Forecasting
The Secret To Controlling Your Business
A few years ago, a large travel-management company ran an experiment. Three of its North American branches would try out a new way of running the business. The rest would continue as before. After nine months the company compared the two groups’ performance.
The results? Everyone of the three experimental branches beat its budget for direct profitability, meaning branch revenue minus direct costs. The improvements ranged from 10% to 20%. Together the three branches turned in $1.7 million in incremental profit.
Exactly none of the company’s 24 other branches even made budget, let alone exceeded it.
Regular readers of these posts won’t be surprised by the philosophy and techniques the experimental groups adopted. Employees tracked direct profitability every week. They brainstormed ideas for improving results by generating more revenue and reducing costs.
One customer-relations rep, for example, began contacting vendors to recover money lost due to hotel no-shows, cancelled flights, and the like. Over the first several months she collected $189,093. This was just one of many individual achievements, each of which was recognized and celebrated. Engagement and results both soared, eventually leading to a companywide rollout.
Forecasting is an essential part of open-book management. It enables you to control your business by anticipating risks and opportunities. And if you engage your team in the forecasting process, you’ll find that people are suddenly paying attention to the company’s performance in ways they never did before.
Here’s how to make it work:
First, focus on forecasting just one key number, the one that determines whether you’re winning. In the travel company’s case, direct profitability for a branch was easy to understand, easy to track, and directly linked to the parent company’s financial health. Your own key number could be revenues, shipments, or any other variable that’s critical to the business’s success. Tie an incentive plan to improvements in the key number and you’ll find interest skyrocketing.
Second, involve individual team members in the forecasts. A useful technique is to assign an “owner” to each line item that affects your key number.
Third, get people together weekly to update the forecast. After all, what is more important to discuss each week than whether you’re winning? Often the update is simply “no change from last week,” so it doesn’t take much time. When forecasts do change, however, there’s almost always something to be learned. Encourage people to provide a brief explanation of why they changed their forecast, so that everyone can absorb the lesson.
Finally, when actual results are available at the end of the month, compare your team’s forecasts to the actuals and discuss variances. This process encourages additional learning. It also gives you a clear idea of who is on top of his or her part of the business and who needs help.
Like most valuable endeavors, forecasting takes practice. But you can get started by trying to predict next month’s or even next week’s results. Over time, stretch your forecasting efforts to several months out. When your forecast is consistently close to your actuals, you know you have the business under control.
Forecasting empowers people. It clarifies responsibility and priorities, thereby encouraging cooperation. It gets the team thinking about cause and effect, what they can do now to improve future results or avoid some identified risk. It makes you a better businessperson, and it gets everyone on your team involved in helping your company succeed.
Source: forbes
Patty Block, President and Founder of The Block Group, established her company to advocate for women-owned businesses, helping them position their companies for strategic growth. Charting the course for impactful, sustainable, profitable businesses, the beacon is control: of your strategic direction, your money, your time, your staffing, and your ability to bring in business. The Block Group brings together the people, resources and ideas that build results.
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