Forecasts

Forecast meetings are interesting animals. They are basically meetings where you compare what you think the numbers are going to be, with what you want the numbers to be. Over time I have had the opportunity to attend many different types of forecast meetings. Sales, Revenue, Cost, Delivery, all types of forecast meetings. I have found that there are basically two types of forces competing for supremacy at a forecast meeting: The volumetric force, which is the force working to drive the numbers toward what they are wanted to be, and the accuracy force, which is the force driving the numbers toward what they have a higher probability of being.

The volumetric force is the desire by business leadership to see forecasted numbers that are either meeting or exceeding the business plans for that particular aspect of the business, regardless of whether they are or not. This means that for example, if it is a sales forecast in question, the desire is to see the annual sales target for business to be divided by twelve (coincidentally the number of months in a year) and to see the sales forecast incremented upwards by one twelfth the annual sales target each month, which is coincidentally the usual frequency of the sales forecasting meeting.

The accuracy force is the desire by business leadership to see forecasted numbers that are relatively reliable, and have a relatively high probability of actually becoming reality. An example here would be if the average interval between order and revenue was six weeks, and the orders target was achieved with eight weeks remaining in the quarter, there is a reasonably high expectation that the revenue forecast should also be reliably achieved.

Sometimes these forces work in concert. This is where the volume of the forecast and the accuracy of the forecast are both close to, or ahead of the desired targets. This can mean that sales are above target, or costs are below target, or both. This is also where there is a very high probability of the business sales or cost performance coming in at or very close to the forecasted numbers.

In business vernacular, times when the volume and the accuracy of the forecasts are both on target are usually known as “rarefied air”. They don’t align this way very often. When they do it seems to be a foregone conclusion that either the volume or accuracy targets for the next forecast will be changed significantly.

Once the volume and accuracy targets for the forecast have been modified to the point where one or both of the variables are now in question, the business process can now be considered back in normal state equilibrium, or more accurately in the normal state of disequilibrium.

One of the primary topics of forecasts are the numbers. It is usually a good rule of thumb that if there is anything but numbers in a forecast meeting, then somebody is trying to distract somebody else’s attention from the numbers. Given the opportunity, there is a reasonably high probability that those responsible for presenting the forecast will try to add in extraneous information of some type, if their forecasted numbers do not meet or exceed their assigned targets.

Both a strength and a weakness of the forecasting process is the periodicity with which it occurs. Regular forecasts enable the business to prepare for and adapt to the forecasted changes and values that are projected. If forecasting meetings are held too often, there is not enough time for new events to occur and the forecast to change. This results in wasted effort and repeated information.

On the other hand, if they are held too infrequently, it can mean that events have occurred during the forecast interval that must now be responded to in a far shorter time. It can also mean that the results of the last forecasting meeting can be forgotten or obscured. This can result in a loss of directionality as to how the forecast is either progressing or regressing. One of the main benefits of the forecasting process is to get an understanding of which direction the specific piece of the business is moving.

This results in the potential need for at least some incremental information to be included in the forecast. Again, think numbers. The most useful of which is the comparison of the current forecast to the desired target numbers. That provides a snapshot of what the predicted versus the desired performance will be. The next useful piece of information will be the comparison of the last forecast to the current forecast. This information provides a directionality to the snapshot. Is the forecast getting better, worse or staying the same with respect to the targets?

Adding much information beyond the targets and the previous forecast can cause the information in the forecast to become somewhat garbled or confusing. I have seen forecasts where the information was compared to multiple previous forecasts, or the forecast from the same period a year earlier. This one I am not sure I understand, unless you are looking for some sort of a longer-range piece of information regarding how things have changed, or not, over a year.

To me the salient point is always to know how things are progressing towards this year’s targets. Knowing what last year’s forecast was for the same time period can be a little bit like knowing what the weather was forecasted to be for the same day, a year ago. It might be interesting to know, but it has little to do with whether or not you will need an umbrella or not tomorrow.

The purpose of forecasts is to alert you to the state of the business with as much lead warning as is possible. Do those presenting the forecast indicate that things are getting better? Are they getting worse? It takes time for changes to produce the desired effects in a business. The more time that you have to make them, the greater the effect that they can have. Does the forecast indicate that any changes are required at all?

