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December 8, 2005
Forecasts Are Never Right
by Sridhar Ramanathan
Most sales executives and CEOs I know rely heavily on sales forecasts as an indicator of business health. What surprises me is how often they’re surprised that sales forecasts are wrong. Forecasts are never right. The process of forecasting should help businesses focus on the key assumptions and metrics that drive business performance.
My father is a founding faculty member (now professor emeritus) at the University of California, San Diego, and he spent a lifetime in a specialized field called econometrics. He advised the California Electric Power Research Institute (EPRI) on how utilities can better match supply with expected demand years back before blackouts. Very sophisticated computer modeling went into his recommendations. In fact, one of his colleagues even got the Nobel Prize in economics for sophisticated forecasting techniques. The point here is that he was an expert at forecasting and yet he never expected to be right. The important point was to know the key assumptions and drivers that went into forecasting.
I recommend reading Philippe Lavie’s short article on this topic entitled “Forecasting—Why Bad Things Happen to Good Sales People”. I agree with his bottom line message for executives -“Develop a pipeline grading system with stages and milestones that mirror the process with auditable and measurable deliverables.” I welcome your war stories on sales forecasts.
Posted December 8, 2005 | Permalink
Posted to Sales Effectiveness
Comments
Epilogue: We've run many many sales meetings and forecast reviews since this post. And I just finished reading Robert Rubin's (former treasury secretary under President Clinton) book "In An Uncertain World," and wanted to share a very appropriate quote:
"It has always seemed to me that such single-point forecasts imply an unrealistic degree of precision, since the outlook for the future is always a probabilistic array across a broad spectrum."--Robert Rubin.
Posted by: Sridhar Ramanathan | March 25, 2008 8:50 AM
Sridhar:
Thank you for this referral. It is an honor to be mentioned along side your father and his accomplishments. Knowing your integrity and dedication to bringing value to your readers and clients, I thank you for this endorsement.
Senior executives can at times be confused between forecasting and pipeline grading and management. As difficult as forecasting can be, its accuracy and reliabiity can only be enhanced by properly grading ones pipeline and by the company managing it more carefully.
I welcome any conversation from your readers. Thank you again.
Posted by: Philippe Lavie | December 11, 2005 2:39 PM