Sales forecasting is an integral part of business planning.
I have written on the subject of sales forecasting a number of times.
However, many of us are dealing with unprecedented levels of uncertainty. Consequently, some managers are eschewing forecasting in the face of the volatile market conditions.
For listed companies there is an added complexity to forecasting. They are fearful that if they publicly announce their projections for the year, as they usually do, then their share price might be hammered if they subsequently fail to meet their targets.
As a result, some have chosen not to give annual earnings estimates for 2009. However, as a recent article in The Economist declared, “Precisely because peering into the future is harder today than it was a year ago, managers should be using every available means to gauge what the world could look like in the coming months and to establish targets using this analysis.”
The reasons given by managers for not planning or forecasting are simply not tenable
The reasons given by managers for not planning or forecasting are simply not tenable; added uncertainty increases the need for planning, rather than diminishing it. A recent case in Ireland illustrates the difficulty people find themselves in.
It was reported in the Morning Advertiser that new CEO of the C&C Group (Magners Irish Cider) John Dunsmore had issued “a thinly veiled criticism of the Magners Cider maker’s previous management by hitting out at overstocking and overinvestment and writing down the value of the company’s manufacturing plant.”
In this instance the forecasting was imprecise and resulted in overproduction and overinvestment against a backdrop of declining sales.
Sales forecasting, budgeting and business planning are vital management activities regardless of the size of the business or level of uncertainty we face.
As the aforementioned example illustrates, sales forecasts are not just for the benefit of the business plan reader, but are a means to help managers make informed decisions.
