Plan to Forecast?

These are the “Dog Days” of March:  we still feel winter’s chill (especially here in the northeastern US,) the next major holiday is Memorial Day, and we’re just getting a feel for the 2010 sales market.  We are also inching closer to our first tweak of the Operating Plan, or even possibly, that time when we scrap it completely.  The value of the time spent in this process can be equal to the annual lease of a Prius (even for a small company) – that’s a big investment to toss out, isn’t it?

Why do we put ourselves through this every year?

I’m not suggesting we abandon the Planning process.  Instead, I would argue that we need to lock down the Plan and not touch it.  It doesn’t matter how much we want to adjust it for <insert: market change, fuel increases, a new roof;> changing our Plan only makes us feel better, it does not improve our business!  In order to improve we need to measure progress, and the Plan is our guide and measuring stick.

But if we aren’t changing the Annual Plan, how do we adjust and respond to changes?

We should base strategic changes on periodic Forecasts (month, quarter, etc.)  While a Plan sketches out the overall strategic vision of how to get where we want to go, a Forecast is an analysis of what we really expect to happen.  To put it another way, the Plan is our mapped route while the Forecast is what we see on the road ahead: the Plan tells us that we need to head west along Interstate 80, but our Forecast tells us we have to account for 10 miles of traffic that will impact how long the trip will take (and maybe that we need to detour.)

To get the total picture, we want to continuously review two sets of numbers:  A) “Actual” and B) “Actual + Forecast”:

A. “Actual” results are reviewed against the original “Plan,” to measure (map out) progress toward our original Goal, and
B. “Actual + Forecast” versus the “Full Year Plan,” which helps make decisions that direct us back to the original Goal.  In the example below we need to either reduce $1,483 in expenses over the next 11 months, or find a way to raise the revenue, or resign ourselves to a lower level of profitability than we targeted in our Plan.


The forecaster delicately balances conservative realism with the optimism of sales and operations management. But that’s a discussion for another day…

Warning: The old way of changing the Plan to meet the Actual results is certainly a lot easier than changing your Business Operations.  But if you value the time to create that Plan, periodic Forecasting can help you make the decisions to get to your grand Vision.  Our job at Better Homes and Gardens Real Estate is to support that effort.

What are your thoughts on how the Plan and/or Forecast can be used to improve business?

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