“It's tough to make predictions, especially about the future.” —Yogi Berra

Even if you're still working with a No. 2 pencil and scrap paper, there's no reason you can't produce outstanding quality forecasts with more predictability and reliability than you've ever experienced before.

Although advanced mathematics and enormous computational power have improved significantly, few would argue that forecasting is an exact science. That's because at its core, forecasting is still mostly a human dynamic where accuracy is dependent on…

  • Asking the right people the right questions

  • Their willingness to answer truthfully and completely

  • The ability to separate the meaningful elements from the noise

  • The openness of the forecaster to suggestions of process improvement

That last point is key: process improvement. Consistently good forecasting isn't a mathematical exercise performed at regular intervals (e.g., quarterly) as much as it's an ongoing process of gathering and evaluating dozens or hundreds of points of information into a decision framework.

Then, when called upon (e.g., quarterly), this decision framework can output the best forward-looking view grounded in the insights of the contributors. While software can facilitate process structure by prompting for specific fields of information to be included, it cannot make judgments on the quality of the information being inputted. Garbage in, garbage out.

Which might help clarify what Yogi was referring: that even though baseball statisticians have over 100 years of data loaded into high-speed computers at their fingertips, the human element in what happens with the very next pitch makes it nearly impossible to forecast (with any acceptable accuracy) who will win the game, never mind the pennant.

The Benefits of Better Forecasting

As marketers, our job is to consistently prepare forecasts that help our companies conceive, plan, test, build and ultimately sell successful products and services. Marketing as a discipline benefits from better forecasting in at least two specific ways.

First, sound forecasting processes form the foundation of an “early warning” system to alert the rest of the organization to the need to rethink its market orientation. In essence, forecasting becomes the rudder that can help your company stay the course, change directions, or navigate uncharted waters with confidence. As such, marketing migrates from being a tactical player to a strategic resource for the CEO when forecasts become more accurate, timely, and reliable.

Second, better forecasting helps marketing respond to today's dashboard-equipped CEOs and CFOs who are continuously pressing for better ROI metrics and project accountability. Building confidence and credibility in forecasting helps marketers secure and allocate resources to new initiatives as the organization begins to trust that the forecasting prowess will provide a more reliable measure of future profits to be gained through today's initiatives.

Five Ways to Improve the Quality of Your Forecasts

1. Be Specific

As simple as this sounds, knowing exactly what you are forecasting is the most important step to success. It might seem pretty obvious that if you want to forecast sales, forecast sales. But what question are you really trying to answer? Unit sales? Gross margin? Market share? Customer value?

Also, what period of time do you need to cover? The longer out the forecast goes, the less reliable it is in the out years. This becomes especially important if your forecast is intended to anticipate the market size of a new category that will cost tens of millions or more to enter.

In general, forecasts fall into one of two categories: operational and strategic. Operational forecasts manage the existing organization one or two steps ahead of today's reality. Strategic forecasts look further into the future to help focus the company's long-range planning. In mature market categories (toothpaste, personal computers, pet foods, etc.) the operational time horizon could be 2-5 years, and the strategic 10 or more. But for younger or more turbulent categories (mp3 players, feature films, etc.) operational windows could be measured in months while strategic horizons are maybe a year or two at best. In the early days of search engines, Excite was seeing traffic double every few weeks and new competitors entering daily. Operational forecasting was on a horizon of 10-30 days, and strategic was only 3-6 months, since no one could realistically see any further ahead. It's tempting to try to divine the future and seek competitive advantage. But risk factors increase as certainty declines, and if your company doesn't have a “bet the farm” culture, it is likely a waste of time trying to look too far ahead.

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ABOUT THE AUTHOR

image of Pat LaPointe

Pat LaPointe is managing partner at MarketingNPV (www.MarketingNPV.com) and the author of Marketing by the Dashboard Light: How to Get More Insight, Foresight, and Accountability from Your Marketing Investments.