship, where applicable?

• The existing method: Can the customer continue with its current approach, and how likely is that choice?

• Scope required: Does the customer need the full proposal, only part, or a hybrid?

• Other alternatives: Which other companies, products, or methods does the customer consider viable?

Each assessment allows 0%, 25%, 50%, 75%, or 100%. Our share measures the portion of supply. The remaining four are probability assessments.

Recognize the customer’s options

Continuing with the existing method remains an option unless circumstances rule it out. A customer can recognize a proposal’s benefits and still decide its current approach is sufficient.

Alternatives the seller regards as unsuitable also belong in the assessment if the customer considers them viable. Dismissing them does not remove their competitive significance.

Put reasoning behind the number

For the hypothetical $100,000 opportunity:

Factor	Assessment
Our share of supply	100%
Customer satisfaction	75%
Continuing with the existing method	0%
Scope required	50%
Other alternatives	50%

Customer satisfaction is used directly. The other three probability ratings are subtracted from 100%. The greatest and least resulting probabilities establish the best and worst cases, adjusted for our share of supply, then averaged.

This example produces a $50,000 worst case, $100,000 best case, and $75,000 forecast.

The four probability assessments receive equal consideration. Each requires an explanation: Why was it selected? What evidence supports it? What could change it?

Mr. Kohrn first implemented the model in a database in the 1990s. Today, a fillable form can handle the arithmetic. The value remains in the thought behind the entries.

Forecasting is never finished

Forecasting is an ongoing process requiring regular review and updating.

A competing product may become more credible. Customer satisfaction may deteriorate. The required scope may change. Any development can alter the assessment and the factor defining the worst case.

Regular reviews keep the forecast useful even when no adjustment is warranted. When information changes, the reasoning and calculated output should change with it.

When results differ from expectations, the review returns to those same factors. Which assessment changed or proved incorrect? What did the customer ultimately choose?

The forecast remains a working assessment—supporting decisions, identifying gaps against management’s goals, and improving through comparison with actual results.

The forecast becomes a tool rather than a weight.

Try the approach: Download the sample forecast form and explore how changing the assessments affects the forecast.

Communications Strategists International | commstratinc.com | Neil.Kohrn@commstratinc.com | 844-CSI-TALK · (844) 274-8255