This is where the volumetric forecasting force can work against the business. As stated, this force is the desire to forecast increasing performance, that is at or near the desired targets. But what happens if either the market conditions, or business performance are such that the actual forecast is indicating that the numbers are moving away from the desired targets?

If you actually forecast this type of event, the known decline of performance and missing of a target, you are inviting what is known as “management assistance”. This type of assistance usually comes in the form of even more forecasting meetings where the opportunity to explain what is going on is made available, that is until the forecasts improve in line with desired results.

So, what happens?

A general rule of thumb is that once a forecast is created, it cannot get worse. They can either improve, or stay the same, but having a forecast that is moving away from the target will cause much consternation. As we all know, business is a continually changing environment and set of events. Very little in business can or should stay the same. Accurate forecasts should reflect the constantly changing environment.

If you see a forecast, of any type, that is not changing with time, then you know it is getting worse.

The advantage to this situation is that management is not being directly told that things are getting worse, so they have plausible deniability to their senior management, and the business performers are not having to spend incremental time explaining what has occurred, and what they are doing to correct it. They can just get on with correcting the performance and trying to improve the forecast.

However, this approach will only work for a while. Eventually even management will have to recognize that they are being shown the same information over a prolonged period of time and they will be forced to question it. Once this type of questioning on the relative believability of the forecast begins, there is little that can be done to stop it. This is where plausible deniability ends.

As process has continued to expand its role within business, forecasting has also become the forecasting process. This usually means that instead of just having the person or team closest to, or responsible for the specific set of numbers for that specific period enter them into the forecast, they must now put them on a form where they are then routed to many other people and teams who are either only tangentially or wholly unrelated to the numbers, can then approve them before they are actually entered into what will become the forecast.

Forecasting is a critical aspect of a successful business. The ability to accurately predict present and future performance enables business groups and disciplines to take the most effective actions to benefit the business. Understanding how forecasts are put together, and being able to accurately interpret the numbers they contain are key capabilities for the business leader to learn.

It is also critical for the business leader to be able to interpret the information that the forecast contains that may not be specifically numeric in nature.

Write It Down

A very small event occurred yesterday. On the surface, it usually doesn’t mean much, but I try to recognize them anyway. The pen I had been using to take notes on my activities and calls with, to jot down ideas with, and to work out solutions with, ran out of ink. As I said, on the surface, it didn’t mean much other than I had written down enough stuff that I had exhausted the ink cartridge in one of those disposable pens that I like to use. And as I said, it was a little thing, but I noticed it.

So, why am I writing about such a seemingly innocuous topic?

I learned long ago, back in college, in a time long before Personal Computers, that the quality of what I was able to learn, retain and utilize was directly related to what I wrote down. It was just me, but writing something helped me get it.

This of course was then the only way to capture information when taking notes in a lecture. This was a time before smart phones that enabled you to play Angry Birds video games in class while they recorded the entire lecture for you to peruse at some later time when you weren’t so focused on something else. It was a time when the professor’s words were ephemeral. They were spoken and then they were gone.

I found that intently listening was not good enough. If I physically wrote them down I not only captured them on paper, I captured them much better in my own mind. Revisiting the notes was always useful when it came time to study, but it was the initial writing down of the information that provided the most value.

When it came time for studying, I found that annotating those already written notes, in effect rewriting them, helped me prepare that much better. Somehow the act of writing helped me learn and retain information that much better.

When I told some of my friends about this study and retention technique, they looked at me like I was from another planet. I still used it anyway.

I thought about this idea, which is no mean feat for a then teenager. I wondered if the simple act of writing down concepts and notes as they pertain to lectures was such an aid to my learning and retention, would it also work with my academic reading load?

Till then I, like most of my student peers, just used a highlighter to highlight those passages in text books that I thought were important. I then tried taking notes on the textbook assignments I had instead of just the typical highlighting. It seemed to work as well. At least for me, it worked. I retained and was able to utilize the information far better than when I just read and highlighted it.

These realizations drove several changes in my behavior that still stay with me today. Whenever I need to learn and retain something I write it down. I learned that I no longer wanted lose-leaf binders and discrete sheets of paper. Paper would become ragged and eventually tear and fall out. I wanted permanently bound composition notebooks so the notes would always be there.

