Meet Your Business Goals with Forecasting: Creating a Forecasting System

Meet Your Business Goals with Forecasting: Creating a Forecasting System

Chia-Li Chien | Aug. 28, 2014

In my previous article, How Well Do You Forecast in Business? we explored the difference between forecasting and budgeting. We concluded that regular monitoring to forecast and reforecast can help businesses achieve goals proactively.

Remember, forecasting is a process, not just a set of numbers.

But what if you’re tasked with forecasting a project, an initiative, a new product, a new manufacturing plant, a new call center, downsizing workforce due to closure of office location, a change in workforce capacity, power plant pump capacity in maintenance, payroll system changes, upgrade of an e-commerce website, expansion in China or India, etc.? The good news is that there is a forecasting process you can follow.

Let’s take a look at the forecasting process:

Step 1: Define your forecasting goals and objectives.

Step 2: Identify the type of data and where to get that data, such as historical activities, financials, industry benchmarks, industry trends, and qualitative as well as quantitative data.

Step 3: Criteria to measure your forecast–indicators to meet the forecast factors, such as reliability, validity, and advanced knowledge–along with risks that can potentially impact your forecast.

Step 4: Call to Action – Go or no-go on the recommendations.

On November 28, 2012, Costco announced it would issue early cash dividends to shareholders to avoid the Fiscal Cliff Tax Boost, according to The Associated Press. This was to help their shareholders pay a lower tax rate on their dividends— 10% or 15% instead of 15%, 25%, or the standard income tax rate. Obviously, a huge difference for investors, but only Costco could control the timing of issuing the cash dividends. So the goal was to help shareholders avoid paying the higher tax rate on dividends. Who wouldn’t want that?

Let’s walk through how Costco prepared the forecast:

Step 1: Goal – To validate the cash flow capacity and impact on overall financial health of issuing 2-month-early cash dividend by mid-December 2012.

Step 2: Data – Historical internal financial data, such as P&L, Cash Flow, and Balance Sheets, as well as the industry benchmark data, to compare how they stack up. In addition, consumer sentiment about this tax hike, along with the policy maker’s general tax increase directions. Also, impact on Costco’s brand image and its related marketing syndicated data.

Step 3: Criteria to measure your forecast – Can this forecast predict how the consumer will react during the holiday season and beyond?

Step 4: Go or No-Go for issuing an early cash dividend along with next implementation steps.

As a proud Costco member and shareholder, I can tell you that Costco did pay just over $3 billion in a special early dividend, or $7 per share, in December 2012 instead of January 2013. It boosted the overall Costco brand image, not to mention member loyalty, and best of all, they received free publicity that further boosted both stock prices and Costco’s bottom line! What a brilliant and carefully-calculated marketing campaign!

Whatever the forecast with which you’ve been tasked, engage the team of stakeholders and follow the 4-step forecast process. Remember, forecasting is a process to follow by regularly monitoring to re-forecast and stay on track with your business goals.

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