I didn’t want large, full sheet sized notebooks as they were prone to succumbing to the abuse that repeated access would cause, nor did I want the small note card sized ones as those did not allow for sufficient information per page. Hard cardboard or plastic covers were also desirable.

The simple act of my pen running out of ink got me to thinking about all of this learning, and retention and utilization of information. I wondered if it was just me or did others utilize this practice. I noticed that some of my now professional peers in the office also had notebooks, although many did not. As PCs have continued to proliferate, this notebook habit seems to be rarer and rarer.

I have tried to replace my notebooks with my PC. There are a couple of things holding me back. First, although I took typing in high school, I am still basically a “two-finger” typist. If I really get going, the number might expand to four, but never approaches the ultimate of using all ten fingers. The second is, that when I used the PC instead of the notebook, I didn’t retain the information nearly as well. It just didn’t work as well as writing it down for me.

I wondered if this was just me, or if others had found the same thing, so I Googled it. By the way, I continue to find it interesting how in this language a proper noun, the name of a company, can become a verb. Sort of like how having a “party” has now morphed into “partying”. I guess this is also the origin of “Xeroxing” as well.

Sorry. I digressed.

I searched “information retention from writing”. Holy smokes. A ton of stuff came up, supporting and detailing just what I have been talking about.

“A Learning Secret: Don’t Take Notes with a Laptop” https://www.scientificamerican.com/article/a-learning-secret-don-t-take-notes-with-a-laptop/

“Why Using Pen And Paper, Not Laptops, Boosts Memory: Writing Notes Helps Recall Concepts, Ability To Understand” http://www.medicaldaily.com/why-using-pen-and-paper-not-laptops-boosts-memory-writing-notes-helps-recall-concepts-ability-268770

“Take Notes by Hand for Better Long-Term Comprehension” https://www.psychologicalscience.org/news/releases/take-notes-by-hand-for-better-long-term-comprehension.html

“Writing by hand strengthens the learning process. When typing on a keyboard, this process may be impaired.” https://www.sciencedaily.com/releases/2011/01/110119095458.htm

These are just some of the articles that came up on the first page, and they are predominantly from the last ten years or so. They also seem to deal with the difference in learning between typing and writing, although the last couple do deal with the cognitive and comprehension benefits of writing something down.

This was just the first page. Google said there was something on the order of one hundred and twenty-one million results to my search. Judging by the first hits, I am going to guess that the rest will be rather supportive of the position.

That position, as you might guess, is write it down.

Ah, but there are probably some out there that are at least thinking to themselves that this is all well and good, and after all this discussion about the value of writing things down, does he “write” down his blogs and then transcribe them on the computer? The answer is no. I do not. I actually compose at the computer.

I have thought about this as well.

The best description of the difference that I can come up with is that when I want to learn and retain information, I write it down. I am trying to take external information and internalize it. Writing it down is part of the process that helps me do this more efficiently.

On the other hand, when I am trying to take thoughts and information that are already internalized and express them, I find that the keyboard is actually a faster methodology. I can compose better at the keyboard.

It seems that at least in this cognitive approach technology has the benefit of improving the expression of the written word, but not so much the learning or retention of the information that it represents.

We all like to think of ourselves as somewhat unique. However, there are many things that we have in common. Understanding how we learn is something of a baseline that can also help us understand how we work, and more importantly how we can work better.

As business continues to increase in complexity and velocity, we have more and more information that we need to find ways to internalize that much faster. I think we need to understand that the tools that we employ, at least for me, are best utilized at helping in the expressing of our ideas. The taking of what we have and providing it to others.

On the other side of the same coin though, they are probably not so much good in the process of learning and utilizing of the ideas and information that others have provided via the same medium.

I think this is a point that needs to be remembered going forward. Computers and all the other forms of automation and intelligence that are out there, are better applied as capabilities that enable us to express the information that we have already internalized, but they are not nearly so good, or so helpful in aiding us in the understanding or internalizing of the information that they provide us.

If you really want to learn something, all the data and the research says that one of the best ways to do it is to write it down.

I think I’ll go get another disposable pen out of the pack now.